Eli5: how exactly can companies enforce non-compete contracts? How is it their business what company you go to, and how would they even know?
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Pretend you’re like a Chief Technology Officer of a company. You know the ins and out, the software coding, how everything functions. You’re not the CEO, but you’re pretty high up in position where you get recognition.
If you move company, you can basically copy the blueprint over from the former company to the new one. Non competes are made for these people, so that they wouldn’t be able to copy the success of a company to it’s competitors. When a big time CTO changes job, there’s articles everywhere and the former company can file a lawsuit.
This doesn’t work with low positions like janitors. The only way they can sue you is if they know you moved to a competing company, but they’ll only find out through stalking you – and they won’t waste their resources on a low position.
Carrot and stick usually, the non-compete usually has to come with some form of compensation, like money when you leave, etc. If you violate it then you owe that money back.
Other than that the only cases they can usually be enforced is if the company can prove it would do some material damage, like you had some trade secrets, etc.
The only time I seen one enforced is when company A had an on-site service contract with a client. The guy stationed at the client quit to work at company B and took the client with him (client broke the contract). Obviously company A was pissed and went after him with the non-compete since he “stole” the revenue stream
They rarely work at the employee level.
If you are the founder of a company that gets bought out, the acquiring company can successfully prevent you from creating a competing company.
If you’re just a regular employee the best they can realistically do is go after you for stealing trade secrets or clients.
Because non-competes only actually talk about divulging secrets.
There is nothing in a job-compete that prevents you from going to literally any company in the planet.
The point is if you give the new company secrets about the old one, that’s illegal….
Everything else is “free game” just like you think.
Jimmy John’s had us sign these years ago, definitely just a scare tactic. Not enforceable and wouldn’t be worth their time or money to try to track everyone, bring litigation upon them, etc.
They enforce them by suing the person leaving for the other job, if that said job does the same things they do in certain specifics. Some areas of sales are notorious for non competes and for the most part I don’t blame them.
Look at it this way. I hire you in the copper industry. You now know how I figure my margin, where I get my product, who I sell to, and potentially lists of key contacts that I’ve spend gaining over X time.
Now let’s say you’ve found greener pastures and you want to stay in the same industry. Well now there’s a problem for me on that front. You get to take that knowledge to your new job, and not only use their tools, but mine as well. Sales is cut throat in some regards. Areas where product is a commodity and where price is always changing is tough to hold onto unless you have contracts setup.
The last part is how do I know? Trust me in certain sectors of business, everyone knows everyone. Your new job more than likely called my HR for reference of employment, so they know before your probably even hired at your new job. If not someone in those area will talk or do talk to each other already. It’s not really a secret unless they head hunt you.
I’ve seen this happen at a job I worked before. Guy worked in lumber for 20 years, wanted to go elsewhere, got sued after he went into the same industry. Now it was sales so that’s why. He knew things and his clientele he built at his previous job would’ve went with him. Our place sued and required either settlement for the business lost or he couldn’t sell in that specific industry for 5 years.
Specific example but in dentistry and many medical specialties it is nearly impossible time enforce the radius and time restrictions for you to practice that are part of a typical non compete. The one thing they will ding you on is poaching patients from the initial practice.
They enforce them by having their legal counsel send a letter to the legal counsel of the new company you work for. The letter will say that the new company is employing someone in violation of a non-compete agreement. The new company usually gets spooked enough to no longer keep you employed.
So they get de-facto enforced that way
How they would know is a very good question for enforcing non-competes.
In some cases a key employee is in a visible role and is known in the industry. If they change employers, everyone knows. It can even influence the market that maybe that individual knows something is better about their new employer.
If it’s a brilliant but otherwise unknown cog in the company wheel, the old company can try to track them down through the usual social media, professional and other channels that HR often uses in hiring reviews. Maybe even get an employee who knows the former employee to practice a little betrayal and just call them and ask.
It really comes down to how motivated the previous company is to stop a former employee from working for certain competitors. Sometimes there is some revenge involved, sometimes company policy thinking to stop other employees from jumping to another ship.
Non-competes are more psychological than anything else. Some people will honor anything they sign just as a personal principal, regardless of enforce-ability. Others fear the cost of a former employer pursuing them legally.
I suspect most employers do not bother to try to enforce non-competes. If for no other reason than that they would like to poach some employees from a competitor themselves and hope not to have problems about any previous non-competes signed by their new hires.
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