Don't Sell Yourself Short - effects on employability of non-competition agreement as part of severance pay package - Brief Article

Kiplinger's Personal Finance Magazine, August, 2001 by Courtney McGrath

CAREERS | The high price of a sweeter SEVERANCE PACKAGE.

WHAT GALL! First the boss lays you off. Then he asks you to promise you won t go to work for the competition.

That's basically what happened earlier this year to Tim Rush, a 42-year-old insurance executive from Boyds, Md. When the New York-based insurance brokerage that had taken over his firm decided to close the branch office where he worked, Rush got a pink slip.

As an upper-level executive, he was offered a special deal. Rather than the basic two weeks of severance pay that was going to most of the others affected by the cutbacks, Rush was offered nine months' pay--if he signed a broad nonsolicit agreement. That pact would have banned him from approaching his old clients for 12 months if he went to work for a competing company.

Rush's dilemma was greatly eased by the fact that he had a preexisting contract that guaranteed him six months of severance pay with no strings attached. So Rush turned down the nine-month offer and took a job with a competitor. If he had been hobbled by the nonsolicitation pact, Rush says, his new employer probably wouldn't have hired him.

What if you find yourself between a similar rock and a hard place? Should you trade your future employability for a sweeter severance package? Diane Seltzer, a lawyer in Washington, D.C., who counseled Rush, advises clients to turn down any deal that pays them for a shorter period of time than any restrictions apply. As great as it sounds, getting paid not to work has its down-side. "You have to consider that your skills are going to get rusty and your marketability will be somewhat outdated," Seltzer says.

Chicago employment lawyer James Marks goes further, arguing that departing employees should never agree to limit their job options, "unless you really want to get out of the business you're in."

Part of the deal. But what if you signed a noncompete or nonsolicit agreement when you got your present position, as is often the case for technology and sales jobs? The specific language varies, but the aim is to prohibit employees from going to work for competitors within a certain geographic area, pursuing any of the former employer's customers or raiding remaining employees.

With tech behemoths such as Cisco and Compaq laying off thousands of workers, many employees are discovering that such agreements signed in a hot labor market may limit their job options in a much leaner environment. But you may have some wiggle room.

While your employer may have insisted on a noncompete clause to keep you from bolting for a better offer, it may be willing to look the other way now that it no longer needs your services. Plus, in many states the restrictions are tough to enforce; in California, they are generally not enforceable at all.

If you agreed to restrictions when you hired on, Seltzer suggests that you ask for clemency if you're laid off. Marks, however, is leery of making such a direct request, for fear that it might raise a red flag that you are considering breaching your contract. He advises laid-off workers to be honest with potential employers about earlier agreements.

"If the new employer is aware of the agreement and sees real value in your employment, it will probably stand by you if your old employer decides to sue," Marks says. "If you don't tell them and later get served with a lawsuit, they'll cut you loose." --Reporter: CHRISTINE PULFREY