The attorneys at Outten & Golden negotiate and draft non-compete and non-solicit provisions so that our clients—executives, partners, or professionals—are protected from unfair restraints on their careers in the future. We focus on protecting our clients’ rights while allowing them to fulfill their obligations to the businesses they lead. We strongly encourage our clients not to sign or agree to any restrictions on their employment without consulting with our team. Consulting with our lawyers before, not after, employment begins can often prevent problems.
Non-compete and non-solicit provisions in contracts, often called restrictive covenants, are restrictions on an individual’s employment or partnership both during employment with a particular employer and after that employment ends. These restrictions can prevent an executive, partner, or professional from working in his or her own industry for a period of time after employment ends, or from soliciting employees, clients, or customers after leaving employment. In some cases these restrictions can also prevent an individual from starting a new business and from hiring former employees.
These covenants are often in employment agreements but are also found in equity agreements, stock and option grants, and in employee handbooks. They can also be stand-alone agreements that are signed before and often during employment without an opportunity to consult with counsel. In addition to written contract provisions, some states have laws that define and enforce restrictive covenants even without a written agreement based on common law duties of employees and executives such as the duty of loyalty or fiduciary duties.
If a dispute arises concerning a non-compete or non-solicitation provision, an employee, executive, partner, or professional can wind up as a defendant in a court action seeking an injunction or a temporary restraining order, which could prevent that individual from working for a new employer or opening a new business or practice; he or she could also be sued for breach of contract. These actions can be very costly and can happen immediately upon a suspected breach of restrictive covenants. Consulting with our attorneys before, not after, these potential breaches occur can often head off this kind of lawsuit.
Our attorneys in the Executives & Professionals Practice Group have expertise in restrictive covenant laws both nationally and internationally and lecture frequently on this subject. They have published numerous articles and, most recently, a book on the subject of international restrictive covenants and trade secrets.
The FTC made headlines last month when it announced its Proposed Non-Compete Clause rule, which would render unenforceable and void non-competes nationwide. While the press and FTC have provided examples of the use of such clauses in the context of security guards and sandwich-makers, there is scant information available on how the proposed rule would impact agreements in the commercial real estate industry, where contracts with brokers and executives are paramount to setting the parties’ compensation terms both during the relationship and after it ends.
While non-competes have not historically been included in in agreements with qualified real estate agents, their use has grown more common in recent years as large brokerage firms have consolidated the market. The use of non-competes in this context are exactly what the FTC is attempting to protect, as it results in less competition, driving down the rate of compensation for brokers and decreasing options for clients and investors. Further, senior brokers and executives of brokerage firms may be granted equity or quasi-equity compensation that is tied to a non-compete provision, which it particularly challenging for them to move between firms.
Below are a series of answers to frequently asked questions by brokers and executives in the commercial real estate industry who are trying to make sense of the FTC’s proposed rule and its impact on their current and future obligations.