For many employees, a severance package and a non-compete agreement are often intertwined. In many cases, workers are asked to sign a non-compete upon entering a new job, or in the routine course of employment. Although it is equally important for these workers to seek legal assistance before signing, in the case of non-competition agreements as a part of severance negotiations, there are a few things any smart businessperson should keep in mind.
Severance may come with strings attached, like signing a non-compete
A severance agreement can be beneficial for a worker at the end of an employment relationship because it may provide some level of financial stability for the immediate future. However, unless a severance package was part of the original terms of employment, providing severance benefits at the end of the employment relationship is left to the discretion of the company. In these situations, an employer often wants something in return for a severance agreement.
There are several different things an employer might want, such as a guarantee that the departing employee will not later sue the company. Another thing an employer may want in return for offering a severance package is a non-compete agreement.
A non-compete agreement can restrict a former employee from working in a business similar to that of the former employer for a given amount of time over a given geographic area. To be enforceable, a non-compete agreement must be "reasonable." If a non-compete agreement is tested in litigation, a Michigan court will decide what is reasonable based on a variety of factors. If the agreement excessively burdens the worker's ability to pursue his or her occupation, it will likely be found to be unreasonable.
For example, in the case of a non-compete that prohibits a worker from being employed by a competitor throughout the entire nation, the geographic scope of the non-compete would likely be deemed unreasonable. Similarly, non-competes cannot extend indefinitely; most enforceable non-competes have roughly a year-long duration. Prohibitions on the type of work that may be performed also cannot be overly broad; a non-compete that prohibits a former worker from employment with a direct competitor in a similar position may be reasonable, but a ban on any type of work within an entire industry might not be.
Asked to sign a non-compete and/or severance agreement? Run it by a lawyer first
If you are being offered a severance package that requires you to sign a non-compete, proceed with extreme caution. Your employer may wave a seemingly attractive severance package in front of you in order to distract you from the unfavorable terms of a non-compete. Remember, even a non-compete that may hold up in court as reasonable still might not be in your best interest.
If you are asked to sign a non-compete or severance agreement, you should always run it by an employment law attorney first. By signing immediately, you may be giving up important rights that are potentially worth far more than whatever you are being offered. Through negotiation, your attorney could even help you retain some or all of these rights while still getting the benefits you are seeking. And you should not fear that the company will withdraw its offer if you ask to run it by an attorney first; on the contrary, well-run businesses expect savvy workers to reference an attorney regarding such matters.