Non-compete, non-disclosure and non-solicitation agreements in the USA: should you be concerned when hiring?

Two senior manager reading a resume during a job interview, Employer interviewing to ask young male job seeker for recruitment talking in office.

European companies hiring in the USA should become familiar with three common employment contracts and their enforceability. In this article, I will explain the different types and share my to-do list I use when recruiting for my clients.

When an employee enters a new working relationship the new employer may ask him to sign legally binding agreements, the most common are:

  1. Non-compete: A contract that prevents an employee from working for a competitor after he or she terminates employment.
  2. Non-disclosure: a contract wherein an employee agrees not to disclose confidential business information during and/or after the employment period.
  3. Non-solicitation: a contract that restricts an employee who leaves a company to solicit other employees to work for or with him.

Enforceability of non-compete agreements:

There are several clauses found in non-compete agreements, more or less enforceable, depending on different factors: the state where the employee resides, the length of the restriction, and the geographical limitation. Determining the enforceability of a contract is not easy. If the restriction is too harsh, for example, it could infringe on the person’s basic ability to work and make a living hence making it less enforceable.

In order to avoid getting into a complex law suit against the previous employer or having to retract an offer, see my “to do list” below:

  1. Know your industry. If you are hiring sales people in a competitive industry chances are, they have signed a non-compete.
  2. Check the law of the state where the employee works (e.g. in California, North Dakota, Montana and Oklahoma non-compete agreements are banned).
  3. Ask a candidate, early in the interview process, if he has signed a non-compete and specifically what it covers.
  4. Ask the candidate if her current employer has a history of having enforced non-compete agreements (basically have they sued other employees that left to work for a competitor?)
  5. Finally, if in doubt, show the non-compete agreement to an attorney before presenting the finalist with an offer letter. He would also appreciate it.

Ivana Lodovici is an international Executive Headhunter, Interviewing Coach and Recruiting Consultant. She can be reached at ivanalodovici@yer.com.