Beware The Trojan Horse Of "Rewards" With Noncompetes

Your boss and HR deliver the great news: the company loves and appreciates you. It wants to reward you. Maybe they're "giving" you a retention bonus, stock, options, or some other reward that sounds like a heap of money for free. But beware. It may be a Trojan Horse. If it sounds too good to be true, it could be really, really bad.

Lately, I'm seeing more and more so-called "rewards" coupled with noncompete agreements. Employees that were free to leave and work for a competitor are being lured into signing an agreement that they won't work for a competitor for a year or two after they leave, or won't solicit or work for clients for a year or two. Some say you can't contact clients at all, which can make Thanksgiving really awkward if your son is one of your customers (don't laugh - an employer actually tried this with someone).

Here are some things to watch out for when you're handed a reward package that requires you to sign a lengthy contract:

What is cause for termination?: Sometimes the company will tell you that this contract means you can only be fired for cause. That they will have to pay you out for months or a year or more if they don't have cause. But does that really protect you? Better look at how it defines "cause."

If you can be fired for "poor performance," who decides what is poor? Do you get written notice and an opportunity to improve? Is it subjective or objective? If it's subjective, you aren't protected much at all.

If "cause" is "violation of company policies," that sounds reasonable, doesn't it? But when is the last time you read those policies? I bet there is a policy saying you can't use the company email for personal use? Do you email your husband to say you're running late or to remind him to pick up the kids? You just broke policy. You can be fired without notice and get zippo.

If you signed a noncompete agreement, you may be bound by it even if you're fired without notice or severance. It's better if you can negotiate "cause" that is real, such as if you're fired for embezzlement, fraud, failing to perform specific duties, conviction of a crime involving dishonesty or other measurable offenses.

What does it say you can't do after you leave?: If it says you can't contact vendors after you leave, then you may not be allowed to shop at, say, Office Depot if they buy their paper from the office superstore. Can you buy a copier or printer when you leave? Maybe not if they do business with Canon or Ricoh. Can you fly on a plane? If they do lots of corporate travel you may have to take a bus for a year or two. Sure, this all sounds ridiculous. But I'll tell you truly that there is no argument too ridiculous that your employer couldn't find some management-side lawyer to make the argument if they wanted to give you a hard time. Try to negotiate reasonable restrictions before you sign. If there are key customers they don't want you to call on, try to have them listed. If you worked in the industry for 20 years before you came to the company, make sure you aren't signing over your right to call on your contacts.

Can you afford not to work in your industry for a year or two?: Let's say it says you can't work for a competitor or a customer for a year or two. That means you're sitting out of the industry with a large gap in your resume. Even if they offer to pay you to sit out that long, unless you're getting ready to retire that gap can hurt you way longer than the noncompete period. Employers don't like to hire the unemployed. The stats on hiring the long-term unemployed are terrible. So while sitting on a beach for a year or two sounds tempting, are you sure you will be employable when you're ready to go back to work? A better clause to negotiate is one saying you won't be bound if you're fired without cause, and negotiate a reasonable definition of cause, and negotiate for a reasonable restriction like 6 months that will allow those contracts you were working on to go stale but not your skills.

Beware the vesting: If it says you'll get $200,000 in stock, but it vests 10% a year, then you could sign, be fired a week later, they could take back the reward, and you may still be bound by the noncompete in some states.

Sometimes, it's best to say no to a reward even if you think the company is well-intentioned. If, when you point out these problems, they won't work to address your concerns, but claim they would never enforce such a provision, maybe that's true and maybe that isn't. Assume it will be enforced before you sign and assume that it can be interpreted in the most ridiculous way possible. The time to negotiate a reward agreement is before you sign. If you say no to it, sometimes you can negotiate for something you'd rather have, like more vacation time, real stock that isn't on a vesting schedule, or a truly non-at-will contract.

If they won't negotiate and get hostile when you refuse to sign, maybe their intentions aren't so good. You could be headed for a reorganization or layoff. That reward may be a Trojan Horse. Beware bosses bearing gifts.