Noncompete contracts can make it tough to change jobs

It's not exactly news that it helps to have a lot of money when going to court. So when a big company sues another it can be thought of as a fair fight in a way that a big company suing a 30-year-old assistant account manager just can't.

That uneven playing field has come to really aggravate Minneapolis attorney Chris Penwell, who once gave legal advice almost exclusively to employers but more recently has tried to help workers — and almost always tells them they have no good legal options if an old employer tries to stop them from working for a competitor.

The noncompete agreements at the heart of these disputes are controversial enough that our state's attorney general is just one of many political leaders calling for scrapping or scaling them back. But Penwell isn't on board with that.

"I don't think it's tipped in the employer's favor under the law," said Penwell, a shareholder with the Minneapolis firm Siegel Brill. "It's simply that employees don't have the wherewithal to get into court."

It's a subtle and important point he's making. The law is fine. It's getting the law applied that's so challenging for workers.

Although sometimes called different things, a noncompete agreement is essentially a contract under which an employee agrees not to compete with the old employer for period of time and maybe in a geographic area after leaving the job. Practices vary around the country, and here they've been shaped by many years of case law, not the Legislature. Minneapolis business lawyer Kim Lowe of the firm Avisen Legal called Minnesota's a middle-of-the-road approach, unlike states such as California where the law is solidly behind the job hoppers.

One thing Minnesota workers have going for them: They have to be paid for agreeing to a noncompete, although parties have argued in court over what's real compensation. They also have had the courts looking out for them if employers have given them restrictions that are too broad, like a noncompete that lasts five years rather than the far more customary one or two years.

Meanwhile, the real cause for heartburn for most business owners (based on personal experience) is employees walking out and trying to take customers with them. This is particularly true for companies that only sell to other businesses, where the whole market might be just a handful of profitable customers.

A stable and close customer relationship is clearly valuable, but who really has the best claim to it? The account manager who did most of the work?

In Minnesota, it's a far easier case to make for the boss. That's who paid for training, development of the products, splashy brand advertising, airfare to attend trade shows, car allowance and so on, and that's not to mention a salary and bonus that provided for a swell upper-middle-class life.

Business owners looking to hand employees a fair agreement that covers things like soliciting customers are unlikely to get absolute clarity from their own lawyer, not when what's considered fair comes down to the call of a sensible judge.

That's one reason employers often lean to more restrictive agreements, presenting a draft to sign with sweeping provisions. They know that later these restrictions can be pared back in negotiations or waived altogether.

That's one complaint Penwell has with current practices. It's up to the employee to show that contracts are unreasonably restrictive.

In fact, one sure way for a worker to find out whether the old agreement is fair is to start work at the new place, get sued and then have the court decide.

But unless the job has C-suite-level compensation, how is what could be a six-figure legal bill ever worth it? Get the new employer to pick up the expense? What if another candidate for the same job had no such legal problem?

"It's a half of a half of a half of 1 percent who can afford it, either their employer willing to do the battle or the employee himself," Penwell said.

Penwell had just gotten off the phone with a potential client with a story he described as typical. It seems the old boss had easily accepted that this employee wanted to move on, promising that the noncompete wouldn't be enforced.

Then, stopping by human resources to complete paperwork, this soon-to-be-ex-employee found out that he would see nothing in writing to confirm what his boss said. He would be walking out not certain whether his old employer would sue over restrictions he couldn't even be certain were valid.

When he brought his problem to the new employer, his job offer evaporated.

Penwell has two ideas making this system fairer. His first is to have the Legislature rule out making employees pay their old employer's legal fees if the worker loses when seeking the court's help. Most employees have agreements with that kind of repayment provision in them.

His second idea would be more complicated to implement, and that's a court process to quickly "test" the fairness of any restrictions. Best case for employees now is winning a declarative judgment from the court, and even if successful, that easily can take many months.

Employers can get a test decision right away by getting the court to temporarily block an ex-employee from going to work for a competitor. That makes sense, too, in cases of former employees walking out with something that does real harm to the old employer, but workers have no similar route to choose.

"I'd just like to see employees to get into court as quickly as employers can get into court," Penwell said. "Employers can get into court within a week."

One of the last times we talked was over e-mail, and Penwell ended by saying he hoped his note didn't sound like a rant.

"I'm actually surprised by how much I've come to care about this issue," he added. "There ain't nothing in it for me. Just a deeply discounted hourly rate, long-term payment plans for my fees, etc. My motivation is from sitting with employee after employee and telling them their options are very limited because the employer can crush them ... and they don't have meaningful access to the courts."