Academic journal article Journal of Accountancy

In a Noncompete Bind?

Academic journal article Journal of Accountancy

In a Noncompete Bind?

Article excerpt

If you find yourself out of a job in this downturn, keep in mind that restrictive covenants may limit your next move. If you are a party to such an agreement, you could face a costly lawsuit if you go to work for a competing company or firm or start your own--even if you are terminated without cause. Consider these steps before leaving, accepting new employment, or starting a competing business.

[check] Locate and review all documents you signed during employment related to any terms or restrictions after employment.

[check] Consult with an attorney who has experience interpreting noncompetition and other restrictive covenants. Deciding if a restriction against competition is valid in a particular jurisdiction is challenging because the law is unpredictable and intensely fact-based. A noncompete covenant may be unenforceable if the time limit is too long or if the restriction is too broad. Several courts have revised time limits to a shorter, reasonable time. In other cases, the covenant may be struck down altogether if it is too harsh or does not strictly comply with a state statute.

[check] Do not solicit clients while you are still employed. Several courts have enforced nonsolicitation agreements against accountants, especially when there is evidence that the accountant took the client list upon departure. The definition of solicitation depends on state law, but likely includes phone calls, e-mails, letters and personal visits to clients.

[check] Negotiate with your former employer. Discuss with your attorney the pros and cons of negotiating with your former employer before soliciting clients or opening a competing business. There is a tendency to believe the firm or company will not discover your breach. In general, litigation concerning postemployment restrictions across all industries has increased approximately sixfold in the last 30 years. In an economic downturn, firms and companies are likely to be more aggressive than ever to protect their business.

[check] Check for and calculate the expected payout from a reimbursement or liquidated damages clause. …

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