Received job offer with broad non-compete contract clauses. Are these clauses normal and should I question their definition of 'competitor'?

Question

I got a job offer last week in a contract research organization (CRO). The company is a start-up. However, when they sent me the contract there were several clauses. One of them is if I join their company and later quit the job, I would not be able to join any other competing company in the next 4 years, or employ the skills and knowledge that I am going to know from them.

1. On the day of the interview itself, we talked about their patent and how they are going to use that in the future etc. I am wondering whether in the contract they mean that it is regarding the knowledge transfer of the patent or altogether any skill that I acquire through their company? If it is patent related then that makes sense. However, I do not understand whether it is also not allowed if I acquire any skill in their company I would not be able to use it for other companies in the future. 

2. Also, I really do not understand whom they meant as their competitors as that is not specified. If I join another company and that is a CRO too they might object.

My questions are:

1. Whether these clauses are normal or not in a company?

2. Whether I should ask them what they mean by competitors?

Answer 1

"also would not be able to employ the skills and knowledge that I am going to know from them"

This is most likely not enforceable as it would effectively stop you from working anywhere. (soft skills as 'planning a project' is also in that category!). Did they offer anything in return? If not, the clause won't have any effect (but that could depend on your jurisdiction).

"Whether I should ask them what they mean by competitors?" Yes, but that would not help a lot as new competitors could be founded in the next years.

In the current form (without any compensation during the four years (which is quite excessive), this part of the contract should be a complete show stopper.

Update:

I just read you are in Germany: A non-compete has a maximal duration of two years in Germany. HGB 74a: "The prohibition is not permitted to exceed a period of two years from termination of the employment relationship."

And as you did not mention any compensation that the company will pay you after you left the company, the whole non-compete is null and void. Check § 74 Abs. 2 HGB for details. (If you want to read more, keyword is 'Karenzentschädigung' (waiting allowance)). It normally is 50% of your last salary, but ask a lawyer.

So in short: A non-compete is ok, if it's limited to two years, you are still able to work in your field and the company compensates you during this time.

As it's a startup, I think they completely fucked up the contract and no lawyer ever had a look at it. I'm no lawyer, but I think you can sign that contract and completely ignore the non-compete later.

So if you really want to work there: Invest some euros into 20 minutes of consultation with a lawyer.

Answer 2

As most of the other answers point out, a 4 year non-compete clause is insane.

Those kind of non-compete clauses also are usually applied to high ranking employees, and translate into a fairly good/golden compensation package e.g. if they want you potentially out of the market during 4 years, the contract must state you will be paid by them for that period of time.

If those condition are not met, I would be adamant about not signing the contract at all. (and even then - in this market we are selling our know how. It is quite a career killing move signing such clausules)

Also keep in mind you are negotiating a contract/deal. You are not obliged to accept all the clauses they want as they are today. It is a part of negotiation that both sides can define what they want.

Furthermore, you can fairly ask them what means that clause, and they can fairly tell what they want. What it counts at the end of the day is what is written, and then again, the clause is fairly too broad. e.g. the course of action is not asking what that means, is demanding to define well the scope in written form, far less time, and for it to be compensated.

As a side note, that contract is a good example as people should never fire themselves before having a signed contract, for keeping a strong bargaining power on their side.

I would also possibly consider asking an attorney specialised in work law to revise the final contract before signing it. Having such a clause can be a clue there can be other traps on the contract. If they can have their army of lawyers writing a contract, so can you and should consult one.

I take from the alias you are foreign. Depending on where you are signing the contract, other legislation might also apply. Eg I was an expat several years, and I had a contract for my home country which bound me more severely with penalty clauses, and a pretty regular contract for the host country. As said before, ask a lawyer if still interested in their offer.

PS in the past I also had a pretty broad non-compete clausule in my contract, and I demanded an addenda to the contract defining pretty well what it was all about (and I got it).

Answer 3

Short Answer:

Ask that they narrow the definition of competition, or that they delete that clause entirely, or that they pay you your full wages for those four years to compensate you for the loss of income.

If they're unwilling to budge, walk away. It's not in your interest to work for an unreasonable employer.

Longer Answer:

That non-compete is overly vague and ambiguous. Does competition of a Contract Research Organization mean most IT consulting firms? Does competition include all the client law firms that might need/compete with your startup's services? Those are huge swaths of an industry that you could potentially specialize in after doing the startup, but that you would be barred from. Furthermore, imagine if your startup gets purchased, or if the startup pivots, their definition of competition could even morph as time went by.

In Germany, that clause is unenforceable, but even if that's the case why would you create that kind of trouble for yourself.

Even if it's unenforceable, once you leave that startup, you want to leave on good terms and you don't want them to go and try to sue you or sue your future employer (even on a bogus claim). The same goes if you want them to provide a good reference. That's why, you need to nip that clause in the bud right now, or else, be willing to walk away.

Ask them to compensate you for your loss of income and loss of opportunity cost during that non-compete duration. Ask them to reduce the time period. And ask them to be explicit about the companies they don't want you to work for.

What are you supposed to do during that time? Forget everything that you've learned that's industry-specific and become a cab/Uber driver for four years? And after a four-year gap in your resume in your chosen industry, who would hire you anyway? Most IT companies/law firms/CROs wouldn't. Or if they would, they'd make you re-start all the way down near the bottom of the hierarchy.

Now if you don't even want to argue the point, strike that clause out, initial the change, and return the contract back to them so they can initial the change too.

Whether these clauses are normal or not in a company?

Yes, these days, more and more companies are introducing non-competes even if they have no business doing so. That doesn't make it alright.

Many businesses just insert that clause to see what they can get away with.

And please, don't fall for the "Trust me, we're not going to enforce it." Even if that person thinks he's telling you the truth, you'll be out of luck if that person gets hit by a bus or if the startup gets purchased by a bigger company. In such a case, the proper response is to say "Great! Since you're not going to enforce it, let's go ahead and strike that clause out right now."

If it is patent related then that makes sense.

No, it doesn't. A patent protects them already. Besides, a patent becomes public information anyway when it's published by the patent office. So a patent doesn't get protection through secrecy, on the contrary.

Now, it may be that they want to protect trade secrets not covered by the patent. But let's be honest here, a Contract Research Organization is not some R&D lab, also as a CRO, most of what they do will be easily discoverable through their marketing materials or by their clients.

Answer 4

In my experience, a non-compete clause will rarely serve a legitimate purpose. You can stop one employer to join a competitor - who will then just hire someone else. The employees that you might really not want to lose, they won't accept such a non-compete clause anyway. And the ones who accept it are likely the ones who you would love to move to a competitor:-)

You will mostly find non-compete clauses in companies run by amateurs, who somehow imagine evil employees destroying their business by running to a competitor, while in reality their non-competes drive good employees away who might actually help making their business succeed.

Some people will tell you that such a clause cannot be enforced. That may be true, but you can be sued, and it costs you money and time.

The best way is to state absolutely clearly that you will not accept this non-compete clause in your contract. You might not get this job, but there are plenty others.

PS I note you are in Germany. By law, the ex-employer needs to pay “reasonable compensation” if they stop you from taking a job. For example the salary you are losing. Ask them if they are happy to pay your salary for four years, that may change their mind.

PS. Don’t argue about details like the definition of “competitor” for two reasons: First, you don’t want to accept the non-compete clause at all. Two, the more vague it is, the better for you in court should it go there. Because anything unclear in a contract is interpreted against the ones who wrote the contract.

Answer 5

They are not normal and could go badly for you. If you don't like the work or don't like the workplace then you are stuck there. Find a job somewhere else if you are not comfortable with abiding by that clause.