8

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?

  • 6
    It sounds like a standard (and not particularly well considered) non-compete clause. Can you let us know where the job is based? Legal jurisdiction could be significant. – ItWasLikeThatWhenIGotHere Oct 21 at 15:32
  • 3
    four years for a general 'skills and knowledge' is excessive – FooTheBar Oct 21 at 15:44
  • 2
    I am based in Germany. – Sarika Sundaram Oct 21 at 16:43
  • 4
    Can you clarify in the question what a CRO is? – seventyeightist Oct 21 at 18:23
  • 3
    It can also be pretty relevant to the question knowing if you a foreign worker, and such clause can be seen as discrimination/abuse. A German worker would tell them to get lost in not such kind terms. – Rui F Ribeiro Oct 21 at 19:06
16

"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.

  • 6
    Your paragraph before the last one just points out they either are idiots, or think the candidates are, and you don't want to work with that kind of people. Life is too short. – Rui F Ribeiro Oct 22 at 2:33
  • 1
    @FooTheBar: Many thanks for this! I already asked them and still didn't get any reply. It seems they didn't expect that I would highlight this and ask them. – Sarika Sundaram Oct 23 at 18:55
  • @SarikaSundaram any updates? And could you accept this answer? – FooTheBar Nov 12 at 8:33
5

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).

  • A local shady employer in the past had a 6 month non-compete in their hiring contract without compensation (mostly for preventing sub-contractors to move to the client payroll), they lost an action in court, and now are offering a measly €300 as "compensation" just to bullet proof the clause. Never ever accept those clauses without a strong compensation backing them up. – Rui F Ribeiro Oct 21 at 18:34
  • That would not work in Germany "The non-competition clause shall be binding only if the principal undertakes to pay for the period of prohibition a compensation that for each year of the prohibition amounts to at least half of the most recent contractual remuneration received by the commercial employee." – FooTheBar Oct 22 at 7:31
  • @Rui F Ribeiro: Thank you. I also asked them regarding PTR-Compensation and what would be the amount. Still, didn't get any reply. – Sarika Sundaram Oct 23 at 18:58
  • @SarikaSundaram I would not be surprised if you won't get it. They thought they could get away with it. – Rui F Ribeiro Oct 24 at 13:05
2

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.

  • Many thanks! However, can anyone suggest me what should I do? – Sarika Sundaram Oct 21 at 16:48
  • @SarikaSundaram There are good answers here, however I would pay a consultation fee with a work lawyer. This is a too important matter that can affect your life in the long term. – Rui F Ribeiro Oct 21 at 20:47
  • @SarikaSundaram, I've amended my answer. – Stephan Branczyk Oct 22 at 0:49
  • 1
    What’s funny about a patent is the fact the idea must be explained in enough detail in order to be protected in the first place by the patent. So their competition already know how to implement the protected idea, but due to the patented idea, are unable to implement the idea in the way described by the patent. – Donald Oct 22 at 7:12
  • @Donald: Yes, precisely. The whole point of a patent is that it protects your invention, no non-compete needed. – sleske Oct 22 at 8:34
2

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.

  • Many thanks. I would follow your suggestion. – Sarika Sundaram Oct 23 at 18:59
  • "The employees that you might really not want to lose, they won't accept such a non-compete clause anyway." - you seem to place a lot of trust on a presumed correlation between excellent professional skills in one's job and excellent skills at the (employment contract) negotiation table. I'm not sure that is generally warranted. – O. R. Mapper Nov 11 at 22:56
-1

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.

  • 1
    Non competes are fairly normal, especially in start ups. Although 4 years is a fairly long time – Bee Oct 21 at 15:39
  • Thank you....yes.....that is why I am looking for suggestions whether it would be at all wise to accept this offer. – Sarika Sundaram Oct 21 at 16:45
  • 1
    as it's in Germany, the terms are illegal and the non-compete irrelevant – FooTheBar Oct 21 at 20:47

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