Is this 3 years NCA reasonable for a 3 month contract?

Question

I am a fresh graduate in state of Michigan, and I have received an offer letter with 65% the market salary, along with a Confidentiality & Non-Competition Agreement that I need to sign. The position is Software Developer for a startup company where they are working on their first mobile application ever. The application is a calendar application and the company is very small (4 owners + 1 employee). The agreement literally states the below, which I have a concern about:

3(a) While I am engaged or employed and for a three years period after termination, I agree not to engage in any employment, consulting, advising, coding, marketing, promoting, ownership or other activity involving any mobile, web or other software application that facilitates or functions as smart scheduling, time management, social networking or that would otherwise compete with CompanyName's business, goods or services.

4(a) Both parties agree that the duration of Section 3 is reasonable, considering the typical time required to develop and incorporate concepts into software applications.

I believe 3(a) means that if I work for them, I am not allowed to do anything for any other company that develops social networking applications or time management or smart scheduling.

As a programmer, 3 years period is not a standard and terms like Social Networking is a major career kill.

Is this 3 years NCA reasonable for a 3 month contract? And does a NCA apply if I get fired let's say after I build the application?

I want the job but I want a safe and a secure approach.

Answer 1

Also Does not it mean that if I work for them, I won't be able to work for any other company that develops social networking applications or time management or smart scheduling?

You won't be able to work for any other company that does anything like that for three years (potential lawsuits). This is not uncommon, but might not make sense for you.

• For instance, it's very common for a trading firm to make an offer like:

  "You are not allowed to work for another trading firm after your employment with us for 1 year."

• Similarly, many top-management positions have probation period after their employment.

But... There's no free lunch, those positions are well paid (well above the average national income). Are you one of those?

You're only signing for a 3-month contract. Do you think it's worth? I was offered something like that, but that was a full-time position and my non-competition period was just a year. My salary was above the market rate.

Remember there is absolutely no guarantee your contract will be extended. Finding a lawyer is expensive, not worth for a 3-month contract.

Summary

This is very common, but usually come with very good money. If you aren't one of those, and the company insists, you might want to consider for another opportunity. Don't do it if you're just paid at the market rate. Three years is long. Your skill sets are highly demanded so you don't want to limit yourself for three years.

Ask the company to remove it from the contract. Consider another opportunity if that doesn't work out.

EDITED

Ok. It doesn't sound like the job is anything like competitive or highly paid. 3 years for something like this is definitely a rip-off, in particular your salary would be below the market rate. Now, you just need to make a judgement. Do you want to go for it and might land yourself into troubles later on. A startup wouldn't have resources to put you to court just because they could. You wouldn't find a lawyer for a job like this (very expensive and you don't have time). Negotiate for better conditions in the contract. If you have better alternatives, reject the offer.

EDITED

You should have added the information when you first made the post. Your wording in your original question was like "I'm not allowed to do any programming for mobile apps for three years ...". Now it's really like "I just can't compete with the company for three years.". That makes a huge difference (in my scenario I wasn't allowed to work for any related positions, competitor or not). Who are those competitors? You should really talk to the company, and define the competition.

We can't give you exact advice because we don't know about the business. If it's a just niche market then that shouldn't be a problem.

Answer 2

Also Does not it mean that if I work for them, I won't be able to work for any other company that develops social networking applications or time management or smart scheduling?

Indeed, that's what it means.

Since you are talking about a legal contract, I must start by telling you I Am Not A Lawyer and what I am writing here cannot be construed as any kind of legal advice. Different jurisdictions have different laws, including some jurisdictions that do not even honor contracts that have this kind of language in them (meaning you could sign it and they could not hold you to the clauses that are unenforceable). You are best to build a relationship with an expensive attorney early in your career and have them read each and every contract you sign. Carrying on...

These kinds of contracts are developed by opportunists. The mindset is "let's see if they sign it, there's nothing to lose".

I believe that written contracts are a memorialization of verbal discussion. If you had no such verbal discussion prior to this, you might also expect that they have or create other unverbalized expectations once you arrive. They may continue to "bait and switch" like this with expectations that your tenure depends on. This is especially problematic if you are heavily incentivized with stock options that do not vest for some time. Most new employees do not understand employment law, and these companies know they can get away with unsavory behavior, which in turn may not even be technically illegal. It's part of why companies hire the inexperienced people in the first place!

The smart thing to do in these situations is take your time. Time is money for every company, and if they are extending you an offer, it means you present a better proposition than anyone else they would extend the same offer to. Use this to your advantage. They would like you to start yesterday. You are waiting for them to remove clauses for future time after the relationship ends that they are not compensating you for.

When you present these issues to them, they will say "oh, our lawyers wrote that in, it is standard". Nothing is standard. Every lawyer sends a Word document that can be edited by any executive.

Your path should be that of friendly patience and wait them out until they (for instance) either remove "social media" or reduce the term to one year. There are many other ways to indicate that this does not fly (such as a "golden parachute"), but these are difficult to negotiate. If they refuse to budge, offer for them to think about it and call you back. If they don't call you back, you probably avoided a lot of future misgivings.

Remember that time is all we ever really own in the world. The rest is just borrowed. If you have people calling you right now, more will surely follow in short order. Congrats on being in demand!

Answer 3

This is an extremely bad deal for you.

You're being offered a significantly below market rate salary that is only guaranteed for the three months your contract is valid. You're going to be working as a contractor.

If you accept that agreement, upon completion of the three month contract you'll effectively be locked out of a significant portion of the web development market. The NCA terms are also quite generic. Does it include all companies the start-up considers to be competition globally? Just in your country? In your state? Other states? It doesn't say. So you can assume it's a global blanket ban.

It also specifies that on termination you will be bound by the terms. If they decide not to keep you after the three month contract is up, what then? What if you mess up and make a serious mistake that causes you to lose your job in the first few weeks? You're going to have to rule out a significant portion of the job market in that situation.

The terms and length of the terms are completely unacceptable and also applicable for much too long a period of time.

You should be looking to be compensated for the NCA, an NCA is supposed to be a give-take. They're not just a 'standard' clause, they're extremely valuable to a company as they restrict employees from taking their services else where.

You should be looking to be paid the market rate or slightly above, and reduced period of time on the NCA. As you're contract is essentially a temporary one you should even consider informing them that you're not willing to be bound unless you're employed permanently.

Further, you should agree that if the company lets you go through no fault of your own (e.g. the start-up fails) that you will no longer be bound by the terms.

You state that "I believe 3(a) means that if I work for them, I am not allowed to do anything for any other company that develops social networking applications or time management or smart scheduling."

You're forgetting that "or that would otherwise compete with CompanyName's business, goods or services."

Does the contract specify competitors or what constitutes a competitor?

Anyway regardless, get them to meet you half way and most importantly, get them to compensate you for the NCA.

After all you don't want the sword of Damocles hanging over you if you get nothing in return. For all you know, the company might use your services offer you a full-time role without offering you decent compensation in return knowing full-well that you'll be trapped working for them in the area that you've developed your skill-set, which you're legally bound not to take else where for three years.

If I were in your shoes, I'd try to negotiate and turn the role down if they are unwilling to negotiate.

Answer 4

The non-competes I've signed have been 6 months or a year, I think that's pretty typical in the software industry. I have worked for a defense simulation company and gone directly to another defense simulation company with no ramifications. I think it has to be a very similar product to make it worth their time to go after you even if you technically violate the non-compete...they need a reason to suspect you might be taking their technology with them. It's not really in their interest to spend a lot of money to maliciously keep you out of work.

Something different, but similar to keep an eye out for: I went to work for one company which tried to make me sign a paper giving them claim to any and all software I developed which working for them + 6 months after. Even if I developed that software on my own time on my own computers at home. I refused to sign that and was hired anyway. Negotiate.

Answer 5

You are offered 65% of market value, plus a ridiculous non-compete agreement, by a startup.

The non-compete agreement could only come from a startup with no experience whatsoever. It's something that no sane person would sign. And that's why no experienced company would ask for it. Someone thinks this 3 year non-compete agreement would be a good idea, and completely failed to see this from the employee's point of view.

What's in it for you? In Germany a non-compete is only valid if the employee is offered a reasonable compensation. I'd suggest a counter offer where they pay say 2/3rds of any salary that you miss out on because of the non-compete.

Answer 6

Does not that sound very general and long period? Especially that the contract I am signing now is only for three months, and to be renewed after that.

Three years sounds rather long to me. I have typically only seen 1-year non-compete clauses in my locale.

The duration of the non-compete usually has nothing at all to do with the duration of the contract.

Also Does not it mean that if I work for them, I won't be able to work for any other company that develops social networking applications or time management or smart scheduling?

It does mean that (for the period during which you work for them and for the three years that follow).

You get to decide if these terms are acceptable.

If they are, then just sign it and plan to abide by the terms. If they aren't acceptable, you can attempt to negotiate them to acceptability. Unless you are bringing something highly desirable to the table, it's unlikely they will change the terms just for you.

If these terms sound onerous, or if you really want to work for a competing company within the next three years, don't sign this form. Just move on and find a different job.