Fired, then asked to sign NDA, non-compete for severance pay. To sign or not to sign... that is the question?

[horn4life 3,838]

Luckily it's not me, but a friend of a friend found himself in this situation getting fired when he was expecting a bonus.  Then the owner comes back and offer 3 months pay to sign the non-compete and sort of NDA, where he agrees not to speak badly of the owners.  Like I said the story is second hand, but that's the gist of it.  It sounded like the agreement was some internet cut and paste stuff.

I know that Non-competes are basically worthless unless specific geographically and specific time period are included.  So I am pretty sure that part of the agreement isn't worth the paper it's printed on.  However, I have no idea about whether or not the NDA/speak no ill might actually have some teeth even if signed after the fact?  Even if duress may be a factor, it's something I just know nothing at all about.  My understanding is the "severance" would be around $25,000, and includes returning a laptop that was a combo work/personal computer.  The guy has young kids and that cash would be important to a less panicked work transition.  My first thought is just sign, take the cash and move on.  As I don't think he really wants to compete with the owner, former boss, as he hasn't been researching and planning to do so the past two weeks so for me that is a moot issue.  So what about signing an after the face NDA?

My suggestion was to run the cut and paste document he is being asked to sign by an attorney.  Just for peace of mind. Then sign the thing and take the money.  I think the only concern is that if he signs he might face getting sued, and have his former boss try to bleed him out with legal maneuvers on the NDA.  I would feel better about signing and netting $24K with $1K going to the attorney, rather than simply signing.  (If I had any thoughts about potentially competing or using my former contacts.)

Anyhow just wondering your thoughts since some of you guys actually have brains that are useful! 😉 And no he is not gonna post pics of his wife!  Like I said this is a friend of a friend so I don't have a lot of details, just looking for your general thoughts.

[RPM 26,660]

What field are we talking here? Is one of their names Dan or Jake? Definitely run it past legal before signing anything. Non-competes are ludicrous.

[immamac 44,389]

Was he fired for cause or just fired so they could shaft him? 

[Pato del Muerto 53,557]

It’s standard. Non-competes do have to be pretty narrow to pass muster, but you’d have to be willing to fight that out in court if you get a new job and they sue for breach of NC.  I think Texas does not like them in general as a right to work state. 

[horn4life 3,838]

22 minutes ago, immamac said:

Was he fired for cause or just fired so they could shaft him? 

He was sort of the technical brains of the operation with an older owner. The older owner he thinks either wants to sell the business, or give the business to one of his kids as an income source. But that's just speculation.  But not for cause.  He's been there for like a decade

21 minutes ago, Pato del Muerto said:

It’s standard. Non-competes do have to be pretty narrow to pass muster, but you’d have to be willing to fight that out in court if you get a new job and they sue for breach of NC.  I think Texas does not like them in general as a right to work state. 

Yeah the non-compete is bullshit.  And would be dismissed as no specificity at all. And yeah the concern is he could get money whipped in court, regardless of the merits.  IMHO that's the main reason for most companies to do a non-compete as fighting deeper pockets as in individual is(should be) a concern when signing anything quite frankly.

Personally if I thought I could make $25K by competing with the old scrooge, I would be getting after it out of a burning desire to fuck that mofo over.  I got fired one time, and I was the sales guy keeping the fucking lights on with my high profits and prompt payment fro customers.  The guy that fired me went belly up in less than 6 months.  It was funny that he thought he could take my accounts.

Anyhow that's the path I would go.  Fuck him.  To me it's either that, or just sign the agreement and move on.

 

Edited January 16 by horn4life

[immamac 44,389]

5 minutes ago, horn4life said:

He was sort of the technical brains of the operation with an older owner. The older owner he thinks either wants to sell the business, or give the business to one of his kids as an income source. But that's just speculation.  But not for cause.  He's been there for like a decade

Yeah the non-compete is bullshit.  And would be dismissed as no specificity at all. And yeah the concern is he could get money whipped in court, regardless of the merits.  IMHO that's the main reason for most companies to do a non-compete as fighting deeper pockets as in individual is(should be) a concern when signing anything quite frankly.

I would tell him to negotiate terms and dollar amount then. This is probably stupid because he’s already terminated and it’s usually the other way around, but he can likely say they terminated him wrongfully if they are offering him severance post haste after a supposed clean separation already. 
 

non disparagement is extremely common for up to 2 years. NDA shouldn’t be signed unless it’s for the agreement itself and reaffirming knowledge of prior NDA still being in effect post termination. 

Non compete should be removed entirely. He was terminated, they can’t terminate and then also enforce a non compete. 

[horn4life 3,838]

Oh yeah he already tried to negotiate more money but no movement there.  So to me it's either compete or take the money.  Not a lot in between.

[immamac 44,389]

3 minutes ago, horn4life said:

Oh yeah he already tried to negotiate more money but no movement there.  So to me it's either compete or take the money.  Not a lot in between.

I mean your buddy needs to learn contracts or get a lawyer. I wouldn’t sign shit I didn’t want to follow to the letter. When I left drillmap I told them to shove the severance up their ass over the non disparagement clause because I was gonna talk mad shit about how they fucked everything up. I was absolutely right for doing that and it was worth every penny. 

25k to stfu and go away isn’t bad if the NDA isn’t restrictive beyond the agreement itself and the already NDA stuff from his work prior to separation. 

[RPM 26,660]

The company is the one that's worried or there wouldn't be strings. Move on, get a better job (they're everywhere right now) and make 'em sweat.

[DalTxHornFan 3,130]

Maybe there is not enough money at stake to go crazy about, but make sure that the severance agreement uses the same language about the departing employee that is used about the company (Joe Blow and XYZ jointly agree....yada, yada) they shouldn't be able to talk shit about the former employee also.  Future job references should be addressed, as well.

[horn4life 3,838]

17 minutes ago, DalTxHornFan said:

Maybe there is not enough money at stake to go crazy about, but make sure that the severance agreement uses the same language about the departing employee that is used about the company (Joe Blow and XYZ jointly agree....yada, yada) they shouldn't be able to talk shit about the former employee also.  Future job references should be addressed, as well.

I said any agreement should include a glowing reference as well. As that's something you can simply require them to do that is fair play in my mind.

And I also think that if the guy hasn't been thinking about business cards, websites and manufacturers he doesn't want to compete.  So take the money and move on, but stipulate the glowing reference letter that I would write.  

[DalTxHornFan 3,130]

3 minutes ago, horn4life said:

I said any agreement should include a glowing reference as well. As that's something you can simply require them to do that is fair play in my mind.

And I also think that if the guy hasn't been thinking about business cards, websites and manufacturers he doesn't want to compete.  So take the money and move on, but stipulate the glowing reference letter that I would write.  

Not sure if that is a hill to die on.  It isn't uncommon for companies to have just a standard "name, rank, and serial number" reference letter for former employees.  Maybe somebody like @troph could weigh in?

[troph 25,238]

I'd make sure he wasn't terminated in a manner that's unlawful. very few reasons in Texas, but the federal laws can apply above 15 employees - so race, religion, ethnicity, age, gender, sex, etc. Best evidence is systemic practice looking at who else is fired, who is retained. sounds like a small company though so I'd expect squat.

I'd make sure the bonus isn't written in a handbook or policy as already having been earned and payable even though terminated.

make sure all expense reports are submitted and paid.

make sure you get COBRA or state continuation compliance if not pay.

$25,000 / 3 months isn't a lot for a non-compete, but if he's dead ass certain he won't compete that's free money.  don't assume it's not enforceable. Texas courts will ABSOLUTELY enforce them, and even rewrite them to be enforceable when they go too far. devil is in the details on whether it's enforceable yes territory, time and scope are important but so is the company's need to prohibit competition and other factors. pay to sideline a guy isn't really what carries the day.

NDA - yes get industry knowledge, general know how and relationships excepted. you can't walk out of the company with a customer list but you can't be prohibited from talking to someone just because an NDA.

non-solicitation - you can be prohibited from talking to certain people - employees and customers if you sign a non-solicitation - this one can be more dicey than the non-compete in terms of impact on your friend. read carefully.

non-disparagement - fine, make it mutual.

good reference? good luck. I mean if you can get it, get it. most will simply confirm you worked there and dates. non-disparagement would prevent saying bad things. being fired makes a good reference hard to rely on, try and get it. don't expect it.

property - if the computer was purchased with his money it's his, but he has to work through getting work stuff off. if it's company purchased, he's got to delete or transfer his info and give it back no matter what. un-comingling data can be the basis of a trade secret lawsuit for larger dollar amounts in and of itself.

what else?  I think that's most of it.

[troph 25,238]

oh and non-competes are starting to fall out of favor, the feds may ban them all together soon. FTC is in the middle of deliberating a ban on them all together (but then litigation will ensue, expect a SCOTUS case on that ban if it comes down). I've always hated them. I tend to push to a non-solicit of employees, customers and key contractors if I can, situation is fluid. $9.95 please, oh wait, decimal in the wrong place. $995 please. thank you.

Edited January 16 by troph

[TwiceHorn 32,092]

3 hours ago, horn4life said:

He was sort of the technical brains of the operation with an older owner. The older owner he thinks either wants to sell the business, or give the business to one of his kids as an income source. But that's just speculation.  But not for cause.  He's been there for like a decade

Yeah the non-compete is bullshit.  And would be dismissed as no specificity at all. And yeah the concern is he could get money whipped in court, regardless of the merits.  IMHO that's the main reason for most companies to do a non-compete as fighting deeper pockets as in individual is(should be) a concern when signing anything quite frankly.

Personally if I thought I could make $25K by competing with the old scrooge, I would be getting after it out of a burning desire to fuck that mofo over.  I got fired one time, and I was the sales guy keeping the fucking lights on with my high profits and prompt payment fro customers.  The guy that fired me went belly up in less than 6 months.  It was funny that he thought he could take my accounts.

Anyhow that's the path I would go.  Fuck him.  To me it's either that, or just sign the agreement and move on.

 

Pretty much regardless of the specific terms of the covenant not to compete (enforceably specific, unenforceably vague). under those circumstances no court (certainly no court of appeals) in Texas is going to enforce that.  

The consideration (payment, quid pro quo) for the covenant has to be related to the covenant or give rise to the protectable interest.  It doesn't in that scenario, it's just a payment.  The employment and any trade secrets or value of the employee is gone now and there's no protectable interest to support the covenant.

Between that and the vagueness of it, sounds like a pretty defendable case.  

Talking shit on a former employer has pretty limited value, I'd say, such that any sum of money probably outweighs it.

So, yeah, I'd do it, even though there is some small risk of a cost-of-defense associated with the covenant.

[thunderlounge 8,439]

Mostly answered already, so I’ll refrain from repeating above.

I just went through similar and it sucked a fat one. 
 

Speaking of COBRA, it fucking sucks. It shouldn’t, but insurance companies love to find one tiny thing (which can be false) to not pay. 
 

I fought with them for 9 months and got nowhere. 

[horn4life 3,838]

Thank you all for the responses!

Great advice and input.  I'll try to find out the final resolution and get back.  

[troph 25,238]

where's my ...

[Dbeasy 15,611]

8 minutes ago, troph said:

where's my ...

Awesome, the retainer must be only $200. 

[MonkeyDoughnut 10,808]

He's been there a decade, was expecting a bonus, got fired, being asked for a Non-compete/NDA and given $25K for it.... Something just not adding up in this story.

My money is on the owner has been doing something shady and is quickly trying to tie up loose ends.  Take the money and run IMO.

[Brew 3,050]

Out of curiosity, if he signs a noncompete as part of a severance why would it not hold up? He’s taking the cash and signing the agreement which at least in surrounding states to me would be enfoclrceable. I get the issues on the front end signing at employment, but this seems like a different deal.

[HouTex 1,943]

1 hour ago, Brew said:

Out of curiosity, if he signs a noncompete as part of a severance why would it not hold up? He’s taking the cash and signing the agreement which at least in surrounding states to me would be enfoclrceable. I get the issues on the front end signing at employment, but this seems like a different deal.

Texas has somewhat unique rules on noncompetes.  Here is the general rule:

To be valid under Texas law, a covenant not to compete must be “ancillary to an otherwise enforceable agreement.” Then, the restrictions must be reasonable in scope. The “otherwise enforceable agreement” requirement simply means that both parties to the contract must have made binding promises.

The usual case is when the employee signs the CNTC on day one of employment.  Courts say that the employer must do more than just provide continued at-will employment for the "otherwise enforceable agreement" requirement.  In this case, it's severance pay after the employment ends.  I wouldn't think it would work.  If I'm the employee, I take the money and fight about it later if he wants to compete--but it could be costly.

If I'm the employer, I would probably make it an incentive payment(s) either at the end of a term or paid in installments.  So if the employee doesn't compete the stated time, then he/she gets the money.  If he/she competes, then don't pay.  That might have a better chance of being enforced by a Texas judge.  

[troph 25,238]

On 1/19/2024 at 11:57 AM, Brew said:

Out of curiosity, if he signs a noncompete as part of a severance why would it not hold up? He’s taking the cash and signing the agreement which at least in surrounding states to me would be enfoclrceable. I get the issues on the front end signing at employment, but this seems like a different deal.

I’m not sure it wouldn’t. I know what a down the middle noncompete looks like and can evaluate basic enforceability. Outliers I don’t always know for sure so as a corporate lawyer helping an exec I assume they are enforceable unless I have a noncompete lawyer tell me it isn’t. 

when that question becomes important I ask one of my colleagues. Often times it’s not important because it’s a down the middle assumed enforceable non compete - in a severance agreement that’s often just restating an already in place non compete. In this case it probably warrants a closer review except if the guy wants the money and has no plans to compete the answer doesn’t matter. 
 

it goes back to lawyering 101 - never ever leave your wing man, oh wait that’s something else, never ever agree to a provision you are not comfortable having enforced against you. 
 

if this agreement is drafted correctly, if the non compete isn’t enforceable, then the $25k should be returned. Sounds like the guy wants the $25k so he better not compete. 

[TwiceHorn 32,092]

On 1/19/2024 at 11:57 AM, Brew said:

Out of curiosity, if he signs a noncompete as part of a severance why would it not hold up? He’s taking the cash and signing the agreement which at least in surrounding states to me would be enfoclrceable. I get the issues on the front end signing at employment, but this seems like a different deal.

A 1990 Texas Supreme Court case held that the otherwise enforceable agreement must be something that gives rise to the interest protected by the covenant not to compete.  The classic, paradigmatic example being the disclosure of trade secrets in the course of employment.  The opposite being continued employment under an at-will employment regime, which is quite gratuitous.

The Supreme Court has backed off on that, but the more gratuitous or unilateral the otherwise enforceable agreement is, the less likely the covenant is to be enforced.  I'd tend to think a severance payment would fall right in that category.

Edited January 21 by TwiceHorn
passive voice

[Nice Guy Eddie 13,740]

I dislike soon-to-be former employers asking you to sign something while dangling a check in front of you. And don’t tell me for a second that they’re not low balling the amount as much as possible.

if you know your current employer does that to other people, be prepared that they will do the same to you. 

[troph 25,238]

On 1/21/2024 at 10:45 AM, Nice Guy Eddie said:

I dislike soon-to-be former employers asking you to sign something while dangling a check in front of you. And don’t tell me for a second that they’re not low balling the amount as much as possible.

if you know your current employer does that to other people, be prepared that they will do the same to you. 

Best practice for employers is to have the non compete up front and when it comes to severance on the back end follow a standard policy so you avoid disparate outcomes that could lead to discrimination claims. 1-2 months is fairly standard anything over that is pretty “generous” though some employers do a number of weeks increasing based on tenure.