I am a senior strategic employee in a company. I started working for the company a year and a half ago, January 2012 under a one year employee contract that included a non-compete clause. The non-compete clause said it expires four months after the employment contract expires. So the four months ends this month (May). I still work at the company and I am still getting paid, but nobody has bothered to renew my contract.
1. Am I still under the non-compete clause within in the contract?
2 .What could I do to clarify my role in the company so that I could do deals in another territory (where my employer does not pursue transactions)? For example, could I simply inform the CEO orally that I am technically now a contractor? Would that make the non-compete clause go away?
I agree with the other attorneys' answers.
I write separately to suggest that you review the scope of the activity or business you agreed you would not do. If what you want to do is sell previous "product", and that is outside the scope of the agreed upon activities you said you would not do, then regardless of your current employment status, you may be ok.
For example, if you agreed you would not sell widgets for 4 months within a certain geographic location, and you take a position as a dog walker in that same geographic area, then you would not be in violation of the non compete because you are not selling widgets. You need to have an experienced attorney review the contract.
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Before anybody can answer your questions, we would have to review a copy of the employment contract to see if there are any provisions in it that address what happens if an employee continues to work for the company as usual after the contract expires. Often that is addressed in the contract. We would also have to take a look at your employee handbook to see if there is anything in there that addresses your situation specifically.
Some companies are sloppy about renewals, figuring they'll get around to it when they get around to it. Also, ,whether someone is an employee or a contractor isn't just governed by whether their employment contract is in effect or not. The IRS has a test; factors that help with defining whether one is a contractor or an employee. I realize that in some industries it is common to retain the services of former employees as contractors rather than employees. However, if you're doing the same job as always, the same way you have always done it, under the control and direction of your employer and for the same paycheck and benefits, there is a good chance you're still an employee, albeit one with a contract that nobody bothered to renew for some reason or no reason. (The IRS's tests for determining whether you're an employee or independent contractor are readily Google-able.)
So, whether or not you tell the CEO that you're a contractor, you still may be an employee, and thus the employer may have a good argument for saying that the non-compete is still in effect. (You may have a good argument for telling him his company has a crappy employment contract, however, if it doesn't address this situation.) Another thing, if you tell the CEO that your contract is up, you may risk termination by reminding him that you only had a 1-year contract. Of course, at some point your non-compete would end and you would be free to go do competing deals.
Another issue would be whether the actual non-compete clause is reasonable in scope and duration under Pennsylvania law, although four months is not a long non-compete, so it may be fine. So this is all I can tell you without seeing all of your documents. It's just my personal opinion based on not having seen everything I'd need to see.
Rochelle S. Rabin, Esquire
Law Offices of Rochelle S. Rabin
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Malvern, PA 19355
Appointments also available in Plymouth Meeting and Bala Cynwyd.
Assuming your facts are as you relate, I am going to suggest that as long as you are working for them that you treat it similarly to holding over on a lease and abide by the terms. On the other hand, you might also be looking for other employment in the event they 'discover' the situation.
Caveat: YOU MUST HAVE YOUR CONTRACT(S) REVIEW BY AN EXPERIENCED ATTORNEY IN EMPLOYMENT LAW. YOU WOULD BE FOOLISH NOT TO.
If you still work at the company and you are still getting paid, but nobody has bothered to renew your contract, you are probably still obligated under the terms or the original contract. To answer your questions blindly, I would say:
1. YES, you are still under the non-compete clause within the contract?
2 . If you truly wish to clarify your role in the company so that you could do deals in another territory (where your employer does not pursue transactions)? You should approach the hiring authority and outline exactly what you wish to accomplish to clarify the employment relationship. I would not advise you to simply inform the CEO orally that you are technically now a contractor and no simply informing the CEO orally that you are technically now a contractor does not make the non-compete clause go away?
Be careful how you proceed, you may be out of the job and bound by the non-compete agreement for longer than you think. There may also be issues raised by your employer that you are liable for other things (i.e theft, trade secrets, company property, etc.) Make sure you meet with an experienced attorney to review your employment contract and non-compete agreement before you act on your impulse.
Again, no one can give you an acurate answer to your questions without reviewing your contracts.
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