URGENT- PE non compete clause in offer
Hi all,
I accepted a job offer (Senior Associate) at a boutique PE firm and was never told there would be a non compete clause and NDA I'd have to sign later on. I started a few days ago and they're asking me to sign an NDA with a non compete clause that would prohibit me from working for any competitor or client for 12 months post termination or leaving. Is this normal?? I've never seen this before and I think 12 month is way to long for someone not in higher positions? There's no mention of severance or anything such. I'm in the US if helpful.
Very non standard esp for a junior role
thanks! any advice on how to fight this (given I already started)?
I would assess your leverage / standing within the firm at this point and figure out what is the repercussion of not signing these docs (i.e. are they really going to fire you if you don't sign?). Maybe get on the phone with a employment lawyer. Ask them for advice: (a) Are these docs still effective if you are signing them under duress after employment / being onboarded; (b) if you refuse to sign, and they fire you, what is your recourse. Also talk to your manager and figure out the purpose of have such long non-compete? What happens your life / personal goals changes, say if you want to move to a different region in the US but still doing PE? Having an mutual understanding upfront and explaining your concerns can sometimes help come to a mutually agreeable solution.
I've seen this happen personally - i simply chose not to sign anything and there was nothing that the firm could do. It's a small investment firm I was with and it was hard to replace me. I was prepared to just walk out and work elsewhere, and I made that very clear to everyone.
How do they define competitor? Curious
I was wondering that too! it's very vague in wording, which I'm not sure if it's in my favor or not if I sign and later decide to leave. Like is it all PE firms, specific ones? Whole AM industry?
Right—I could maybe understand if it was for a similar size fund (aum/average investment size), vertical or geography…however a blanket statement like that is absurd
Common for HFs for an ancillary comparison, if you decide to sign make sure you have a provision to be paid for the non-compete.
There is a difference between what is written in a legal contract versus what is permissible under local (in your case, state) law. Assuming your contract is governed under the laws of New York, a non-compete is largely unenforceable unless it provides very narrow limitations, such as geography, specific sector, etc. For what it is worth, when I joined a PE firm as an associate I had a 2 year non compete and I consulted with a lawyer that said it would be thrown out in court - there are a lot of cases thay work against these non-competes. The real thing you want to avoid is starting a brand new firm directly in competition with your current or if you SOLICIT clients within a set time period. I would consult a lawyer but it shouldn't be a real issue at the junior level.
You are way too junior to have a non-compete. I could see maybe a very limited non-solicit, but even that is not standard. Depends on what state you're in too. If you're in California or Texas, sign away. They can't enforce it unless there is a fat check attached to it.
Two comments:
1. These non-competes are more common in hedge funds that focus on quant-driven strategies. Really, if there is no 'product' then nothing is really proprietary and shouldn't warrant a non-compete.
2. Where I have seen/heard of non-competes across the board within PE firms is when it is a very young shop and they have a niche strategy that they worry about being replicated. Tough news is that nothing is truly unique and you can't prevent someone from earning a living. What they're really trying to protect for is that you don't quit and then try and try and start-up a new firm with the identical strategy and with the identical client-base - though, I have seen this happen time and time again and firms often don't bother arbitrating due to the negative spotlight.
There is no way I would sign a non-compete as an associate. I don't care how unique someone thinks their strategy is. There is nothing new under the sun.
Test
Generally speaking with non-competes in NY at least, the less specific the non-compete is, the less enforceable it is
This is correct. A 'blanket' clause which restricts you from working is generally not enforceable. It usually has to adhere to set parameters, such as: time, location, sector of business, and have an explanation as to why your current firm's IP needs protecting. Non-compete clauses were created to stop UNFAIR competition (such as starting a very similar business and stealing clients) - it was not created to prevent competition altogether. There is a lot of case law regarding this. One that comes to mind from recently is a placement agent who jumped ship to a competitor firm. They opted to sue the placement agent and lost in court. Her contract was under NY law. To make matters worse, she even opted to download client information (a big no no!)
Non-compete is very normal at your (our) level - most PE firms have them. 12 months is long, 6 months is more standard. To everyone's point above, they really aren't enforceable (plus your firm would look terrible for doing it). I would just sign it, maybe ask for 6 months instead if its really bothering you.
You can consult with an employment lawyer for very cheap - like $150 - who can give you advice on this situation specific to your jurisdiction and contract.
NY is pretty employee-friendly and anything over 6 months isn't typically enforced, but there are some caveats, like protecting client relationships, that might hurt you and the courts have enforced longer.
This would be one thing as a managing partner but senior associate this is not typical. Ask for a few days longer to review the contract, but I would not sign this and probably ask for it to be deleted or changed to a non-solicit - do you really want to go through the legal process for a job you will more than likely eventually leave?
I had something similar to this in my employment contract at my previous firm; when I left for another fund I asked a number of people (including a couple in the executive search space) and was told that these clauses are almost never enforceable, since the language is usually too broad.
It also says a lot (or very little) about a firm and its principals if they're going to try and sue an analyst or associate for going to a competitor. Looks very tacky and often turns off investors. Not to mention the media loves sinking their teeth into this stuff.
A good friend is an employment lawyer and anything over 6m is not really enforcable and acts more as a feature to scare you. It's also much, much harder to do for junior employees as you would need to have a certain seniority etc. (you cant just set up your own shop as an associate elswhere and chase the targets your current employer is looking at....)
Consult with a somewhat decent employment lawyer tho!
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