Help Wanted: Signing a noncompete agreement

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Carrie Mason-Draffen

Newsday columnist Carrie Mason Draffen Carrie Mason-Draffen

Mason-Draffen, a business reporter, writes a column about workplace issues.

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DEAR CARRIE: I have been with the same company for more than 20 years and have been receiving a base salary plus commissions. The company just informed me that since it is having trouble meeting payroll, I must agree to new compensation terms, which will provide no salary and cut my commission rate in half. In addition, my employer insists that I sign a noncompetition agreement. If I refuse to sign and lose my job, can I collect unemployment? If I agree to the new terms but find it impossible to earn enough, can I then quit and collect benefits? -- Employment Dilemma

DEAR EMPLOYMENT DILEMMA: For answers I turned to an employment-rights attorney whose practice includes negotiating and litigating noncompete agreements.

The attorney, Alan Sklover, senior partner of Sklover & Donath in Manhattan, said you may have a shot at qualifying for unemployment benefits in the first scenario you described. The other one is a lot more iffy.

Sklover said your dilemma turns on three key questions: First, by refusing to sign the noncompete agreement, did the employee end the employment relationship voluntarily? Second, if the employee voluntarily ended the job, did the employee have "good cause" for doing so? And third, if the employee signs the noncompete agreement and later leaves because of the lower income, is that act considered voluntary?

The voluntary versus involuntary aspect of leaving a job is important for determining unemployment benefits eligibility.

"Employees who lose their jobs due to no fault of their own are entitled to unemployment benefits," said Sklover, who is the author of "Fired, Downsized or Laid Off: What your employer doesn't want you to know about how to fight back" (Henry Holt & Co, 2000). "But employees who voluntarily resign, quit or cause their jobs to end are not entitled."

So into which category would your refusal to sign fall? "As a general rule, if you refuse to sign a noncompete agreement, and your refusal causes your job to come to an end, you are generally considered to have been the one to have voluntarily ended the employment relationship," he said.

In that strict scenario, he said you would probably be denied benefits. But read on, because the second key question takes a look at why you quit, and that additional information could boost your case.

"Contrary to what many people believe, resigning does not disqualify employees from being awarded unemployment benefits if the resignation was for 'good cause,' " he said.

The dramatic changes in your pay might be enough to qualify as "good cause" for refusing to sign.

"When a noncompete agreement is thrust before an employee to sign," Sklover said, "past decisions of the Unemployment Appeals Board indicate that if, at the same time the employee also had a material change in the terms and conditions of the job -- in your case, you lost the right to a salary, and half of your commission rate -- this would surely be considered as your having had 'good cause' to refuse to sign your noncompete agreement, and unemployment benefits will almost certainly be granted to you."

Regarding the third question, you need to tread carefully.

"If you sign the noncompete agreement and start to work under the new compensation agreement, you will likely be viewed as having voluntarily accepted both your new noncompete restriction and your lower compensation arrangements," he said.

So if you quit later on because of the lower income, that would be considered leaving voluntarily, and most likely you wouldn't qualify for benefits, he said.