I'm a new volunteer member of a nonprofit board of directors and am being asked to sign a non-compete agreement. The agreement covers all areas of the nonprofit’s involvement (marriage and family counseling, youth ministry, music, drama, martial arts, etc.) and applies to a 5-mile radius of any office or ministry location and for 5 years after I leave the board. Is it customary to ask a volunteer board member to sign a non-compete agreement?
I am familiar with a few commercial-type nonprofits that utilize non-compete provisions for employees, and you can read a lot of cases about non-compete provisions for physicians employed by nonprofits, especially hospitals that subsidize a physician in establishing a practice in an underserved area. I am not familiar with non-competes being required for board members who are not direct service providers, however, and I would be skeptical about the need or desirability of such an agreement.
Whether it would be enforceable depends on whether there is actually consideration for the agreement, and, if so, whether it is reasonable as to the area covered, types of activities covered, duration, and any other limitations, such as being prevented from being on the board of a different organization that provides such services as well as being prevented from personally providing them.
If I were more interested in assuring that the services are available in the community than in assuring that only this organization or this leader would be in a position to provide them, I think I would decline the opportunity to sign the non-compete.
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Dear Mr. Kramer: I do a good deal of nonprofit work and also noncompete litigation for businesses. I agree with your answer. The noncompete is much too overbroad in scope. Also, I don’t know what kind of consideration can be provided to a volunteer to support a noncompete. The nonprofit can expect that a board member will not give confidential information to another competing nonprofit but beyond that, I am not sure that a noncompete of this sort would stand up. Thank you. --T.R. via e-mail
Don, I think your answer is correct, but the lack of consideration is a very big problem for enforcement of such a covenant - and if it isn't enforceable, why ask for it or give it?--J.F.G. via e-mail
Don: I agree! I can't imagine a situation where a director would have to sign a non-compete! They are fiduciaries. And they cannot use confidential information learned in that capacity to the detriment of the organization; and they have their duty of loyalty as well. They cannot take opportunities for themselves that should go to the non-profit. I like the consideration argument as a defense to enforceability. But I think that directors should not sign these! --J.S. via e-mail
How is using a noncompete at all in a 501c3 environment allowable (whether employee, volunteer, or board member)? I can see confidentiality requirements to protect investments in work products (it's possible to imagine foregone mission impact with a confidentiality breach). But, the basis for a noncompete is fundamentally protecting profit. By its nature, being incorporated as a 50c3 that organization is prohibited (by the IRS) to be motivated by profit. The noncompete specifically accomplishes what the organization is specifically prohibited from doing. What am I missing?
This is an interesting comment and worthy of further converstation - see my thoughts - https://www.nonprofitissues.com/to-the-point/may-nonprofit-use-noncompete-agreement-protect-profit
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