Non-compete clauses have their place in the law but they have in my view been abused in the employment context.
The classic case of a good reason for having an enforceable non-compete arises with the sale of goodwill in a business. Proprietor X sells his business for $10M and then sets up shop next door to steal the customers of the business back to his new, competing one. In effect, this is a case of theft. Someone pays value for the goodwill value of your business and that means (usually) mostly for the revenues resulting from continued business from its existing customer base. If you take that value for that asset, it is deemed unfair under law that you should be able to grab the asset back through immediate competition for that same customer base. Buyers are savvy enough to know this and therefore require that you enter into a non-compete clause as part of the sale. And the law says, "yes, indeed, this is a restraint of trade in that it limits what the seller can do in pursuit of his trade or business following the sale but it is a reasonable restraint of trade, and hence enforceable, because it protects the value of the goodwill interest bought by the buyer for which good value was paid." Even in enforcing such clauses, the law says that they are enforceable only to the extent they are reasonably necessary to fulfill the legitimate purpose the law seeks to protect. In the sale-of-business context, then, non-compete clauses are enforceable insofar as they are limited in scope (that is, in duration and in geographical reach) in a way that the law regards as reasonable.
The problem with non-compete clauses in the employment context is that they are almost inherently unreasonable in their application. I join company X as a developer. I leave my employment after two years and I want to pursue my livelihood in the same line of business that company X engaged in, albeit not using any of its confidential proprietary technology. Yet, even though I would respect its trade secrets and not do anything the law would regard as being innately some form of unfair competition, the non-compete clause imposes an absolute bar prohibiting me from pursuing my livelihood in my very area of strength for as long as it remains in effect. This can cost me money. It can cost me opportunities. It can represent a setback to my ability to continue to develop skill levels in areas that are important for my future. All this for what? I get nothing whatever for it. Unlike the seller who just walked away with a pile of cash for selling his goodwill interest, I am not paid for being burdened with this restraint. I am simply stuck with it, to my great cost. And what is the justification for this? Again, unlike the sale-of-goodwill context, an employer does not have some right to keep competitors out of his space. All kinds of people can compete with him. What he can do, via the non-compete, is arbitrarily keep me as a former employee out of his space. Why should he have that right? Well, there is no particularly good reason except insofar as my competing with him may allow me to misuse confidential proprietary information that I got from my former employment with him. Everything else is arbitrary. Of course, even states that give maximum enforcement to such non-compete clauses will require that they be limited in duration. But two years (or whatever) is two years and this does not make it more fair to the former employee.
California refuses to enforce non-compete clauses in the employment context except to the extent necessary to protect confidential proprietary information. It has long done so and this has not stopped major employers from thriving with their tech companies in this state. Even companies that are located elsewhere have always been required to abide by these rules with respect to their employees who actually work in California. They have adapted over the years to the California rules with no serious setbacks to their financial interests.
I believe other states will in time be forced to conform to the California pattern as part of staying competitive in their bids to attract tech workers. I don't know the local situation in Massachusetts but would guess this is a key factor in the governor's decision to push for change.
In any case, this is one area where the idea of reasonableness is important to how the law should be shaped: if there is an awfully good reason why a non-compete clause should be enforced (such as in the sale-of-goodwill context), let the law enforce it to protect legitimate interests; otherwise, it is arbitrary and unreasonable and hence an unenforceable, illegal restraint of trade. This should be the rule everywhere, not just in California.
I agree with you 100%. But as an anecdote I know full time employee that was supposed to be working on a football game for company ABC. He had an arrangement to work from home. He worked for ~1 year and appeared to be very behind schedule. He then quit, started his own company, 3 months later his company shipped a football game.
my least favorite, having employees sign essentially the same when leaving a company. Really, watched a friend go through this recently. It was that or lose his accumulated vacation monies which were not insignificant.
Been through the non compete issue post hiring, in job for many years when it lands in everyone's inbox. Really? So I am all for them being punted.
Non-competes are anti-business, anti-innovation and feudal. I have never signed one.
I can't tell you how many times I have been asked to sign one that locks up your skills, which you are bringing to the company that they might not have yet, solely for them for years even though the project might only be 3-6 months.
I applaud this effort immensely in MA, there is no place for non-competes in the US. It is entirely anti-business, funny that fighting against this anti-business and anti-small business process comes from the liberal NE.
The game industry also has a big problem with this, you can't even work on games outside of work while at a major studio (why almost every game developer has to break out on their own rather than stay at a company -- game devs in MA will cheer this). Treating skilled workers badly and shutting them down the moment they aren't working for you. How is that not feudal in nature?
NDAs/confidentiality, contracts while being paid for work, that is understandable, non-competes should never be signed unless you are paid during that tenure at a premium, opportunity cost is huge. MA legislation is actually doing some good work for the individuals, smalls and mids here, the engine of America.
Next up, remove taxes for small companies until they reach a certain revenue threshold.
And, if understood in that way, it is an instance where the term "pro-business" is a political ideology rather than an economic perspective.
Historically the rationale for pro-business policies is that greater production creates more wealth for everyone in a society. As a result it could be argued that a labor union might hurt an economy if less output comes from the same input, while those labor unions' arguments would be that they disagree about how different working conditions maximize the society's actual utility.
A non-compete on the other hand is a contract to decrease worker productivity. It is the opposite of union agreements that forced companies to employ people whose work is no longer needed, it is an agreement not to work. Furthermore, it isn't even entirely about benefiting business owners over their employees, but about benefiting established companies for their past success rather than whether or not they can compete in the current business environment.
Historically the rationale for pro-business policies is that greater production creates more wealth for everyone in a society.
I don't think that's really true, in a realpolitik sense if you look into why different interest groups were advocating for "pro-business" policies at various points in various countries' histories. Historically the rationale for "pro-business" policies has most often been that they increase the profits of businessmen, which is why parties mainly representing the business sector have advocated for them. Sometimes they produce more wealth for everyone in society, sometimes they reduce it, other times they're roughly wealth-neutral but just reallocating it. But that isn't the point or the parties' raison d'être, though they may pretend it is in their politicking.
This is a 'bootleggers and baptists'[1] situation, and it is almost impossible to determine the true motives of the politicians.[1] We might be suspicious of the motives of the politicians, but we should also consider that they may be operating with a variety of rationales, all difficult to disentangle.
It does capture why I am surprised that content distributors have lobbied against ISP favoritism. I want to believe that Netflix wants an entrepreneurial environment like the one that enabled their initial growth, but I can't help wonder if their greatest threat isn't some new upstart, and why they wouldn't be in favor of a large barrier to entry, even if it costs a nontrivial portion of their revenues.
...I can't help wonder if their greatest threat isn't some new upstart, and why they wouldn't be in favor of a large barrier to entry, even if it costs a nontrivial portion of their revenues.
I have to imagine they are choosing a sizable chunk of a much larger pie instead of the vast majority of a tiny and shrinking pie.
I think that you are right when it comes to something like a negotiation between a business and a labor union. Both sides simply view it as an adversarial process, much like how lawyers represent their clients and presume the system will work it out from there as long as they are relatively honest.
However, while it may often require some credulousness, I think a significant majority of people sincerely believe that their political positions make the world a better a place rather than just their own lot in life.
There are honest discussions that can be had about most policy decisions. For instance, it might be difficult to sell your software business, if you can't legally promise not to immediately launch a competing product. And yet, most of the serious policy mistakes of the past few decades have been made in the wake of debates involving two sets of competing soundbites—a problem that could be improved by better economic education starting at a younger age if I'm right that people are generally motivated to improve the world.
Small businesses, contractors, freelancers, and more who are asked to sign these are very much businesses and it is very anti-business to them.
It is relative, if you are big and established they are good, if you are small/medium (where most innovation and eventual businesses comes from) then they are bad.
It is anti fair business, but in a monopolistic/feudal/plutocratic type system it might be pro-business to own skilled people (anti-poaching agreements are also pro-business in that view). In a libertarian and free market sense it is anti-business when viewed from the aspect of an individual/small/mid company.
I guess its safer to say non-competes are pro big business and anti small business / anti innovation at least.
"pro-capital" isn't necessarily the same thing as "pro-business"; non-competes, in particular, reduce labor market mobility, which reduces overall market efficiency in the same way that barriers to capital market liquidity would.
Though I have never, and will never sign one of these agreements, I cannot agree with your statement that they "reduce[] overall market efficiency". First off, such a grand claim merits some citation of empirical or theoretical evidence. Secondly, there are a variety of ways that these agreements (which I do not support) may increase productivity, such as by increasing the employer's trust in the employee, allowing the latter to access confidential documents, and increasing the average period of employment, thereby giving the employee more time to accrue experience and improve productivity in a specific field and/or application.
Yes they do, but they also weaken the labor pool. Their primary purpose as used nowadays is not to protect any vital business interest but to make it difficult for employees to move around the marketplace and seek their best rate.
I've been asked to sign a post-employment non-compete agreement several times. I never have, because I ask for a simple stipulation: for the length of time you don't want me to work in this field, you need to pay me the same salary.
Everyone agrees that this is fair, and then never mentions the non-compete agreement again.
"I'd be happy to sign a perpetual non-compete contract so long as it includes a clause that you'll continue to pay me at current salary (with a yearly cost of living increase pegged at inflation) as long as the contract is in effect. If you wish to cancel the non-compete after it takes effect, you agree to a six month notification and run-down period".
I'd need the six month period so I could move from my retirement home in Malta or Corsica or wherever and get a job again.
Some of the jobs I've had or looked at made employment contingent on a non-compete. In those cases, saying something like this would mean finding another job.
Depending on your skills, your area of expertise, and your reputation, this may or may not be a big deal to you personally, but it's not an option for everyone. My last employer (when I was straight out of college) would have just shown me the door if I said something like this.
You would expect them to have higher salaries, to compensate employees for the risk of being prohibited from working for N months after their employment terminates.
Higher initial salaries perhaps, but lower annual increases, since employees don't have as many jobs to switch to so there is less incentive for raises.
It appears that you are making the unstated assumptions that these employees have experience in exclusively non-transferable skills and that they had no knowledge of future changes in salary at the time they accepted the agreement. I find both of these claims to be dubious at best; if you have supporting evidence, please enlighten me.
Economic theory would suggest so. I suspect that, adjusting for everything else, it's a pretty small effect. Would be an interesting study though. I wonder if there's one there.
[EDIT: Duh. I misread the original post. Of course, the salary should be higher not lower to compensate for such a restriction--though I still suspect it would be small.]
What economic theory would suggest this? This non-compete appears to be an option, and would be priced as such.[1]
I would guess that purchasing any additional assurance from an employee would cost the employer(s) more, perhaps in the form of salary, severance, or a signing bonus.
You're making the error of deducing market conditions from price (or price from market conditions).
Market price is determined (in a well-functioning market) by the intersection of supply and demand. So the salary could go other way: higher, if a non-compete makes it harder for the employer to find employees willing to sign the clause, lower, if result is fewer alternatives and/or more desperate employees interested in the position.
I'd actually argue the second: that noncompetes raise employees' switching costs, and reduce their alternatives, so that a state in which noncompetes are valid and widely applied would tend to have depressed labor rates.
No; in a good market the employer who wants a non-compete would need to pay me up front for the time period that I wouldn’t be able to work after leaving her firm, plus a premium for the expected difference between my salary at that point and my salary at hiring, which would make the wage for positions with a non-compete significantly higher than those without.
Czech republic and some other EU country actually have this in law. If employee with non-compete clause loses his job, employer has to pay his salary in full for duration of non compete. There are some exceptions such gross misconduct, voluntary redundancy etc..
This is the legal position in New Zealand, not through an Act of Parliament, but as the result of various law court decisions. You cannot have a non-compete which prevents someone working for a living unless you pay compensation for that non-compete. Attempts to dodge the rules (claiming regular salary includes said compensation or a derisory amount) have been struck down.
"Who wins often depends upon a race to the courthouse. For multi-state employers it is often a rush to the courthouse to determine if a non-compete agreement is valid. The employer's strategy is to get an order outside of California in their favor. The employee or California prospective employer's strategy is to get an order within California in their favor. In the face of dueling, and opposing orders, the first to the courthouse may win because states often must give effect to orders from other courts."
The whole thing is actually very interesting, worth a read.
As most other authorities describe in greater detail--it doesn't matter who wins the race to the courthouse. The non-compete will be valid in whatever state was selected as choice-of-law, but the non-compete provisions will be invalid in California because California generally prohibits non-competes except in very limited circumstances (such as owners of the company).
Consequently, a non-California non-compete is not valid within the state of California, even if another state's court validates it. This means that so long as the employee remains within California, the non-compete cannot bar them from seeking further employment in California, even if it would otherwise violate the non-compete. However, by the same token, even if a California court invalidates a non-compete, it only applies within California--the non-compete may remain invalid in other states (depending on their laws regarding non-competes) if the employee were to attempt to seek employment outside of California during the term of the non-compete.
I had heard similar - that if you go to CA, you have to pre-emptively sue to get out of it.
Are non-competes enforced often enough that this is an issue?
I've only heard of a few cases, and these were notorious hedge funds, or flagrant post-move poaching of employees. (Not just "I'm gone" but "I'm gone and taking my team even though I signed something that said I wouldn't.")
Perhaps of interest is that non-competes are unenforceable against lawyers. There are many reasons but the prevailing reasons are that a non-competes against lawyers interrupt a client's right to hire counsel of their choice and otherwise significantly limit access to the Courts, both are constitutionally protected rights.
Enforcement of non-competes in any jurisdiction is a complex analysis, where the scope, term and geographic restriction must be applied to a given job/industry. A general problem (from both employer/employee perspectives) is that people assume because they exist they are enforceable, it would lead me to believe people would be surprised how often, when challenged, they are found to to unenforceable.
Non-competes are enforceable against lawyers in most states, including California. Indeed, in some states, non-competes are even mandatory in certain situations, such as the sale of a law practice, and violation of the non-compete is treated as an ethical violation that could result in bar sanctions.
However, non-competes for lawyers are more limited in scope--they only apply to partners, and only to specific areas of legal practice. Generally, the non-compete can only prohibit the lawyer from marketing or soliciting clients but does not prevent new or former clients from voluntarily choosing to hire that lawyer (and the lawyer agreeing to take on that client). The big exception relates to sales of a law practice--in that situation, the lawyer generally can't take on new or former clients in the same area of law as they sold.
American Bar Association Model of Professional Conduct Rule 5.6:
A lawyer shall not participate in offering or making:
(a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or
(b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy.
49 of the 50 states have adopted their own version of the ABA rule prohibiting non-competes in the practice of law. In fact in Florida if an associate leaves a firm, for every file the associate worked on, said associate must notice each client of their right to continue representation with the firm or the associate, of course the associate can not be forced to accept any client(s). Your examples of non-solicitation is generally true, but there is a difference between non-solicitation and non-compete under the rule, especially against a partner who sold the practice or retired.
Just because they are non-enforceable doesn't mean they have no effect. The COO of one of past employers was offered a job at a competitor shortly after he was fired. When the new company heard of his non-compete clause and the intent of the old company to enforce it, they withdrew their offer.
When I worked for a small research firm, we basically wouldn't have employment discussions with anyone who had a non-compete even if it seemed unlikely their current employer would go to the mat over it. Just the existence of a non-compete would have meant getting lawyers involved and it was just too much hassle and risk.
(It's also the case that one of our large competitor firms, at least at the time, put non-competes in place that effectively wouldn't let anyone who left work for any competitor. i.e. they couldn't do the same job at any other firm. And, apparently, they enforced these agreements rather vigorously.)
>When I worked for a small research firm, we basically wouldn't have employment discussions with anyone who had a non-compete even if it seemed unlikely their current employer would go to the mat over it. Just the existence of a non-compete would have meant getting lawyers involved and it was just too much hassle and risk.
Had a similar experience at my company. We worked as a subcontractor whose parent company lost a contract at renewal time to a rival. The rival did not sub out and instead approached our employees on site and hired one directly. The owners got in touch and told the new firm that we had a non-compete and their response was basically "Ok, that's fine. Let us know if you intend to enforce it. If not, we're hiring him. If so, we won't, but we're not subbing the work out to you. It really doesn't matter to us what you do, just let us know. If we don't here back from you by this time tomorrow we're not hiring him."
In the end I'm happy to say that management did the right thing and just let him go unmolested, but the hiring firm explicitly stated that his job wasn't worth the expense and hassle to them, and just threw the ball back at us.
* Prospective employer concerned that former employer might make a claim that the hiring process constituted knowing interference with a contract, and that that claim might be colorable even if the noncompete had no teeth.
I know of at least one company (Microsoft) that goes the extra mile and stipulates in your non-compete that you must show every future employer the non-compete that you signed. It would seem like that is only in there because Microsoft has very intimidating teeth.
I also heard a rumor that when Google takes their talent, they send them down to the bay area for 18 months to dodge WA's non-compete friendly laws. But I'm a bit skeptical of that one unless perhaps it's a VP or something.
I've only ever had to sign non-competes when working for contracting companies -- those only prevented me from doing the same job for the same client for a competing contractor. Seeing as how cutthroat the contracting industry is around major tech companies, and the limited scope of the non-compete, it makes some sense to me.
Yeah, those are pretty fair given the situation and since most contracts include a hire clause that pays a finders fee to the contracting company. In that situation the non-compete basically keeps everyone on friendly terms.
It's worth knowing, maybe just because it's interesting, than even if pro-forma employee noncompetes are unenforceable, that doesn't mean all of them are. Get acquired sometime. Those noncompetes are binding, even in California.
California provides an exception to the non-compete prohibition which applies to owners. The theory is that someone in the position of meaningfully owning a company is in the position to compete with that company.
Generally, that means someone who owns a significant amount of the company (on a facts-and-circumstances basis) so just owning some stock or options in a startup isn't enough.
You mean "get acquired" as an owner, or as an employee? I've been through two acquisitions as an employee and don't recall anything special in the way of non-compete agreements.
In France I regularly had non-compete clauses in my employment contracts except here, it has to be specific, limited in time (1 to 2 years max) and you have to be compensated for it (usually 30% of your salary) otherwise it's legally void. The employer has the choice to enforce the clause (and to pay you) at the end of the contract and must notify you within 15 days.
You're usually notified that the clause is dismissed and that's it. I was told that it could be useful in some edge cases like if you know an employee will start a competing business with your current clients but I've never heard of such cases. Also I think the former employee could already be breaking confidentiality agreements, nda, etc. doing so.
For sales people I see a value in non-competes. I own a company which can run successfully with 100 clients. If I hire a sales person who builds good enough relationships with 50 of our existing clients such that he takes them to another company, he could cut our revenue in half. Why is that supposed to make me want to set up my business in Massachusetts? This announcement would seem to make businesses less competitive in my mind. I'm just going to look for competitors in Massachusetts who's sales people I can cherry pick.
I might be inclined to agree, but doesn't the wild success of so many California companies where even these non-competes are unenforceable suggest the net value isn't high, maybe even negative?
Massachusetts has had one modern era wildly successful civilian high tech period, stretching from the minicomputer era to the early PC era (both Visicalc and Lotus 1-2-3 were done in the Boston area). But this part of its high tech scene died hard by 1990 (and I left the area, I was an eyewitness starting in 1979); non-competes were I believe part of the problem with Silicon Valley wildly out-competing the Boston area.
Since then I've heard things got better in the web era, but still nothing compared to the Bay Area.
It's pretty good here (MA), but the really successful high tech area here is the medical/bio/ informatics and biotech. It's amazing how much development there is in the biotech industry here.
I think the main issue is not the product but that the salesperson knows who in the 50 companies to talk to, and has relationships with those 50 people so they will talk to him/her. The amount of money spent by the original business to obtain those 50 contact's trust and business could be very large, yet the salesperson is allowed to steal all that investment and take it as their own.
"If those 50 clients would be better served getting a different product from a different vendor, then why would you want to stop that?"
Because you need to earn a living for one thing. And you won't keep your job for long as another reason (see strategic cases below because there are exceptions of course).
Anyway along those lines would you suggest that a salesman for jet engines for Boeing not take an order and simply tell the client that a Rolls Royce engine is a better fit for the application? (And yes I know that there are strategic cases where it can build loyalty by doing this and/or if the stakes aren't to large you can try to be helpful.).
So in other words the salesman's job is to, at the expense of the survival of his own company, to simply help the client (on his employer's dime) make the best decision and as a result he will still be able to earn a living because everything will just work out? And of course his competitors are doing the same thing, right?
Perhaps you should learn something about sales instead of being so incredibly obtuse.
When an employer sends a salesman out to sell his product, he is sending him out on the company dime to wine and dine customers and get them to sign that contract for services rendered or product delivered. This costs the employer a great deal of money. The salesperson is worth nothing except for the relationships he can create between the employer and the client. These business relationships are created on behalf of the owner, not the salesperson.
So when a salesperson leaves a company and then decides to use the information he gathered during his tenure there to create new business elsewhere, he is essentially stealing what he was hired to create in the first place. I don't know of many companies that allow their employees to walk off with proprietary information, and information related to core business functions is certainly proprietary.
"Create a better product" doesn't fly. Anywhere. Not even in California. They simply call the list of customers a "trade secret" and sue your ass when you decide to start dialing them up at your fancy new employer.
Companies don't trust sales reps for the most part. They use them, but they don't trust them. Hence the trade secrets clauses in their employment agreements. Companies like to hire experienced sales reps because of their contact list? Sure, because if that employee's former employer hits them with a lawsuit, they can fire the employee and settle out of court. It's worth the potential risk. At the same time, there aren't many companies that are going to stand behind a brand new employee when they know he's probably holding onto data that is considered a trade secret.
What happens when your previous employer fired you for using data you stole from a previous client?
Good luck taking years to build back your reputation.
I don't want to deny consumers from the ability to choose. This concept theoretically makes business entities weaker and employees stronger. In practice I presume that this concept would force business owners to provide less information to employees if such information could be used against them in the future. So is the employee actually stronger?
Well, withholding useful information from an employee can weaken the business as much, or more, than the employee. Given that business advantages are relative, that could potentially balance out. Conversely, the employees ability to work at will is an out-right advantage, so I'd argue that the employee still comes out ahead.
Additionally, these non-competes are often used in business where no meaningful additional data is shared, such as in the Dental field (e.g. they can't not share their clients with Dentists they hire, regardless of non-compete status). You may argue they would choose not to hire an associate in the first place, but then that leaves clients on the table for a new practice anyways. (empiric data would be a god-send)
Yes you should provide incentives. I'm not in favor of bad management or bad partnerships, I just think that the value of an employee who can bring new relationships to a new company should be more than the value that they have maintaining relationships at their existing company.
You are talking about the "book of business" problem.
I agree but I think there might be other legal (or see "know the customer yourself" below) ways to protect your clients.
So while you can't prevent someone from working for a competitor I believe there is a reasonable way to protect the customer list and/or specifically soliciting an existing customer. [1]
Nothing can prevent a client who knows the new business from approaching the salesman of course. But if the salesman is prevented from contacting them it is a bit of friction.
Separately, a way that you can protect against this is also to build some loyalty (as the business owner) with the client. Make contact yourself and let them know you value their business. Not fail safe but will definitely help. In other words multiple contacts, not just one contact.
[1] I've seen this even with hair salons for that matter. You will see ads which say "Joan is now at XYZ Salon" because Joan isn't allowed to go after her clients. But she can advertise that she has a new job. But not directly (by direct mail to a list of only her clients but she could spray direct mail though or advertise in the local paper because it's not targeted).
> I've seen this even with hair salons for that matter.
This would be really odd for salons. Most beauticians are contractors so technically they are her clients. She's paying the salon to rent their facilities. So salons get the best of both worlds. They skirt labor laws and tax laws.
It's really surprising to me that no one has so far mentioned the EIR program for international students. While details are vague, it seems like Massachusettes is trying to set up an alternative for international students that want to start startups instead of being slaved in an H1B position. Really looking forward to this one
They're damn near impossible to enforce unless written very carefully and specifically, and in general they're just a distraction and a waste of time. Good move, Massachusetts.
tl;dr They're planning to replace overly-broad, vague non-compete agreements with the more focused Uniform Trade Secret Act. [1]
This should get rid of the ridiculous abuses of non-competes that we've seen here in Massachusetts. For example:
Just before July 4th [2011], Angela, a 26 year-old Boston
University alumna, was laid off from her job as a
software trainer. She had only been at the company for
two weeks... Angela had signed a non-compete contract
with an old employer — a job she'd left voluntarily [in]
October [2010] — and the employer... was now threatening
to sue over it...She'd signed the non-compete in 2007
without giving its implications much thought. But it
prevented her from working for any other company that
developed software for the staffing or recruiting
industry for a year after she left... [2]
What I don't get is why companies in states that allow non-competes just seem to do them by default. Someone on their legal team or board pushes for them, and then just just become defacto and no one can seem to justify them.
I may have had a conversation with a company recently where a friend was trying to get hired for a temporary 3 week position, and the company wanted them to sign a non-compete in MA that would exclude them from working in the industry for a year. The same company has presence in California. I asked the company if they have problems with people taking their experience and running off to another company and exposing their secrets- the company said they had never had such a problem in California. I asked them why they thought they'd have a problem in Massachusetts then, and why they needed/wanted a non-compete for a problem that didn't seem to actually have any material risk (they've had hundreds of employees now, if an issue were to pop up, it would have popped up by now). They didn't have a good answer, aside from the fact that HR/the board wanted it that way.
Limited non-compete agreements have value to startups. It's not unreasonable to want to protect the company's intellectual property, business plans, product roadmap, marketing strategy, etc. from someone who comes in, works for six months, and leaves to start a competitor.
Certainly large companies are abusing these agreements. However, so long as the non-compete is agreed at the time of hiring, is restricted to a year or so, and isn't so broad as to prevent the (ex-)employee from taking any new job, it doesn't make sense for a startup not to ask for one as part of the employment offer.
Of course, like any other part of the employment agreement, non-competes are subject to negotiation.
> Limited non-compete agreements have value to startups.
Perhaps, but I often get the impression that startups think that they've got some kind of valuable secret methodology that is leagues better than everyone else. I feel that this is a really silly notion. Your startup is not a special snowflake. In fact, it's very likely to end in failure. It's the game we all play as entrepreneurs.
Success is largely determined by talent, excellent execution, a clear vision/direction, and strong leadership at the helm. These aren't really trade secrets, it's just hard work, focus, and even some luck.
Seeing a non-compete at a startup says to me that the founders are worrying about silly stuff like this instead of pushing forward into excellence.
It's not unreasonable to want to protect the company's intellectual property
Even in the absence of a non-compete, you can still sign a NDA, and in the event of a disclosure or misappropriation, you can be sued into a pile of primordial ooze.
> Yeah, many of us did exactly that back in 2007/2008. We nominated and worked hard to promote and to get elected a politician we believed -- based on our candidate's deeply-persuasive statements -- who would be "different". We did much more than vote. We built amazing software systems for our candidate, went door-to-door in places that almost got us shot, worked 80 hour weeks at the grass roots level, and in some cases estranged ourselves from our families. And of course we voted for him.
There are separate laws protecting IP directly, so you don't need a non-compete to do that any more than you do to protect company physical property. And specific restrictions on the use of proprietary information that isn't IP in the strict sense are often enforceable when non-competes (provision prohibiting someone from working in a particular field or capacity) are not.
There is a rumor in the company I work for currently that an employee went to go work for a vendor of ours. That vendor was informed that if they wanted to stay a vender, they wouldn't hire that former employee. The former employee wasn't hired. This was all kept in phone conversations and voice calls, so it was hard to legally track.
Since that time, anytime someone leaves, no one...and I mean no one... finds out about where someone is going until long down the road.
I was employed by one of the largest commercial real estate companies in the U.S. ,fortune 100 , they were asking low level maintenance workers to sign non-competes. Asking the guy who's emptying trash cans at the mall to sign a non-compete exemplifies just how far these corporations are willing go.
IANAL and I'm not familiar with the act, but I can totally see the ability to sure under the Uniform Trade Secret Act being abused by companies in Massachusetts if this passes. Hopefully that act includes provisions for protecting employees from frivolous fishing lawsuits against former employees.
These sorts of things are normally declaring that such things in contracts are against the public interest, like restrictive covenants in real estate deeds to not sell your land to a black.
Those were all made null and void back in 1948 (https://en.wikipedia.org/wiki/Shelley_v._Kraemer), and modern efforts to blacken, so to speak, the reputations of people who since then bought such property are mendacious.
But who knows what might emerge from the legislative sausage grinder of the rather corrupt Massachusetts General Court?
I wish Ontario would do this. The fact that California doesn't allow non-competes should be pretty compelling for any state or province that is trying to grow their tech sector.
Judging from this story (http://www.theglobeandmail.com/report-on-business/careers/ca...) it would appear that the Ontario courts are pretty firmly on the side of non-competes being unenforceable. "In short, most non-compete clauses are excessive, and thus will be upheld only in very limited circumstances."
What about BC? I signed a non-compete clause a while back and it says I can't work for any competitor startup or start my own in that niche. Apparently the non-compete extends for a year after leaving. It mentions I can't offer consulting or work for the competition. It's been a few years now, but I wonder what other dirty tricks they may have up their sleeves regarding this.
I want to start my own company in this niche and I can't do it because of the fear that they will sue me if I ever make it on their radar.
BC government also is not in the habit of protecting tech workers and cares more about tax revenues. Maybe I should move to Ontario or leave Canada all together.
Most AFAIK. My understanding (IANAL) is that, in Massachusetts for example, it's not that there are laws explicitly allowing non-competes on the books but, rather, that they're supported by common law spelled out through many precedents related to contract law, employment law, etc. I imagine the situation in many other states is similar. California is unusual in that they have specifically limited non-competes by statute.
Georgia passed making non-competes enforceable by referendum a few years ago. It passed overwhelmingly and many people attribute that to the ballot item being worded in a stunningly dishonest way.
However the strength and scope of these non-competes varies widely. And many companies have clumsily written non-competes in their employee contracts that would never hold up under scrutiny.
The classic case of a good reason for having an enforceable non-compete arises with the sale of goodwill in a business. Proprietor X sells his business for $10M and then sets up shop next door to steal the customers of the business back to his new, competing one. In effect, this is a case of theft. Someone pays value for the goodwill value of your business and that means (usually) mostly for the revenues resulting from continued business from its existing customer base. If you take that value for that asset, it is deemed unfair under law that you should be able to grab the asset back through immediate competition for that same customer base. Buyers are savvy enough to know this and therefore require that you enter into a non-compete clause as part of the sale. And the law says, "yes, indeed, this is a restraint of trade in that it limits what the seller can do in pursuit of his trade or business following the sale but it is a reasonable restraint of trade, and hence enforceable, because it protects the value of the goodwill interest bought by the buyer for which good value was paid." Even in enforcing such clauses, the law says that they are enforceable only to the extent they are reasonably necessary to fulfill the legitimate purpose the law seeks to protect. In the sale-of-business context, then, non-compete clauses are enforceable insofar as they are limited in scope (that is, in duration and in geographical reach) in a way that the law regards as reasonable.
The problem with non-compete clauses in the employment context is that they are almost inherently unreasonable in their application. I join company X as a developer. I leave my employment after two years and I want to pursue my livelihood in the same line of business that company X engaged in, albeit not using any of its confidential proprietary technology. Yet, even though I would respect its trade secrets and not do anything the law would regard as being innately some form of unfair competition, the non-compete clause imposes an absolute bar prohibiting me from pursuing my livelihood in my very area of strength for as long as it remains in effect. This can cost me money. It can cost me opportunities. It can represent a setback to my ability to continue to develop skill levels in areas that are important for my future. All this for what? I get nothing whatever for it. Unlike the seller who just walked away with a pile of cash for selling his goodwill interest, I am not paid for being burdened with this restraint. I am simply stuck with it, to my great cost. And what is the justification for this? Again, unlike the sale-of-goodwill context, an employer does not have some right to keep competitors out of his space. All kinds of people can compete with him. What he can do, via the non-compete, is arbitrarily keep me as a former employee out of his space. Why should he have that right? Well, there is no particularly good reason except insofar as my competing with him may allow me to misuse confidential proprietary information that I got from my former employment with him. Everything else is arbitrary. Of course, even states that give maximum enforcement to such non-compete clauses will require that they be limited in duration. But two years (or whatever) is two years and this does not make it more fair to the former employee.
California refuses to enforce non-compete clauses in the employment context except to the extent necessary to protect confidential proprietary information. It has long done so and this has not stopped major employers from thriving with their tech companies in this state. Even companies that are located elsewhere have always been required to abide by these rules with respect to their employees who actually work in California. They have adapted over the years to the California rules with no serious setbacks to their financial interests.
I believe other states will in time be forced to conform to the California pattern as part of staying competitive in their bids to attract tech workers. I don't know the local situation in Massachusetts but would guess this is a key factor in the governor's decision to push for change.
In any case, this is one area where the idea of reasonableness is important to how the law should be shaped: if there is an awfully good reason why a non-compete clause should be enforced (such as in the sale-of-goodwill context), let the law enforce it to protect legitimate interests; otherwise, it is arbitrary and unreasonable and hence an unenforceable, illegal restraint of trade. This should be the rule everywhere, not just in California.