Compete away, whether you live in California or not

Compete away, whether you live in California or not

Summary: California may have just made it a lot easier for employees to overthrow their noncompete agreements, but the good news is that even if you live outside the Golden State, these clauses are difficult to enforce.

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California just made it easier for your career path to look like this.
California, a state notorious for having a dismissive attitude towards employee noncompete agreements, went one step further last Thursday in a unanimous state Supreme Court decision (ruling PDF), ruling that all worker noncompete clauses would now be null and void.

This ruling is no small triumph for workers in the Golden State, whose rights to move from one company to another, to work for a competitor or start their own business in the same specialization are now further entrenched.

Though the case was actually brought to court by a CPA formerly of Arthur Anderson, it may be an even bigger triumph for technology workers, many of whom bear the brunt of the limitations of noncompete agreements. Such a clause could theoretically prohibit a Microsoft software engineer from leveraging their expertise at Google or Yahoo due to a few lines in their contract that businesses say they need to protect their trade secrets but have been called by employee advocates everything from "a forced career-limiting move" to "vehemently anti-worker."

In fact, some analysts argue that California's already-lax approach to enforcing noncompete agreements--resulting in the free movement of technically inclined professionals from one start-up to another--was central to supporting the innovation that has made Silicon Valley tech epicenter it is today.

However, just because you don't live in competition-embracing California doesn't mean that if you've signed a noncompete agreement that you fear might limit your next career move you're out of luck. Most employment lawyers will tell you that even the most clearly-written non-compete is difficult to enforce in a court of law.

To enforce one, companies "have to show it's necessary to protect some legitimate business interest, such as trade secrets," David Barmak, a lawyer with Sherman Meehan Curtin & Ain, with headquarters in Washington, D.C. told Inc.com--it can only be applied to what companies can legally protect, something difficult to define by even the savviest lawyer.

Furthermore, no matter how tightly worded an agreement is, it may not hold up in court if it limits the ability of a worker to make a living.

"If the employer's restriction against competition prevents you from working anywhere for anyone, it is probably too broad," explains attorney Neil Klingshirn at myemploymentlawyer.com. "Few employers will be able to convince a court that their business interest is important enough to prevent an employee from working for anyone else."

How about you? Have you ever signed a noncompete you wish you hadn't, or felt pressured into doing so in order to land a job you wanted?

Topics: IT Employment, Google

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27 comments
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  • Glad to hear it...

    I'm pleased to hear that the 'bullies' have had this stick taken from their hands. Even if it was difficult to enforce, how many average workers have either stayed in a bad situation or gone somewhere else carrying the fear that the previous employer would drag them to court?

    I've signed more than a few of these in over 20 years in IT (East Coast) but have rarely gotten into a situation where it was a concern (went from vendor to customer, etc.). I think it's realistic to sign an Intellectual Property Agreement, i.e. I won't divulge trade secrects. But tell me where I can or can't work? Not.
    hitech_rednek
  • Good thing

    I've long considered non-compete agreements to be an unreasonable restraint of trade, and even if they are not, they're a convenient and often abused legal weapon for employers to use against employees who change jobs or start their own businesses. I have no objection to requirements that internal information remain confidential, but one doesn't have to restrict the sorts of jobs ex-employees can hold in order to do that. After all, self-employed professionals keep confidences for all sorts of clients and nobody objects; there is no reason why regular employees can't do the same. If confidential information is improperly disclosed, then the former employee can be sued, but there should be no prior restraint. Likewise, I have no objection to laws against industrial espionage.

    If non-competes are to be allowed it all, there should have to be legitimate business reasons for making them, and the law should be clear and concise, so as to minimize litigation opportunities.
    John L. Ries
  • Another reason to stay away from CA

    It's just another blow to companies in general. I'm not a company owner or creator. I work for one. I expect to sign a non compete agreement to do this kind of work. If I were in charge of a M$ or Yahoo! type company, I would not want my employees going to competitors to destroy the business. Sorry, but the children aren't in charge of playground, unless you live in CA.
    rickroberts_mcse
    • Want non-compete? Pay for it

      It's reasonable for companies to want to protect proprietary info. But non-compete clauses are draconian measures that keep employees from being able to earn a living. If Microsoft doesn't want Mr. Smith to take Microsoft know-how to Apple in the two years after he leaves MS, then let them add a clause to the contract that says they will pay him his full salary for two years after he leaves the company.
      No one special
      • Well said .

        Your suggestion is exactly the outcome that a logical and reasonable entity would expect. Don't want me to work for your competition, then pay me not to. Done deal.
        mthomas5
      • BS

        Nobody has ever been forced to work for a company with a non-compete contract. Your argument regarding pay me for it is specious at best. That lines up very well with the people who say that the minimum wage should be increased. How about we just make it $30/hr. Do you know what effect that would have on business? Not to mention the people making the extra money would....aw drop it, you might not understand that level of economics.

        You're suggesting that the employee could hold the company hostage. That's not the American free enterprise way, at all.
        leeshor
        • Your minimum wage argument is utterly irrelevant

          No bearing whatsoever on the discussion. Might as well start talking about the price of pork bellies.

          The thing you, and many others, don't seem to realize is that the United States has a long-standing belief in the RIGHT to work.

          Non-compete contracts are stupid, because they place the former employee under an obligation that outlasts their employment.

          Once I stop working for you, you have no business telling me what to do.

          If I steal your property and sell it to someone else, then you can pursue that in court under existing laws. A non-compete contract adds nothing to the equation but the threat of expensive litigation.

          "You're suggesting that the employee could hold the company hostage."

          Whereas it's perfectly OK for the COMPANY to hold the INDIVIDUAL hostage...

          Take a few seconds away from reading your stock ticker and peruse the Constitution some time. THAT is the REAL "American way."
          bmerc
        • Questions

          In your opinion, does the term "free enterprise" imply freedom for anyone but commercial enterprises? What freedoms should the the other participants in the economy (consumers and workers) have?

          I rarely use the term "free enterprise", except in sarcasm because it implies freedom for only one set of market participants (business owners). I use the term "free market" instead, because it implies freedom for all.
          John L. Ries
      • oh please...........yank it harder........

        You think a behemoth like them would ever do the right thing? Think again. It's the golden rule, they got the gold so they gonna try to make the rules.
        suemccartin
      • pay me not to work

        That is a solution that has, in fact, been succesfully used before. The term is generally short, typically 6 months but can be as long as the parties agree it should be. However, if it runs more than a year, I would want annual raises to match those given to inside staff.
        olaney
    • I disagree..

      No-Compete clauses are only good for the company. They are not good for someone in my position.

      Consider this: my specialty is as an IT consultant. I help set up business' and keep the going. The last company I worked for got bought out by a guy who ran his company into the ground within 6 months of taking it over.

      I got laid off approximately 3 months into this carnage. Had I had a 'non-compete' clause in any work agreement I had with him, I would have had to find a job flipping burgers or some such. Instead, I was able to strike out on my own and take a few of my clients with me. I've made a reasonable living off that plus additional clients I've added since then.

      The bottom line - I'm still around while the company's a crushed footnote in the post dot-bomb crash and post-9/11 world.
      Wolfie2K3
  • Good for California...

    A skill is what a worker has to offer his clients. If a company no longer values an employee, treats him badly, limits his career growth, forces him to work long unpaid hours for nights and weekends, forces him to work under undesirable circumstances, or puts politics over accomplishments, then the employee should have the right to leave and continue in his chosen profession elsewhere.

    Employees leave a company for a reason. If they have become extremely valuable because of their hard work, then the company should increase their compensation or other benefits to match and to retain skilled workers.

    When was the last time you saw a company come to you and say, "You have become so valuable to us, we are going to give you a 20% raise and an extra week of vacation?"

    Over the last 10 years or so I have seen a trend where companies treat their employees like SH**, but expect the employee to act like an indentured servant who you own body and soul. Non-compete clauses are the company's storm troopers to frighten and intimidate their employees.

    If, on the other hand, a company is no longer competitive or is no longer a desirable place to work, then it deserves to have its employees leave to continue their career path elsewhere. After all, that is free enterprise's approach to business growth and universal prosperity.

    Also the tenure of an employee is continuing to decrease. It is thought that in the future the majority of people will work for themselves, contracting for a few months at a time. That means in a year you could work for 5 different companies. Does a non-compete even make sense? Of course not. You offer your skills to whoever needs them.

    Another factor is that things are changing at an ever increasing rate. What is cutting edge today, in six months is out of date and obsolete.

    If a company wants to protect its Intellectual Property, file a patent. But tell employees they can't work in their field with another company?

    Competition is what drives improvement. If a company wants good employees, they should compete to keep them (carrot) rather then sue them (the stick) with the threat of non-employability.
    The Rationalist
    • Indentured servitude?

      I said this before, but the term implies that the contract will have an end and the employee will be free to go elsewhere (the employer only leases the employee; he does not own him). Permanent bondage (what you appear to be writing about) is normally called something else.

      A employment contract for a term of years is really a form of indentured servitude, though the employee retains many rights, draws a paycheck, and his time off the job is his own (at least in the civilian world). Seems to work rather well in the military and professional sports, as long as the contract ends with the employment and the employee is not encumbered further.
      John L. Ries
  • It's about time!

    It's about time! The non-compete was nothing but a stick for companies to use against employees.

    Consider that non-compete agreements conflict with the widely practiced "at-will employment??? model. If you can fire me at will, and I can quit you at will, then how is it you can control where I work next?

    I don't agree that this ruling harms companies. Non-compete agreements have only harmed individuals. Good for California, and may all the states follow suit.
    mthomas5
  • RE: Compete away, whether you live in California or not

    Some of you have it backwards. It's not, if you don't want me to leave pay me more. It is if you don't want to sign the agreement and abide by it don't work there. Contracts are becoming more and more meaningless.

    If a company can't protect the investment they made in training an employee that's a disincentive to the company more than a benefit to the employee. Who is running the show?

    Those on the side of this decision would likely be quick to change your mind if you were the employer instead of the employee.
    leeshor
    • I'd accept a term of years...

      ...in exchange for guaranteed training and pay, as long as I fulfill my end of the deal, but once the term is up, then I should be a free agent, able to work with whomever will hire me, instead of being subject to a reserve clause requiring that I change professions if I change employers. I should note that this is hypothetical, since I have never signed a non-compete and would sacrifice money to not be subject to such a contract.

      The US military has been working that way for a long time. I think it could work in the civilian world as well.
      John L. Ries
    • That is not a fully baked argument

      Employees don't come into a company carrying that employer's trade secrets with them, and can't predict what, if any, they will have when they leave. Therefore, this is not something that can be negotiated up front! Fortunately, one thing that an employer can't claim in normal growth in your profession, notwithstanding that it might have been gained by working on proprietary projects. Only that which is actually a trade secret is protectable, and a trade secret is not simply whatever the employer declares it to be. Courts want to see active measures in place, such as limits on internal access, and signed acknowledgements of specifically what the trade secret is.
      olaney
    • Yeah, everyone should have to work at McDonalds.

      Give it a break. It's fine to say don't sign a non-compete but more and more companies have them. Especially, Tech companies.

      Non-competes aren't just there to protect secrets they are tools to bully employees into not going to the company across the street paying 5%, 10%, or more a year over what your employer offers. Most of the time that is all they are used for.

      Don't get me wrong I am all for signing commitment letters for training, but a non-compete is just Tantamount to white collar slavery.
      tomam
  • Customer list

    If I leave a company and start my own doing the same thing, then I'm competing with my former employer. If the customers I had follow me to my new business, the company for which I had worked loses a significant amount of money.

    It's possible that the reason I was able to gain and keep those customers was the training and resources my prior employer provided me. If I use those advantages to diminish my former employer's business, I've taken both the costs of my training and the customers I gained to recover those costs.

    It's arguable that I've looted my former employer.

    This argument can be taken too far. Someone doing a job whose requirements do not involve individuation shouldn't be subject to non-compete. Rules that apply to a salesman might not appropriately apply to an admin.

    But non-compete might also include business methods. If I provide inside information to a new company which helps it compete far better with my old employer, I'm doing recognizeable damage.

    It's probably reasonable to conclude that customers and unique methods should stay with the old employer.
    Anton Philidor
    • Sarcasm: Customers are property

      Which makes economic competition theft.

      That does seem to be the gist of what you've been saying for the last 5 years or so. Makes me wonder if you and people like you really believe in the free market at all.

      If customers aren't free to change vendors (or to provide for themselves) and employees aren't free to change jobs (or create their own), there is no free market. Makes profits higher for established businesses and their owners (which does seem to be a priority for you), but it's still not freedom. Never has been; never will be.

      If that's really what you believe, it's better to dump the free market rhetoric along with the other trappings of classical liberalism and espouse Elizabethan/Jacobean monopoly capitalism openly. You can even call the latter "property rights" if it would make you feel better.
      John L. Ries