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Fair Compensation For Non-Compete Clauses?
LL writes "This article notes how non-compete job contracts allows indirect control of one's actions, even after leaving the direct employment of a company. Apart from the business ethics of using them as anti-competitive measures (a separate topic by itself), the question is what should be a fair compensation for removing yourself from the technology environment where skills suffer alarming bit-rot? Other sectors (e.g. banking) have 'gardening leave' where they basically pay you to remove yourself from the 'inner fraternity' before joining a competitor, but what should be a fair compensation for an enforced pause in your career? 6 months @ 150% base pay? 200% @ 3 months? Or are there standard clauses that IT workers have widely accepted as the norm?"
California Business & Professions Code 16600-16607.
Special point of interest:
16600. Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
Note: IANAL
To put some perspective on the problem, if people from the [censored] community spill all they know, they'll be jailed and possibly be shot.
... Hardly. Just ask the people who had to pay for the repair of the flawed Hubble mirror. If somebody had thought to ask for an open anonymous review of the lens polishing parameters, the whole debacle might have been avoided.
But are the skills they have acquired working for that community useless and worthless?
The secret of, uh, pardon me, path to success is the ability to apply knowledge without revealing details about what was being worked on that required the acquisition of the knowledge.
Its possible to have non-competition clauses that restrict one from a particular application domain without its impeding with employment in a related but non-competing domain for a specified period of time.
In effect, if you work for A, you shouldn't go work for ~A to do the same thing for a while. Specially if you work in the [censored] community.
That doesn't mean that you can't apply the skills gained while working for A to solving the problems of B or C. The marketing has to be done by skill not domain knowledge.
MSBPodcast.com The opinions expressed here are my own. If you don't like 'em... Think up your own stuff.
Make sure you go for not just 100% of your salary current salary during the non-compete timeline (if you have to), but enough extra to keep your insurance current, payments into your retirement going, and everything else.
I was asked to sign a NDA that would have put me out of commission for 3yrs. I had been working at the company for about 9 months. My condition was that 3yrs salary at my starting rate be put in a trust fund.
I was given leave soon thereafter.
Aah, change is good. -- Rafiki
Yeah, but it ain't easy. -- Simba
After following this link I came across the following amazing non-sequitor:
16603. Every person who, as a condition to a sale or consignment of
any magazine, book, or other publication requires that the purchaser
or consignee purchase or receive for sale any horror comic book, is
guilty of a misdemeanor, punishable by imprisonment in the county
jail not exceeding six months, or by fine not exceeding one thousand
dollars ($1,000), or by both.
This section is not intended to prohibit an agreement requiring a
person to purchase or accept on consignment a minimum number of
copies of a single edition or issue of a magazine or of a particular
book or other particular publication.
As used in this section "person" includes a corporation,
partnership, or other association.
As used in this section "horror comic book" means any book or
booklet in which an account of the commission or attempted commission
of the crime of arson, assault with caustic chemicals, assault with
a deadly weapon, burglary, kidnapping, mayhem, murder, rape, robbery,
theft, or voluntary manslaughter is set forth by means of a series
of five or more drawings or photographs in sequence, which are
accompanied by either narrative writing or words represented as
spoken by a pictured character, whether such narrative words appear
in balloons, captions or on or immediately adjacent to the photograph
or drawing.
I was presented with one a few years ago (the company was Dendrite) that provided for a 50% salary for the life of the non-compete (2 years, I think). It was worded something like "I agree that 50% base pay during the non-compete clause adequately compensates for the hardship of the non-compete clause..." (probably to avoid a court challenge over whether the clause was fair, prevented me from making a living, etc.)
If you can get a company to agree to that, you must have some special skill. Non compete's put you on the defense from day one at a new company and chances are the company doesn't care. Fortunately, they are extremely hard to enforce (which is what every HR person says), but at the same time, if they are so hard to enforce, why bother with them. I wrangled with my current employer for 6 months refusing to sign unless they gave me a contract or a severance package because their non-compete was so vague it included the entire industry. In the end, I had them reword the document to specifically list their 'direct' competitors, which could not change without my approval, and remove any mention of working with corporate partners.
"Where is my mind?"
In regards to non-competition clauses there's a very good reason for a company having them. Say you work at a real-estate company (X) handling several large corporate accounts. You decide to leave company X. Since you are the prime contact for Company's A & B, you can call them up and say "Hey, I've left X, but I'm moving to Y and would love to work with you there." Thus A&B leave X and they lose millions of dollars. Now a lot of times a company will lease restrictive clause that says "for a period of 18 months after leaving our firm you can't talk to any of your old clients". This is actually reasonable and quite fair.
Another good example of a no-compete clause was the one Ross Perot signed when EDS removed him from the board. He was given something like an $8 million severance package and told he could not compete for a period of 2 years (I think). After those two years were up, he started Perot Systems and now vies with EDS for many of the same clients.
When technology comes into play it gets a little more tricky. If you work at company X & then move to Y you can actually use knowledge of the product from company X to build a competing product at Y. This can't really be covered by normal patent protection which is why the no-compete clauses have come into play. A broad no-compete clause is ridiculous, especially one that covers the entire IT industry. One that says you can't work at a streaming media player company for 12 months after leaving is not. Courts will uphold these although I'm not sure who would get sued if you violate it. It's possible the new company would pay damages but I'm not sure.
Mordred
A non-competition clause in a contract is enforceable so long as it does not fall under the definitions of a bunch of other laws, among them the "Unfair contract terms act", and a few others more specifically dealing with employment law.
A non-competition clause must be
- Limited and reasonable in time - it cannot exceed a period that the court deems "reasonable"
- Limited and reasonable in scope - this is complex and I'll cover it below
- Fair - you can't cripple a person's future career unless the compensation is there, kind of like a waiver to the usual consideration laws - here consideration has to be both present AND sufficient, whereas usually it only has to be present.
In cases that have been tried, what usually makes the clause non-enforceable is the scope argument. The scope is a kind of function of the type of industry, the role the person had in their last company, the size and presence of that company and the number or market size of the markets in which the individual is prohibited from exercising those skills.
For example, if you were chief technology officer of a tiny development company that worked off a single product, they can't enforce a clause preventing you from working in the IT implementation industry in an entire country, because the broadness of the exclusion is far greater than the broadness of the role given up.
This rule seems to be constantly open to re-interpretation, but in almost all cases the court leans towards individual rights rather than those of the company. My guess is that this is because the companies rarely need the clause to protect themselves - if they have proprietary technology, then their copyrights and patents ought to protect them, and they shouldn't need specific individuals, and the loss of those individuals should not be a threat. Where the courts back the companies up is where the leaver takes with them a huge list of contacts that were developed using the prior employer's resources and services, or where the leaver takes with them a knowledge of the industry that is significantly ahead of it's time because the company they joined gave it to them - then an exclusion clause for that specific area will be enforced. Of course it can only be enforced for a few months because technology moves on, and it can only be enforced over very specific and narrowly-defined areas otherwise it's not considered fair.
Writing clauses like this for key personnel is very difficult and it is done for two reasons. Firstly and most usually, they are to scare people into staying. Secondly and more rarely, they are there to protect what is seen as an "excellence in thinking" in a specific area of expertise. For example, the head of technology development for Oracle probably has some clauses about working on web-enabled enterprise database delivery systems or some such junk because Oracle will have stuff in pre-patent conceptual phases of development that they want to protect, that is insufficiently defined to be awarded a patent or copyright.
Salocin.com
Problem is, you need to specifically ask for the non-compete before accepting the job (and leaving your previous job).
In the past, I've been made an offer from a company and accepted. Then on my first day they hand me this form to sign, and if I don't sign it they will let me go. At that point my options are limited.
I've also been in a situation where my company came up with a new non-compete and said "we're not holding a gun to your head, but if you don't sign this we won't be employing you anymore.". Again, not much choice.
The only defense is, upon receiving an offer, to ask for a copy of the employment agreement. Then use that to negotiate or base your decision to work. Don't let them spring it on you once you've already burned your bridges.
Ralph
Interviewer: "How much were you making at your previous position?"
The Truth: "I am making ten bucks an hour changing back-up tapes while reading the K&R book and surfing Slashdot, but I think I can figure out how to do the job and should get paid $105 thousand per year for it."
What You Tell Them: "I'm looking for something in the range of $115 thousand per year, but I might be willing to accept slightly less. I've been doing a lot of training beyond the required skill-set of my current job, and I am ready to move up."
Information wants to be anthropomorphized.
If you are making $35K per year, and applying for a job that pays $105K per year... tell them that your last job payed $98K per year. There's really no easy way for them to check on it, and probably wouldn't bother if there was.
Worst case, they find out and fire you... in which case, you can now honestly go to other employers and say "my last job payed $105K per year."
Information wants to be anthropomorphized.
my reaction is not printable in a family oriented medium.
There's a saying in techdom about Microsoft: Don't moon the giant. Crossgain mooned Microsoft every which way. First, the ex-Microsofties poached some of their former colleagues to join them at the startup. Then they raised $10 million from investors, including The Barksdale Group, a venture firm run by Microsoft's chief nemesis at the antitrust trial, former Netscape Communications Corp. (AOL) CEO James Barksdale. A few months later, Crossgain named Mitchell Kertzman, an outspoken critic of Microsoft's business practices, a director. Kertzman is CEO of Liberate Technologies (LBRT), an interactive-TV software maker that competes fiercely with Microsoft interactive-TV technology
The last straw was Crossgain's decision to base its technology on non-Microsoft software. Instead of using such Microsoft products as the Windows 2000 operating system and SQL Server 2000 database package to develop its service, Crossgain opted for software made by rivals. ''It doesn't look very good for Microsoft if a company run by its former vice-president of developer relations is using software made by Oracle,'' says a former Microsoft executive.
With a potential lawsuit looming, Microsoft offered a deal, according to Crossgain and Microsoft. If Crossgain committed to building its service with Microsoft products, the company wouldn't pursue the noncompete claims. Crossgain sources say Microsoft specifically wanted to preclude the company from using Oracle database software. Microsoft sources deny that. Switching to Microsoft technologies meant huge delays and the loss of months of work for Crossgain, which hopes to launch its first service in March. But the deal also meant avoiding months, or perhaps years, of litigation with one of the wealthiest companies in the world. Crossgain execs thought they could win the litigation, but the time and expense to do it would be a huge drain.
The system is obviously open to abuse, and I am going to have to think long and hard on how best to sort this out.
"It is a greater offense to steal men's labor, than their clothes"
When I showed up for my first day at one company, I was presented with a non-compete/intellectual property agreement. I was told that my employment was conditional on my acceptance of the terms of the document and my signature. I never signed the document, but I continued to work there for months.
How did I accomplish this remarkable feat? I reasoned thus: Essentially all non-compete agreements are worded in ways that are grossly unfair to the employee. Accepting the agreement a company puts under your nose as written is roughly equivalent to accepting the first price quoted to you by a street merchant in a middle-east bazaar.
Further, I reasoned, lawyers are like ferrets; they have short attention spans and more teeth than is strictly necessary. So I refused the agreement based upon a few clauses I found objectionable (it's not hard to find something to bitch about in one of these documents). The company sent the thing to their lawyer to have him review it in light of the objections I had made. He made some changes. I found more things to whinge about in the new document. I sent it back.
We played this game for about two weeks until (as ferrets will) he wandered off and found a new toy to chew on.
Problem solved.
--
I *invented* pants!
Back when I worked in broadcasting, the industry thought they could get away with no-competes for everything. Right down to the minimum-wage people they had answering phones. As my attorney told me, if you live in a right-to-work state, the only way a no-compete clause is valid is if there's quid pro quo. That is, they buy from you the work time that you'd spend at another employer. If they chose to let you spend that time watching Jerry Springer or flipping burgers, that's up to them. But they have to *purchase* that ability. Generally, I've seen negotiated rates from 100% of salary to what I negotiated in my no-compete which was they make up the difference if my non-broadcasting job was paying less than what I was making in the industry. So, when the company was bought out, I found myself a posh job in the bookstore at a community college. I was paid a paltry sum of $9 an hour for 5 hours per day and due to (the all to common) ineptitude of the broadcast outfit, they made up the difference for my old 8 hour-day job. Best two years I've ever spent!
And I can't even leave the Army whenever I choose. They said that if I was "absent without leave," the MP's might shoot me on sight.
From all the books I've read about getting ahead in your job, it seems the best way to advance is to hop from job to job every five years. Now, how am I supposed to do that? Private Phil McCrakkin
Try this:
Next time they try to get you to sign a non-compete clause, whip out one of your own for them to sign that says they will not hire anyone who does what you do for 12 months after you leave...
--Blair
This is a very important issue that many technology professionals get caught up in. Kids out of college are most harmed by a non-compete waiver that most companies will impose (at their discretion).
People should be very aware that these contracts are indeed legal, and binding. They will hold up in court and I've seen it happen.
One story I have is of a guy who had been working at a tech firm for a year when a VP invited him into his office. The VP passed a document over the desk, casually, and said that he would need it returned within a day. Of course, the document was a non-compete waiver that the company was instigating. In it was provisioned that this man, should he leave his current job, could not compete directly/indirectly with his current company, and could not use knowledge that he gained at the company for 2 years. He was told, that if he did not sign the waiver, he would be fired. The sad thing is that this is perfectly legal for a company to do. It's very important for people to ask about non-competes when they first jump into a job, because it may turn up and bite them in the arse at any time.
Also, I have strong advice for young techies to be careful about signing these things. You could very easily be locked into your job permanently.
Better advice, is to find a friend or relative that is a lawyer and have them take a look at any waivers before you sign on the line.