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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
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.
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?"
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
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!
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.