Crazy Non-Compete Contracts?

JL-b8 asks: "I've just encountered a (from what I know) strange occurrence. A group of friends who work for a small web design firm are being forced to sign a non-compete agreement with a clause that prohibits the employee from working with a competing company for 12 months, after the date of their leaving. The owners claim it's a standardly practiced clause, but I don't see how the hell a web developer/designer is supposed to find work in a city for a year, without moving to a completely different city. I'd like more input as to how this weighs in to the rest of the companies out there. Is this a common thing? If you've signed something like this, and had to switch jobs, how did it affect you?"

Comments

First hit on a google search

[nelsonal]

I'm not a lawyer, but these guys are. Hope that gives you some useful tips about what's worth fighting over.

Re:First hit on a google search

[stephanruby]

"I don't see how the hell a web developer/designer is supposed to find work in a city for a year..."

He's not, that's why you ask for full time income for one year (in addition to the standard severance package) to compensate for the time he won't be employable. You can tell your friend this is the "standard" response for this "standard" clause. Either that, or you can tell your friend to strike out the clause, initial it, and ask the employer to initial it as well. Crossing out clauses, or modifying clauses to make them more reasonable, is another very "standard" practice.

Whatever happens, tell your friend to not let this clause slip by untouched (even if he does live in a State where it's not really enforced). If his boss is going to be uncompromising, your friend needs to find this out now *before* he accepts a job from him. For some good reading on this topic, I recommend he takes a look at http://asktheheadhunter.com. I would also suggest "When I Say No, I Feel Guilty" by Manuel J. Smith -- which is the best book I've read on assertiveness.

Re:First hit on a google search

[kefoo]

I have heard of some non-competes being tossed out because the basicly left the person without employment opertunities in their profesional market.

Here in Ohio we have a law called The Blue Pencil Rule. If a person can show that a non-compete clause is preventing them from finding employment a judge can rewrite the clause as he sees fit. There's probably something similar in many states.

Most of the non-competes I've been asked to sign have a term of about one year. They usually specify that they only apply to working for a competitor, although on one occasion I had to get the contract amended to specify what the comapny's area of business was because the clause was so sloppily (or possibly intentionally) written that taking almost any other job could run afoul of it.

yes... don't sign it depending on which state

[Anonymous Coward]

non-compete clauses are very common and yes, some companies will use them against you. Some states prohibit non-compete clauses, like CA. If you live in CA, you can sign a non-compete clause but it is unenforceable. Other states, like WA, TX and I think FL allow non-compete clauses, so I would be careful about what you sign.

You sound young and inexperienced... welcome to the real world. Don't sign it unless you are completely desperado for money.

Ignore 'em

[Utoxin]

I'm a PHP/MySQL developer, and I get asked to sign those on a regular basis. I sign them, and then forget about them.

To be a bit more thorough in my answer, I have never flagrantly violated such an agreement. It's usually not that hard to find work for another company that isn't a direct competitor. Plus, (IANAL) I've heard that those sorts of contracts are mostly unenforceable. I could be wrong about that though, which is why I try to avoid flagrant disregard for the non-compete.

Re:Ignore 'em

[Splab]

Back when I did PHP programming we had a non compete regarding costumers, if they chose to enforce it they had to produce a list of companies that I wasn't allowed to work for no later than my last day of work. Also if they chose to enforce it they had to pay me compensation for the duration of the non compete.

They never did choose to enforce it.

it depends.

[User 956]

I'd like more input as to how this weighs in to the rest of the companies out there. Is this a common thing?

It's probably pretty much bullshit, as non-competes are usually targeted at specific knowledge jobs (CTO, CEO, etc), not skill jobs (web designer/developer). Basically, it comes down to compensation for that commitment. If the firm's paying six and a half figures, go for it. If they're paying market rate, tell them to knob off: There are plenty of other firms that don't require a non-compete for a regular web developer/designer position.

I'm on such a job currently...

[RuBLed]

In my case, it's 6 months but it's a little forgiving since a specific industry was clearly stated. (my case: bpo) Although that still limits my options since our competitors are also one of the better places to go in case I would like to find another job.

I know people who work in an "all purpose IT Company" that offers services ranging from outsourcing programs to supplying servers. They got a 2 yrs non competing period, the funny thing (because it's not me) is that my friend can't find an IT job anywhere since it would violate the agreement. He "had" to work in a non-IT related field, I just bid him good luck.

And yes, such things are crazy.

Strange for SW, not for others

[Meostro]

I've seen non-competes like this in things like news media, but not often in software development. If someone is a news anchor at station A, when they switch over to station B they generally get a 6-month to 1-year paid "vacation" so the marketing that station A did to promote this person to their viewers would not give an advantage to station B.

Non-competes should only be accepted for this sort of reason, where some person working within the same industry for another company would have either proprietary knowledge or influence not due to their skill, but only to their association with a company. If I'm working as a cashier for -insert megalomaniacal chain store here- then there isn't really any possibility of having such knowledge or influence. If instead I'm working in their procurement department and negotiating deals with (and cultivating relationships with) outside vendors, it makes sense for the company to have a non-compete clause. If I weren't working for them, I wouldn't have had the contact with those vendors, it is only due to my work with the company that I would be as successful at another company.

Whether or not you accept the clause, however, is up to you. Do the benefits of working for this company outweigh the problems that a non-compete may cause you?

Not worth the paper they're written on

[8-bitDesigner]

I'm a web designer/developer in a mostly print design shop, and we actually ran into a situation where one of our designers quit to work in-house with one of our clients. The effect being that she left, and having no more need of us, the client did too.

So what happens? Nothing really. We chose not to pursue the legal route because the client wasn't worth what we would've had to pay in legal fees, and secondly because no legal ruling would repair the situation. Sure, maybe we could bilk a little extra cash out of the client on the way out, but we couldn't seek an injunction against our designer working for them.

Ultimately, after asking a couple of HR people I know, I found out that these things are pretty much only valid if you're getting something in return. ie: If I ask this of a designer, then right there, in the contract there has to be spelled out some level of compensation for the direct act of denying them this revenue source should they leave. Otherwise you'd get laughed out of court for trying to enforce this, at least to my understanding (and ovbiously, IANAL).

Ask them to pay for it

[khchung]

Add a clause in the agreement that said the company will pay your full salary for the duration of the non-compete agreement, or until you landed another job, whichever is earlier. Tell them that is also "a standard clause for non-compete agreements".

If what you know is so important that the company will suffer if you work for a competitor, it makes sense for the company to pay you for it. That's fair.

Current non-compete lawsuit

[The Bastard]

Actually, there are companies which do enforce non-competes through legal action. Even if the defendants win, how much money will they have spent on lawyers to defend themselves? Often, lawsuits aren't for the purpose of winning; rather for the purposes of setting an example of "you can fight, but it will cost you every penny you've ever earned, and ever will earn"...

Ex-Iowa workers are sued to shield ethanol secrets
They worked in Jewell and learned confidential methods before switching jobs, the lawsuit says.

By JEFF MARTIN
SIOUX FALLS (S.D.) ARGUS LEADER

March 7, 2007

In a case that underscores how competitive the ethanol industry has become, an ethanol maker is suing two former Iowa employees to protect its trade secrets and keep them from a rival.

Broin and Associates claims it has developed technology that make its ethanol plants some of the most profitable in the industry.

In a federal lawsuit, Broin says two employees of a Broin-affiliated ethanol plant in Jewell, north of Ames, learned confidential information and trade secrets about Broin's ethanol production methods.

Then, the Iowa employees left to work with Colorado's first ethanol plant - a direct competitor of Broin, the lawsuit alleges.

In going to Colorado, the employees broke agreements not to compete with Broin, according to the lawsuit.

Broin has designed, engineered and built more than 25 ethanol plants across the United States, and is building one of the first plants to produce ethanol from corn cobs, in addition to the grain.

Defendants in the lawsuit are Gary T. Hanson, former operations manager at the Horizon Ethanol plant, which began operations about one year ago.

Also named as a defendant is Robert A. Akers, a former maintenance technician at Horizon.

"Broin and Associates licensed to Horizon Ethanol proprietary technology, design information, and operational information," the lawsuit states. "The licensed technology included trade secrets, formulas, research data, processes, know-how, and specifications related to Broin and Associates' design and construction of the ethanol facility."

Hanson resigned from the Iowa plant Dec. 18 and became affiliated with Sterling Ethanol LLC in northeast Colorado, according to the lawsuit. Akers resigned Jan. 22 and also went to Sterling, Broin maintains.

Those job moves violated agreements that they not compete with Broin-affiliated plants, the lawsuit states.

Akers' lawyer, Stu Cochrane of Des Moines, said the lawsuit misrepresents the situation.

For one thing, Cochrane said, Akers was not involved in producing ethanol. Rather, he was a maintenance worker who made $13 an hour, and he went to Colorado to try to make a better life for his family, Cochrane said.

"He wouldn't know a trade secret if he saw one," Cochrane said. "He had nothing to do with anything that was remotely confidential for that plant. He essentially fixed broken equipment."

Akers had no contact with customers, wasn't involved in marketing efforts, and "the suggestion that he's now harming them is ridiculous." Cochrane added that Akers "is no threat in any way, and he never has been."

Hanson could not be reached Tuesday for comment.

Sioux Falls lawyer Tim Shattuck, who is representing Broin and Horizon, said it's their policy not to comment on pending lawsuits.

Among other things, Broin's lawsuit seeks injunctions preventing the two men from working with Sterling, and stopping them from sharing confidential information.

Sterling Ethanol has 30 employees and operates 24 hours a day.

Its owners are building another plant 40 miles south of it. They have plans for three more facilities, the Rocky Mountain News newspaper of Denver reported in January.

http://www.desmoinesregister.com/apps/pbcs.dll/art icle?AID=/20070307/BUSINESS01/703070352/1029/BUSIN ESS

Re:Pretty standard

[cyclop]

In fact I can't understand how can US workers comply and go away with such a draconian practice like a "non compete" clause. What do they think you are supposed to do for a year? Washing cars?

I can understand not copying your previous employer IP property to paste it in your new workplace. But if, for example, I'm a software engineer that worked on PageRank at Google, I understand not re-implementing PageRank at my new workplace, but why should I stop working in search engine technology? Why should I restart from (almost) scratch, doing something I'm not expert in, having probably lesser opportunities and wages, etc.?

What I find more amazing is the "oh well it's pretty standard" attitude. Do you really think such clauses are fair clauses?

The Important Thing

[Rydia]

Remember, I am not your lawyer.

Read the contract. Take it to a lawyer. If you are in california, tell them straight up it's unenforceable and tell them you want it out of the contract because it could be damaging to the rest of the agreement should legal actions arise. Elsewhere, if you absolutely cannot find a lawyer, agree to the non-compete if you can get one of the following:

1) Specific mention of area of effect of the clause. Overly large areas are unenforceable. Look around your area and see if there are other places you could go to more than X miles from the employer.

2) Specific mention of specific competitors in the contract that you could not work for. If the contract has a completeness clause ("this agreement is the complete and final agreement between the parties," if I remember the wording close enough, which bars extrinsic evidence, such as a list), make sure it is in the contract itself, and not just an oral agreement or a typed-up list. Remember that what is said during negotiations likely will not have any effect upon how the contract is interpreted by any court at some (unfortunate) later date. The contract must be ambiguous for that, and non-specific does not mean ambiguous.

The larger the area/more employers, the more money you can ask for in severance during your noncompetitive period. If they try to get you to sign away longer than a year and a half or a couple counties of area, tell them up front that you can't agree to that and it is likely unenforceable. If they disagree, grab a lawyer for an hour and have him call them to tell them that it probably is. Generally, however, these clauses are allowed, and you have to be careful what you sign. Do not agree to a bad covenant not to compete in exchange for a lengthy period of "gauranteed" employment, because the gaurantee is... well... not a gaurantee. Even with a contract, unless it is worded extremely carefully, you are still an employee at will (to forestall questions: contractors are different, as they are not employees).

DO NOT, EVER, just cross out parts of a contract. That will not modify the contract unless the other party specifically agrees to the modification. The physical appearance of the paper is meaningless, as the contract itself is metaphysical. At best, you don't have a contract. At worst, you have a counteroffer that was not accepted by the employer, which may revert to the employer's version. Feel free to cross things out, add things, or whatever on your copy, but you ABSOLUTELY MUST go and specifically bring your concerns to the person you are negotiating with, draft a NEW copy of the contract for you to both review and sign. That is the only right way to do it.