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Judge says Internet Obsoletes Lengthy Non-Competes
dashNine writes "The NLJ's Law News Network has this story on a New York case in which a judge refused to enforce a Web firm's noncompete clause, saying that "in the Internet environment, a one-year hiatus from the work force is several generations, if not an eternity." Another well-deserved nail in the coffin of this instrument. " Non-competes are definitely an annoying part of the industry. Do you think this is legit?
Disclaimer: I am a lawyer, but this is not legal advice. If you need legal advice, see an attorney licensed in your jurisdiction.
The level of misinformation and erroneous explanations of law I'm seeing in other posts is unusually high . . .
The law has *always* been hostile to agreements in restraint of trade, *including* non-competition clauses. Not just in some states, not just in the U.S., but the entire English speaking world which inheritted the Common Law of England.
In front of me is a case on the subject from 1711. Yes, nearly 300 years old. [Mitchel v. Reynoldds, 1 P. Wms. 181, 24 Eng. Rep 347 (K.B. 1711)]
It applies the same rules used today. An agreement in restraint of trade, particularly one barring a man from engaging in his trade, is presumed illegal, and must be shown to be necessary, Particularyly, a non-competition clause must be necessary to accomplish the purpose of the contract.
In Mitchell, a baker sold his bakehouse, and agreed not to compete in that parish for five years--which he promptly violated, claiming that the bond was void by law. The court found the clause enforceable because it was the only way the business could possibly be transferred--if the old baker could open again across the street, he would take all of the business that had supposedly sold to the new baker. So in that one parish (not even the entire city), the baker couldn't sell--but he could in the rest of England.
Essentially the same rules apply today. To enforce such a clause, it must
1) actually be necessary to achieve the contract,
2) be as limited in time as possible--only long enough to achieve the purpose needed, and
3) be limited in geography, only covering the minimal region needed.
Overstep any of these by even a little bit, and the entire clause is thrown out. In five years of full-time practice, I only saw one non-compete clause that it wasn't clear I could have thrown out [hint: *don't* try to write your own--pay someone who knows what he's doing.].
So there's nothing new or shocking here. If there's no trade secrets (these could include in-house techniques for getting the job done faster), you fail part one. Today, a year is forever, and it would be hard to conceive of any internet related field where a year wouldnt' be too long, and two fails. Three, however, isn't clear--the entire world might be a single geography for purposes of competition.
Just for an example: suppose that a week after they sold slashdot, rob, hemos, & rob quit andover and formed the new cmdrtaco site, covering the exact same topics, and with discussion forums. If this were possible, and the non-compete clause couldn't be enforced, andover would be nuts to pay anything, and would certainly pay much less than they did. On the other hand, if andover could prevent them from competing for a year, andover would probably keep the audience if, a year later, they opened a competing site. In fact, much less than a year would do.
hawk, esq.
Non-competion clauses are already illegal in many places. Right-to-work laws are pretty widespread in the US. This New York decision, assuming it isn't appealed, applies only to NY and states with court agreements with them (if any - I don't know which states have such agreements.)
A good quote from the judge:
Read collectively, the effect of these provisions is to indenture the employee to EarthWeb. This court will not allow EarthWeb to expand the agreement's confidentiality provision so that it potentially has that result, (...) nor can EarthWeb make an end-run around the agreement by asserting the doctrine of inevitable disclosure as an independent basis for relief.
I always thought non-competion clauses were a barbaric, anti-labour practice. In California, they are already considered against public policy and have no force.
Using the speed of technological change as an argument against them is novel, and I'm not sure how happy I am with that. It would be far better to strike down non-competion clauses completely.
The business community will, of course, complain that this prevents them from securing their intellectual property and acts to undermine business. However, since the computer industry is more concentrated in Calfornia than anywhere else, and California hasn't allowed such contracts for years, I doubt businesses can make a good case that it harms innovation.
Workers should own their own skills and should be free to seek employment wherever they choose. To me, this ought to be a basic human right.
Right now computer professionals of all kinds (yes, even MSCE weenies) are in very high demand. This places us in a position of strength when negotiating our contracts, not just in terms of wages, but in terms of other conditions as well. Even back in the early 90s, when demand (and compensation) was lower, I refused to sign non-compete clauses. While this may have cost me one particular opportunity or another, it did not seriously hamper my ability to get a job and make a good living.
An immediate gain is not worth the potentially crippling of one's career down the road, and immobility through a required 1 year hiatus gives your employer far too much of an advantage should you become dissatisfied with the job in any way (wages, working conditions, working hours, toxic boss, or relocation to name just a few possibilities). Far better to shop around a little longer than hamstring oneself by signing such an agreement, even if it impacts one's credit rating a little.
The Future of Human Evolution: Autonomy
From my observations, my employer requires all employees to sign non-competes and employees still go off to other competitors after a year or so and nothing happens to them. I think my employers reasoning behind letting us programmers go is that they know they have a better chance of getting us back sometime down the road if they don't make a big deal over it (and many, many people do return, as weird as that sounds). I think some posts above have said similar things.
Now, my question is, when I was first hired as a programmer, I was 17. Now, does the non-compete agreement I signed considered null and void since I was under the legal age to sign binding contracts (18? 19?)? I don't know (and I'm not entirely worried about it, since I've seen that it's never enforced), just mildly curious.
Non-compete agreements may not be enforced simply to reduce competetition. In other words, a non-compete does not bar you from working from a competitor unless one of 3 allgations is sustained -
You had access to trade secrets and your new employer ( who is in direct competition ) could and would use those secrets or
You were given specialized training at company expense that you would otherwise not have been able to receive or
You are taking industry goodwill from your old company to your new one. This case is usually for salespeople who have 'their' clients. Those clients might follow the salesperson rather than stick with the original company.
In this case, the judge looked at the allegations and found they did not meet the requirements above. He also noted quite correctly that a year is an infinity in this business. Non-competes may be successfully challenged if they have the effect of preventing a person from working. So the judge first dismissed the actionable claims, and then also found it non-enforceable for work prevention. Seems a reasonable ruling to me.