Be careful before you sign a non-compete agreement
alternet.org
alternet.org
The problem is when businesses expect the non-compete agreement when it is not a negotiated item during the hiring process. I recall one instance where I given an offer by a company and we went through the usual salary/benefits/role negotiation process. I accepted the offer and put in notice at current employer. During the new hire paperwork they added an extremely onerous non-compete agreement. Of course I refused to sign it.
The most insulting part was how baffled they acted. Like they just assumed they could add demands like that without any additional consideration. This attitude of 'well we need to protect ourselves, and we can ask for this legally'. Well yes you can ask for anything, but it's not what we agreed as the terms of employment.
It's true that the world isn't zero-sum, but it's offensive for them to just assume that means you're going to surrender something for nothing.
"I understand that your feel your business is at risk for poaching/trade secrets etc... But what I don't understand is why you assumed that I would aborb the costs of your risk."
A few times they've tried to imply I'm the first not to simply blindly sign everything and how difficult this is going to be. I've never once lost a role or ended up having to sign my life away.
Contracting taught me to read every contract, and every clause is negotiable.
"None of our contracts are valid"
That's all I heard.
"What's that, your legal department is too busy or too inflexible to approve that tiny change in a timely manner? Should I be concerned about the near-future health of the company?"
hearty laugh
I will not sign a non-compete agreement.
Show me the money.
This seems like something that would be easy to explain during an interview with a different company.
Of course the odds of something like that making its way through the dysfunctional legislatures of 48 states is vanishingly low. But we can hope.
This is pretty much the standard in New Zealand employment law, and it seems crazy to me that people can (effectively) be denied a livelihood because they once worked one job.
There's a pretty good summary here:
http://www.wolfbaldwin.com/Employment-Articles/Non-Compete-C...
This is the first article where I really understood that. Saying a non-compete defends a big corporation from "poaching" (by ensuring a low level employee can't work in the same industry after quitting) shows an almost depraved pro-business bias.
The non-compete situation is one of those prisoner's dilemma problems. If you're the only one with non-competes then you're better off because you can retain employees for less than their market rate, and if everyone except you uses non-competes then you lose your best talent and can't attract more. Thus the short-sighted decision is to use non-competes.
But if everyone uses non-competes then labor doesn't flow at all, businesses can't attract talent, and then everyone is worse off.
But that may be too clear to be useful. Not all capital is entrenched.
Of all the delusions about economic system, the one that capitalism loves free markets is the most hilarious.
You can mock it, but that's the whole point
Capitalism is an economic system based on private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labor, voluntary exchange, a price system, and competitive markets. In a capitalist market economy, decision-making and investment is determined by the owners of the factors of production in financial and capital markets, and prices and the distribution of goods are mainly determined by competition in the market.
Just look what countries that value their own peasants (should I say "democratic" here?) do. Make non-compete invalid unless it causes a transfer of money to the employee that is at least equal to his entire salary for the non-compete period.
Unless the benefit clearly outweighs the harm, I don't see why they should be allowed. And I've seen nothing but vague handwaving about the benefits of them, while the harm is huge and obvious.
To who? Not me. I've never once benefited from a non-compete clause. They've always been used as a tool to threaten.
That's why the company should be required to pay you in order for them to be valid.
>The specific issue with the author of this article is that she did not disclose her prior noncompete to the new employer.
In fact, according to the original WSJ article, "In applying for the job at the Reuters newswire, she checked a box saying she wasn’t subject to any noncompete agreement. Her termination letter from Reuters, which was reviewed by the Journal, said that mistake cost her the job."
I get that she had supposedly forgotten she had signed one but it puts Reuters in a tough situation.
You could say "ah, but Reuters never would've hired her if the noncompete had been disclosed." Not sure about that, because a fair reading of the noncompete is that under New York law it cannot prevent the employee from practicing her trade of journalism. If I were Reuters HR, and I saw the noncompete, I might not have considered it a problem (aside from the industry practice of filing meritless lawsuits).
In a startup, the whole endeavor rides on secrets. The company doesn't more money, talent, or employees than big companies. This applies to a pretty broad definition of startups that includes unicorn and high-growth public companies. The only things that matter to those companies are what they're doing and how they're doing it, and in many startups, every employee has specific knowledge that would be valuable to a bigger company or competitor. [Ironically, the state with most of these companies (CA) doesn't allow non-competes, so it's obviously not death, probably because trying to replicate a startup's success means starting after they've become successful, so it may not matter. The point is, non-competes make sense in a world where knowledge is core to the business.]
In a large company, execution dominates. You can go all the way to factory worker, but anything that looks like "use your trade skills to make this thing" obviously shouldn't be protected by non-compete. Trade skills should cut across companies.
There's ways to argue that, say, developers for CA startups could go either way. React / Ember / Angular / etc. is certainly a trade skill. I'm going to hire somebody eventually to help with munging our data set, plugging into more APIs, and figuring out how to make sense of the data that comes back. If that person went to work for another marketing analytics company, I wouldn't be too happy, because to some extent, our specific mix of APIs to integrate with and what we got from them is proprietary. If an engineer I'd worked with and developed that knowledge with went to somebody trying to solve the same problem as me, I'd be kind of pissed. Analytics the way we do it isn't a trade skill, and I expect an informal agreement that you're not going to go work for one of the ~5 companies in the world doing something really similar.
I would also point out that if you've ever worked for a large corporation, you would know intuitively that most big boy companies have employees sign extremely punitive and one-sided restrictive covenants. Startups actually tend to place less value on contractually restricting employees, and the mindset of startup entrepreneurs can be less focused on protecting trade secrets / more on execution. (The IP assignment portion of the covenants package is, however, just as important to startups.)
> In a startup, the whole endeavor rides on secrets. ... In a large company, execution dominates.
Have you ever worked for a startup? Most likely at least 10 other companies have had the same idea. And 100 people outside those companies. Your ability to (out) execute is all that matters -- regardless of the size company. See also: talk is cheap. And yes, there are trade secrets that can be hugely important, but these are handled by NDAs and other Confidential Information agreements, not non-competes. If those are stolen, you sue under those agreements, not your non-compete.
> If that person went to work for another marketing analytics company, I wouldn't be too happy, because to some extent, our specific mix of APIs to integrate with and what we got from them is proprietary. ... If an engineer I'd worked with and developed that knowledge with went to somebody trying to solve the same problem as me, I'd be kind of pissed.
Then you should give them a reason (ideally, several) to stay. Your employment agreement trades some form of compensation -- typically cash and equity -- for their output. You're getting value, they're getting value. If you don't treat them properly, you don't deserve to keep them, regardless if you "wouldn't be too happy" about it.
Maybe idea is the wrong word. Vision? Strategic plan? Narrowly-focused execution with an emphasis on coherence? Facebook and MySpace are the same idea, but vastly different companies, no matter when you compared them. Communicating all the things you do differently isn't something that you can do with a website or a quick chat with a single employee. That structure of shared ideas is important, and in small companies, it's basically all that exists. Comparatively, the code and customer base replaceable.
And anybody can leave, at any time, in the same way that I'm allowed to fire anybody or sell the company with a provision to devalue the equity. There's a million ways for us all to screw each other. There needs to be trust in the company, because if you're just after short term cash, there's way better ways to find it than startups.
As an example, even if Facebook published their detailed road map years ago, do you think MySpace would have been able to mimic their success? Of course not. The team you assemble and your ability to lead them through execution is what matters. That's 95% of it, if not more.
> There needs to be trust in the company, because if you're just after short term cash, there's way better ways to find it than startups.
Huh? What point are you trying to make here? Do you have employees joining your startup for short-term cash? If so, they're idiots and should go work for a larger company. I think the word you're looking for is "loyalty" and yes, of course you want to create an institution that promotes mutual loyalty. But you don't get it just by giving someone a job. You get it by valuing their skills, rewarding them for their efforts, and selling them on the idea that you as a leader will make it worth their sacrifice.
When a company I was with was acquired, we were all given non-competes to sign and it was pretty clear we could sign them or leave. I left not much later for other reasons but I did sign the non-compete. Its terms were such that they seemed unlikely to affect me. (Basically they enjoined me from taking a senior executive position in a fairly narrow slice of the market for a limited period of time.) So, yes, under those specific circumstances, continuing to get paid seemed a reasonable decision.
[Edit: This was intended to be a reply to the comment asking why one would ever sign a non-compete.]
Is there any time when I should ever sign one? OK, perhaps if my family was literally starving and this was the only job I could get. Aside from extreme cases like that, are there any circumstances where a non-compete would be a good idea for me? It seems like there's no point in "being careful," just reject them out of hand. Sort of like you wouldn't say "be careful when handling live wires while standing in a full bathtub."
Also, many firms in finance enforce non-competes as well as many other restrictions, e.g. mandatory approval for trading in personal accounts. So if you want to work in this industry, it's not easy to avoid them without compromising something else.
If someone is going to pay me a chunk of change not to work in my area of expertise for the length of the non-compete, sure.
If the language only covers things I wouldn't do anyway (like reveal employer-specific information, trade secrets, product roadmaps, soliciting customers, and so on).
Unless you're working for SuperLargeCo (and according to this article, in most cases even then) nothing bad will happen if you then work for a competitor. As others have pointed out in this thread, there's no potential legal harm to your new employer. And it is incredibly rare for prior employers to enforce noncompetes.
How many of you have had issues with noncompetes? Is my experience totally atypical? I've job hopped pretty frequently both in and out of California and never had any issues.
It's a risk for you. Even if unlikely, there's a non-zero chance that it could screw up your career and hurt you badly. That risk has very real value attached to it. Just like insurance and out-of-money options have real value to them.
What you're saying sounds exactly like what I've heard form every purveyor of terrible contract terms. "Oh, that's just a formality." "We don't ever enforce that clause." Well when why do you need me to sign it?!
Assume that every clause of everything you sign is potentially in play. If you don't, you're setting yourself up to be burned hard later on.
As it happens, I never got sued, so I guess that they were bluffing, and just hoping for me to give them money, or that they talked to a real attorney, and that said attorney told them their chances of winning were too slim for what they could ever make.
When you enforce one, you are basically trying to take someone's livelihood away.
They're the EULA of of jobs. Sure, make a stand of you really want. But if you don't, there's practically nothing to worry about.
(I feel bad saying that, but TBH I've signed a lot of EULAs.)
Their were also firms in more or less the same industry who were known for having non-competes that basically said, you couldn't do the same job for a year with any competitor. I know at least one person who wanted to go out on his own and he took a year off rather than trying to fight it.