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Non-Compete Agreements

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10-things-you-didn-t-know-about-jimmy-john-s

I’ve talked about the injustice of non-compete agreements at the lower end of the labor market a few times before. It’s worth revisiting the point once again to note its ubiquity and the utter injustice of it.

A recent White House report found that 18% of American workers are currently restricted by non-compete clauses. If you’ve never signed one–or even if you have and had no idea what it was–a non-compete is a legal agreement that prevents an employee from leaving a job at one company and taking a similar one with a competing company, for a specified period of time.

Of the workers who have signed non-competes, fewer than half say they had access to trade secrets that a potential rival company could take advantage of. What’s more, 37% of workers say they have signed non-compete agreements at some point in their careers.

While engineering and computer/mathematical occupations have the highest prevalence of non-competes, the agreements aren’t exclusive to highly-skilled professions. For instance, 15% of workers without four-year college degrees are subject to non-competes, while 14% of employees earning less than $40,000 a year have signed a non-compete. That’s despite the fact that employees in both sectors are about half as likely to possess trade secrets than more highly educated and higher-earning counterparts in the work force.

Of course the most famous example of this is Jimmy John’s, which clearly is concerned about it’s $7.50 an hour employees revealing deep secrets when they go work for Subway later. Or, as is certainly the case, the point is to control workers and nothing more.

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  • Scott P.

    My understanding is that virtually none of these non-compete agreements are legally enforceable.

    • advocatethis

      That’s my understanding, too, at least in California, which makes it that much more of a dick move by the employer.

      • Richard

        They are all illegal in California (except in connection with the sale of a business to a new owner) because California has a specific statute on the issue. Their legality in other states varies from state to state.

      • Sebastian_h

        It isn’t a dick move in California, it is actively stupid. If you force someone to sign a facially invalid non-compete in California (and most of them are) you are in violation of Labor Code 432.5 and subject to a $100 fine and then a $200 fine per pay period after that under 2669(f). That adds up fast for one employee and REALLY fast for multiple employees.

        If you see a routine looking non-compete I will bet you it is from a lawyer who doesn’t practice in California who just cut and pasted it from his home state.

        • The converse of this, though, (as in my comment below) that an employer who knows their industry is extremely averse to the appearance of the appearance of “malfeasance” will know that an employee who knows that won’t likely file a complaint.

        • Dilan Esper

          I knew a sports event promoter who made all the athletes sign broad, obviously unenforceable risk waivers. His point wasn’t to have them enforced, but to deter suit.

          It really should be a criminal offense to knowingly place an unenforceable waiver in a contract of adhesion.

        • Philip

          Usually they say something to the effect of “except in California,” or at least the ones I’ve signed have. Companies just use the same contract everywhere and include the but-not-CA clause.

    • Brett

      That almost makes it worse. No court is going to enforce a non-compete for Jimmy Johns, and even the states with the friendliest laws for them tend to have state courts that won’t enforce them if they’re really long or onerous (more than 2 years, and definitely more than 5 years).

      But low-paid sandwich workers won’t necessarily know that, so it’s pure intimidation of poor and/or young workers. That’s why they not only ought to be made unenforceable, but it should be illegal for companies to offer them even if they are unenforceable.

      • DrDick

        Most workers have little or no idea of even their most basic rights and employers actively discourage them from finding out. Even if it is not legal, just threatening legal action imposes huge hurdles to employees and can impose substantial costs if it is taken to court.

        • witlesschum

          We ought to be teaching kids things like labor rights, civil rights and how to deal with cops in high school. An underappreciated aspect of the wonderfulness of education reform for its supporters is that it makes sure there isn’t time for such things.

          • so-in-so

            Plus, GOP run school boards…

          • Helena Handbasket

            Not just that – also, along with all average Americans being “temporarily embarrassed millionaires,” we’re programmed to believe that our kids are going to grow up to be Masters of the Universe/members of the .001%, who will be Capital and won’t need to know anything about the rights of Labor, and who will be of the class that cops serve, not the class cops persecute.

          • BiloSagdiyev

            We ought to be teaching kids things like labor rights, civil rights and how to deal with cops in high school.

            We need to amend that now to “deal with cops that are in their high school” as so many schools have cops (“SRO’s” in acronym speak and sadly part of the culture/language now, ack, school resource office, cram your multisyllabic ink cloud up your… uh, I’ll come back in, that makes no sense) now.

          • Yes. Negotiation 101: 1. Status. 2. Money. 3. Sex.

    • MacK

      They are and they are not.

      Non-Compete Agreement

      An undertaking, usually obtained from an employee or the seller of a business not to compete with the employer or purchaser for a period of time. Such agreements are usually required to be reasonable in time and scope and can be held invalid if they go too far, i.e., they effectively render the signer unemployable in their profession within his or her existing community or are otherwise unreasonable in temporal, geographic or commercial scope. Indeed, in a number of U.S. states they are illegal and unenforceable when applied to individuals, for example, California.

      Non-compete agreements between companies are also legally risky and can raise antitrust and competition law issues in many jurisdictions. Non-compete agreements should usually be tailored to protect specific interests and it is wise to establish some internal process for each and every agreement in which the interests the non-compete is intended to protect are identified and the non-compete’s duration and scope are established and justified. Sweeping requirements that all employees sign standard-form non-competes, regardless of their work-function, or non-disclosure agreements that amount to an effective non-compete, should generally be avoided in favour of more individually tailored agreements.

      The problem though is that junior managers, who do the hiring usually don’t know the law – the employees don’t, and no one can afford the legal fees for a minimum wage or low paid worker to fight a non-compete. In effect it means that an employee who signed a non-compete has an extra tick in the “don’t hire” column.

      They usually will not be considered legal if the employee would have trouble finding the same sort of work that they are trained for within reasonable commute – so if they would force someone to move, take a big pay cut (proportionately), force them on public assistance, etc. they are usually unenforceable.

      And I have seen some situations where a non-compete, even for software people, was justifiable, usually to stop a well financed and large competitor hollowing out a smaller rival or upstart.

    • Brenda Johnson

      Even an ultimately unenforceable non-compete can be used to make a former employee’s life a living hell. Here’s what happens — employee who signed a non-compete goes to work for former employer’s competitor. Former employer has a law firm on retainer that can file an action for injunctive relief (which would include a request for an ex parte temporary restraining order) at the drop of a hat. Employer drops the hat, and the former employee and her new employer find themselves personally served with a boatload of paper, which includes a temporary restraining order and a notice of hearing on the motion for a preliminary injunction (the hearing date will be SOON). Unless new employer is willing to provide a defense for both of them, former employee now finds herself racing around to find an attorney to represent her, and trying to figure out how to pay for it herself.

      • MacK

        Yep – though a GC at the hirer who is experienced and willing to be hard can often make law firms wet themselves … they can be scared into gibbering witless jelly when the consequences of seeking to enforce a clearly illegal and unenforceable agreement are made clear. The GC has to care about these things though, and know how to intimidate with that knowledge.

        • The converse of this, though, is that a hirer who is extremely conflict-averse, averse to the appearance of the appearance of supposed “malfeasance,” averse to “being tangled up with the justice system,” and so on, will fold at the first sign the new hire signed something that made it “wrong” for him to apply for the job.

          This is likely to vary by industry and so on.

  • DrDick

    Non-compete agreements make it hard for workers to leave or to force companies to pay competitive wages. Except in cases where workers have substantial proprietary knowledge, they are all about holding down wages.

  • CrunchyFrog

    I’ve seen some thoroughly ridiculous non-competes, basically preventing the employee from ever working in that industry and/or profession, for a long period of time whether leaving voluntarily or involuntarily. In practice, few of these are enforced. In fact, most of these are products of overzealous legal departments – enabled by executive management that doesn’t understand that if you don’t constrain the legal department’s actions to fit within the overall priorities of the company they’ll run amok and do shit like this.

    Sometimes, though, the company tries to enforce these agreements. The worst I saw was EDS in the 1980s. They’d hire college grads, send them to a couple months of training in Plano in IBM mainframe technology (COBOL, CICS, JCL, etc.), then send them out to work in jobs that in most cases had nothing to do with IBM gear. However, the college grads were treated as indentured servants in that if they left within 5 years their signed agreements said they’d pay back the training they got (valued at something like $30k, which was more than the average new grad salary at the time) AND not be allowed to work at any company which used any of the technology they’d been involved with. In practice, when workers left EDS did sic the lawyers after them and in most cases cost the departing workers a lot of bucks. Stories varied, and some ex-workers said that they paid nothing after getting a lawyer to respond back saying “I know you can’t enforce this”. However, most reported that they settled for something.

    Today I still hear of these. In high tech the most common response I’ve seen is to ask to review the document before signing, then “forget” to sign. In practice, the management doesn’t care if you sign it, HR doesn’t care, just legal. Legal will check in once per year to ask why you haven’t signed it – but not follow up. If you are at a company where HR and your management think its important that you sign it you need to find another company.

    • In fact, most of these are products of overzealous legal departments – enabled by executive management that doesn’t understand that if you don’t constrain the legal department’s actions to fit within the overall priorities of the company they’ll run amok and do shit like this.

      This, omg this.

      I cannot express how true this is. I’m setting up contracts for some industrial partner collaborate and all the lawyers are driven by a wacked out defensiveness that is pretty clearly wildly counterproductive. I understand why they have that mentality, but it’s not actually a useful one.

      • MacK

        It’s not so much the legal departments doing this as the HR departments – the contempt that tends to flow between HR and Legal is pretty strong. I used to refer to a category of agreements as “testosterone surge” drafting.

        The general advice legal gives is to try to keep non-competes as narrow as possible, because if you go too far, then it cannot be enforced and you will lose. And if there are real interests to be protected, over-egging the non-compete is simply stupid.

        • bernard

          Sometimes legal gives good advice, but there is no shortage of zeal among corporate lawyers, in this and other areas. Too many seem to feel that their job is to protect the company against everything in the world, as if they were taking an issue-spotting exam rather than trying to provide sensible legal protections for their company as it enters into a transaction with another party.

          Dealing with these types is harrowing, and often causes things to fall apart, to no one’s benefit.

          • MacK

            Inexperienced lawyers may do this, but a good GC will usually rein it in. There really is no point in overdoing a non-compete because if you need it, and its overcooked, it is unenforceable.

            An usually when it really matters, the hirer can afford the legal legwork to attack the non-compete.

            • Brenda Johnson

              This. The flip side is when you have inexperienced and/or overzealous folks in legal in a market where it’s not worth it to the competition to fight the noncompete on the employee’s behalf.

          • I worked at a medium-sized corp where you couldn’t go into Radio Shack and buy software for your PC, not because IT would scream, but because every time you bought software, Legal would produce a multi-page replacement contract and try to persuade the vendor to sign it. Naturally, this rarely occurred, though it took a good long time.

    • EDS was notorious.

    • heckblazer

      So, Ross Perot’s company was a flaming dick to employees?

  • Non-compete clauses are stupid and evil for almost all cases though particularly evil when there’s nothing to protect. But even if there’s something to protect, NDAs and various IP strategies seem sufficient. They just shift the burden from the employee onto the employer in certain ways.

    Of course, what they’re after is restricting subtle uses of the knowledge or the benefit of training. To which I say: Too bad. That should be a normal risk that cannot be mitigated by screwing the employee. Do better at retention or, for high level stuff, make sure the severance pay is sufficient to cover the period of the non-compete. Heck, do that for everyone.

    • MacK

      I have to say I disagree. There are situations where non-competes make sense, while overdoing an NDA can cause it to be considered an illegal non-compete.

      You have to push people to be realistic about what they legitimately want to protect – and what is enough to achieve that objective.

      • I have to say I disagree. There are situations where non-competes make sense,

        I’d be interested in those situation. I guess I can imagine some, but then I think compensation makes sense.

        while overdoing an NDA can cause it to be considered an illegal non-compete.

        Ok, I believe that. I guess if there are non-horrible NDAs then there can be non-horrible non-competes.

        You have to push people to be realistic about what they legitimately want to protect – and what is enough to achieve that objective.

        This I totally agree with.

        • MacK

          Certain software companies like in the bad old days Computer Associates used to try to strategically raid companies to hollow them out, then launch a bid. I have seen a particular company hire away employees from a client just to get their hands on the data that the employees had access to (with several giving false cover stories on their new work plans.) It happens a lot more than you’d think in the technology space, particularly in software and microprocessors.

          However, the need for a non-compete usually does not apply to the majority of a company’s employees and, to the extent that it does have a large impact, it can be addressed by sensible security measures like encrypting laptops and tracking large data downloads.

          When you do need an NDA the advantage of being careful is that the question can be asked – what is this for? what does it protect? And should you use “gardening leave” provisions.

          And yes I have seen hirers take a look at breaking NDAs too – but only for really important hires.

        • L2P

          It’s incredibly common in sales. In California, that’s a huge chunk of the non-competes I’ve seen.

          Basically, what happens is a company has a list of leads and common clients, and gives it to the salesperson. The salesperson leaves, and then goes to a rival. The company wants to make sure that if the salesperson goes to a rival she doesn’t use their contact leads and so on.

          In practice, these usually have pretty short timelines (a year, typically), are very industry specific, and often aren’t enforced. Usually, the companies wait until some actual issue comes up (like the salesperson repeatedly using their leads).

        • dr. fancypants

          I’d be interested in those situation. I guess I can imagine some, but then I think compensation makes sense.

          One of the few exceptions to the “no non-competes” policy in California is when someone with an ownership interest in a business (e.g., a stockholder with more than a de minimis holding) sells their interest. You see this in mergers and acquisitions, where the founders and key employees of the company being acquired have to sign non-competes.

          The idea is that you should be able to prevent a company’s founders and executives from selling their company, quitting their jobs post-merger, and re-founding what is essentially the same company to compete with the one they just sold.

          But this is in line with your “compensation makes sense” comment–in this scenario, the selling stockholders have been compensated.

      • DAS

        here are situations where non-competes make sense, while overdoing an NDA can cause it to be considered an illegal non-compete.

        I am not so sure how much I like NDAs outside of very limited circumstances: anything that stifles (non-dickish*) speech (and disclosing stuff is speech) is to be viewed with skepticism, in my book. Also IP is abused, too.

        IMHO, if employers want their employees to not go to other employers and spill company secrets, they should do more to keep their employees happy at their jobs. If you treat your employees well, maybe they will treat you well?

        *this should not be read as a complaint about “PC” or “trigger alerts” similar attempts to make our discourse “safe” my mom taught me that being rude is not being refreshingly candid, it’s, well, being rude. If anything, making sure speech is not bullying actually enhances free speech by giving non-assholes as much of a chance to speak as us assholes have

        • MacK

          I have run into the circumstances where an NDA makes sense a lot – but at the same time it is important to not overdo it. It is not every employee, but it can be dozens.

          If you take a situation where multiple employees have access to important information it is quite feasible for a rival to put enough on the table to hire one away – double his pay check, treble… it can maybe be matched for one employee, but for all? You can also have an employee who is simply an incandescent asshole (and yes I did have to do a disciplinary on one such – he’d hacked his colleagues’ personal information as well as other stuff, which we found out when we searched his …)

        • I figure and NDA for a former employee makes sense when it would make sense for an external. I’ve signed several and while they are super annoying (and usually ridiculous — an open policy would work well in many cases) I’ve not found them hugely onerous (and they hit me more than many ex employees given that I want to publish).

          But my experience is limited.

  • bernard

    Non-competes are hard to enforce and irritate employees who are asked to sign them.

    My understanding is that to be enforceable there must, among other requirements, be compensation of some sort (“consideration”) simply for the agreement, and it cannot be simply employment. There are also limits on time and scope.

    The end result is that many tech firms no longer use them, especially since genuine theft of trade secrets can be dealt with otherwise. I was not aware that they were used against low-level employees.

    That clearly has no benefit other than intimidation. Since, as others have said,they are unenforceable but expensive to fight they ought to be illegal barring a showing of special circumstances.

    • MacK

      Again the compensation issue depends on where you are. In Europe a post-employment non-compete is a contract that usually requires compensation. In the US, where most employees are “at will” and there is no right to continued employment, getting to keep you job has been held to be sufficient consideration.

      So it varies a lot, state to state and country to country.

      By the way, the best thing you can do with an employee who has sensitive information is offer them a firm employment contract rather than having them as an at-will employee. Most of those contracts include a “gardening leave” provision that means that the employee must be paid for x-months after they are fired or submit a quit notice, which serves many of the same purposes as a non-compete. I have seen cases where employees lied abut taking up the other job though, joined the competitor while taking the old paycheck.

      • bernard

        MacK,

        In the US, where most employees are “at will” and there is no right to continued employment, getting to keep you job has been held to be sufficient consideration.

        That may well be true in some states, but I do not think it is universal in the US, even in “at-will” states. I have certainly been advised by attorneys that it is insufficient.

        • MacK

          It is actually enough in most states – where they have the Orwellianly named “right to work” laws in particular. I used to have a note somewhere of those states where it does not work. It fails in most of Europe, Canada, Japan, Australia and New Zealand, and whenever the employee has an explicit employment contract. I’d generally a pay increment for a non-compete post employment though, because (a) it is the right thing to do, and (b) it can raise consideration issues and without a written employment contract, where will the employee challenge.

  • Pyramid Scheme

    There should be stiff penalties, payable to the wronged employee, for even trying to make them sign unenforceable agreements. Your average low-wage worker (and many middle income workers) have no idea these things aren’t worth the paper they are printed on. They look at them as real barriers to employment elsewhere, and thus can cause significant damage to the wronged party. Penalty on unenforceable contracts should be $5,000 + 25% of employee wages earned after signing such agreement.

    “Continued employment” as adequate consideration also needs to go out the window. In public accounting I was forced to sign a broadly worded piracy agreement that was also meant to effectively serve as a non-compete. Of course, when I was going to jump ship and had the document reviewed by an attorney he found it to be worthless. Nonetheless, for a good many years I thought that it really limited my options (I was making $41,000/yr with a family of four to support in 2007 when I signed it, 6 months after starting the job, so I was not really in a position to pay an atty. $500 or so to review it).

    • JKTH

      In addition to the penalties, it would be good if there was something like a flat add-on to wages that made it untenable to have someone earning a low wage or salary sign a non-compete but that was reasonable for someone higher up the income scale who was more likely to be in a position where a non-compete makes sense.

      Of course it’d just be simpler to make them unenforceable, but that could be a good intermediate step.

  • Downpuppy

    There’s a bill at the Great & General Court

    The basic part is not an issue for anybody:

    As expected, the bill would limit nearly all such agreements to one year and prevent them from being applied to most hourly workers.

    But some joker added a bit that would require the “agreements” to be like real agreements:

    But there’s a new provision that could jeopardize that support among big employers: The bill’s “garden leave” provision would require an employer to continue paying a worker with a noncompete agreement who leaves half of his or her salary until the contract expires.

    Which is causing imaginable trouble.

    • NonyNony

      I’m shocked to discover that an employer wants a benefit and doesn’t want to give any kind of consideration for it.

      Completely. Shocked.

    • MacK

      Half?

      In most of the world it’s the whole salary and benefits package except for bonus. It is done as an extended notice provision that allows the employee and/or the employer to treat it as paid time off.

      The justification in other jurisdictions has actually been from a conservative public policy viewpoint – a non-compete without compensation may be illegal because the unemployable individual may end up on unemployment benefits – i.e., become a “public charge,” and generally contracts between private parties that create, or may create a “public charge” are void as against public policy. That is why “gardening leave” is so common in Europe and other jurisdictions.

      It is easy to see how putting someone on 1/2 pay runs the risk of creating a public charge – they have mortgages, insurance, etc.

  • Murc

    The company I work for uses noncompetes to prevent the companies that it works for from “poaching” employees. As if they somehow had a right for us to work for them directly.

    I have a co-worker who our corporate client really wanted to hire in as an Assistant SysAdmin, because he knew the specific operating environment backwards and forwards and would require little additional training. That was killed once management found out; they informed the client company that it was a violation of both their own contract and of said co-workers noncompete.

    Of course, his job with us is a dead-end, and his specific skills here are less valuable elsewhere because he doesn’t know their environments. His natural path of progression has thus been blocked.

    • randy khan

      This is a pretty standard approach for subcontractors, and there generally is a clause in the agreement between the companies to prevent poaching.

      • Murc

        Oh, I’m aware, and it is bullshit.

        You want to prevent poaching? Offer your employees more money and better benefits than anyone else. If you’re worried about your corporate clients taking your best people, the solution should always be “treat your best people so well they don’t want to leave.”

    • MacK

      It’s usually better to ask for a payment for hiring this sort of employee away, something to cover costs for replacement, than invoke a non-compete. No-hire clauses can also be illegal if they amount to an employee non-compete:

      No-Hire, Non-Hire Clause/Agreement

      Agreement akin to a non-solicitation agreement where a party (usually a company disposing of a business or a departing senior manager) agrees not to hire specified persons. Thus, for example a large company selling part of its business to another might agree for a period of time not to hire any of the employees who changed employers in the transaction.

      Although such clauses have the immediate facial advantage that a violation is easily provable as compared to a non-solicitation provision, they may be more difficult to enforce as they affect the interests of a third party, the prohibited-from-hiring employee, who is not a party to the no-hire clause or agreement.

      No-hire agreements, when designed to prevent potential employers from making job offers at higher pay rates can raise serious antitrust and competition law issues. This was notably the case with respect to an informal but now infamous Silicon Valley non-solicitation agreement and no-hire arrangement which resulted in $324 million settlement (against potentially greater liability) in 2014.

      and

      Non-Solicitation Clause

      A clause found in many contracts and non-disclosure agreements prohibiting one party from seeking (soliciting) to hire the other’s employees, or in some instances from hiring an employee who approaches that party for a period of time.

      Although the latter type of clause is justified on the basis that who initiated the hiring process may be difficult to identify, such clauses may be legally suspect in some jurisdictions, especially if they render employees unemployable in their professions within their own community (i.e., an area defined by reasonable commuting distance).In addition such clauses should usually be reasonably limited in time and not perpetual or so long as to make them effectively perpetual; typically lawyers will advise no more than three years.

      The best advice is not to make such provisions broader than they objectively need to be. Some jurisdictions, regarding such clauses as unfair to an employee who was not a party to the agreement may also require the employer invoking such a clause to compensate the employee (even if employee has left) for any financial consequences. It is also difficult to enforce such a clause if the employee was dismissed (fired) by the first employer, before the clause was invoked.

  • randy khan

    Interestingly, lawyers at law firms generally can’t be subject to non-competes in the U.S. The theory is that a non-compete would interfere in the client’s choice of lawyers. It is a mere side effect that it allows individual lawyers to maximize their compensation.

    It’s not the same in other countries – in the UK, a lot of law firms have terms in their partnership agreements that require some waiting period before a partner can go to another firm.

    • MacK

      But they usually are set up in the UK as a “gardening leave” clause (i.e., compulsory paid vacation for say 3-6 months or a year.)

      • randy khan

        True enough, but there’s nothing comparable for lawyers at U.S. firms because legal ethics rules prohibit it.

      • “Paid” seems to be an important word here.

        I’m tempted to say, if employers want to treat their employees as feudal serfs, they should have to maintain them after the period of employment has ended.

        Or, they can do what’s accepted by sane people, and not treat low-level hourly employees who are paid as such as if they were privy to crucial, sensitive, private information.

    • Just_Dropping_By

      It is a mere side effect that it allows individual lawyers to maximize their compensation.

      I’d strenuously dispute that banning non-competes for lawyers does anything to maximize individual lawyers’ compensation. If anything, the ban should have the effect of driving down rates by facilitating competition for clients.

      • randy khan

        To be clear, I’m not saying it maximizes compensation for lawyers in general, just that it maximizes compensation for lawyers who are moving from one firm to another.

        The lawyers who you’d want to invoke a non-compete against if you were the former law firm almost uniformly are moving from Firm A to Firm B because Firm B offers them either more money right now or the prospect of more money soon, as compared to what Firm A offers. It’s typically neutral to the clients in terms of what it costs them, but occasionally costs the clients more.

  • Matt

    Much of this has been said, but I’ll say it one more time. First, in the US, this is all state law – there is no national rule, and the rules vary from state to state. In California, no non-compete agreements are enforceable. (In practice this is probably the best rule, though in theory a better one might be possible.) I’m told that lots of tech companies put them in employment agreements, but they have no legal force in California, and are there for non-legal annoyance reasons.

    Other states have different rules, some more and some less generous to employers. But, it has to be considered state-by-state.

    Such clauses for typical hourly employees are almost never enforceable, and the Obama administration is certainly right to be looking for ways to rein them in. They are done pretty much purely for the “being a dick” factor.

    People who want to get in to this stuff in detail can do a lot worse than look at the work of Orley Lobel, including her book Talent Wants to be Free. (I’m not sure I’d agree with all of it, but there is a lot there that’s very good.)

    • MacK

      They are not completely unenforceable in California, but the exceptions are very limited. Sale of a business is one, former business partner, former LLC member. Also NDAs can amount to effective non-competes (but if there are no real secrets there is a problem and they cannot go too far.)

      To put it another way, no one is going to try to impose a sweeping non-compete in CA – they are going to try to work around the margins of the very limited ways in which you can control a former employees competition – and it is going to be on a case by case, employee by employee basis.

      • Matt

        I think that’s actually a less helpful way to put this. The cases you describe are not properly “non-compete” clauses, but other devices that sometimes have a similar effect. It’s better, normatively and analytically, to keep these distinct. Running them together leads to confusion.

        That’s clear, I think, in the second statement, which is much too weak for California. Much more than “sweeping non-competes” are unenforceable there. For actual non-competes (not the rather limited somewhat similar things you list) they are all unenforceable. Employers put them in contracts, but it’s not that they will get careful case-by-case consideration, they are categorically ruled out. Some other more limited types of restraints, of the sort you mention, do get more careful consideration, but they are really distinct things. Better to keep them apart.

        • MacK

          The problem I have with keeping them apart is that from a legal perspective, you have to be aware that most non-competes in CA are unenforceable – and back-door non-competes set up as non-solicitation clauses and NDAs are, if considered to be effectively a non-compete under a different name, also be illegal and/or unenforceable.

          It is important to keep the non-compete issue in mind when dealing with an NDA and other types of clauses – don’t overcook it.

  • NonyNony

    Minimum wage jobs that have noncompete clauses?

    That is ridiculously screwed up. It isn’t like those employees have access to “proprietary information” that anyone watching them work wouldn’t be able to figure out. So the only justification is “we don’t want to train our competition”. But how much of Jimmy Johns training is going to be transferable to a new store? Probably the amount that any new store would teach them their first day on the job.

    That’s just managers out to make lives of their workers miserable and have one more thing to tie them to the job to keep wages low.

    • tsam

      How else is a sandwich shop going to protect the secrets of preparing a ham and cheese sandwich?

  • tsam

    Judge tsam: Was the employee represented by counsel when forced to sign this document as a condition of employment?

    Counsel: No.

    Judge tsam: Case dismissed, and I’d advise you not to show up in this courtroom again, if you don’t like your face punched.

    • tsam is a revolutionary!

      • MacK

        In a number of jurisdictions TSAM is right

        • tsam

          I can’t think of a good reason for this to not apply to every jurisdiction–unless it can be proven that need for it exists. (Protecting intellectual property or something along those lines).

          There should also be a compensatory minimum that is required in order for an employer to even offer a non-compete to a potential employee.

          My old employer tried to make me sign one of these while I worked there. I made two phone calls, was guaranteed I could get hired that day at competitors, and refused to sign it. They tried to force the issue, so I told them I already had two jobs lined up if they wanted to make a big deal of it.

  • Feathers

    On the other end there are the expanding requirements for references, which can essentially serve as non-competes, and give assholish, vindictive supervisors an enormous amount of power over former employees. Talking with a woman who is applying for a secretarial job at one of the Harvard teaching hospitals. They require five references, two from managers. The references aren’t phone calls. Your references will get an email with a link, username and password. Referencers will then have to log into the hirer’s website and answer an online questionnaire. I know Harvard (Massachusetts second largest employer) has gone the five references route, but I don’t know if this is the system they use. And the reference checks are all done by HR. Hiring doesn’t move forward unless they all come through and are positive.

    This really does assume good behavior on the part of former employers, and a willingness to log into someone else’s computer system and leave records behind. There is definitely a two-tiered employment system being built.

    • Just_Dropping_By

      That’s interesting because my impression was that references were declining in importance because so many employers were refusing to give them any more out of fear that they could be exposed to liability (whether to the new employer for over-recommending the former employee or to the former employee for bad-mouthing them to the new employer).

  • Just_Dropping_By

    Of the workers who have signed non-competes, fewer than half say they had access to trade secrets that a potential rival company could take advantage of.

    Non-competes are overused and often used abusively, but having litigated quite a few trade secret cases in my career, I would take employees’ characterizations of whether they “had access to trade secrets that a potential rival company could take advantage of” with a fistful of salt. (“Why no, I didn’t understand that the documents in a locked binder, chained to a desk, in a locked room, with ‘CONFIDENTIAL – DO NOT REMOVE’ stamped on each page were to be treated as confidential business information….”)

  • I’m surprised that Erik Loomis of all people forgot to say that part of the value of unions is ready access to competent labour lawyers.

  • Hallen

    Unless I was really stupid and missed it, I wasn’t required to sign a non-compete when I was recently hired at Jimmy Johns. I’d have walked out the door if I was asked to sign a non-compete and recognized it, and I did read all my paperwork.

    But I may not have gotten that particular slip because the hiring manager knows I have a law degree and worked for a law firm for (more accurately “at”) three years in my home state.

    (So yay: America. Of course, the reason I’m not doing the same kind of work I did before–doc review–is because the agencies here want in-depth references from supervisors, and guess what my old law firm doesn’t allow its attorneys to fucking do for contractors?)

    • Hallen

      “for (more accurately “at”) a law firm for three years”

      Making sandwiches is tiring.

  • Nutella

    Considering a job at one of the many companies that demands unreasonable and unenforceable non-competes is interesting. If you’re not desperate to get hired, you turn down down these offers because the ridiculous agreement demonstrates that their management/HR/legal people are incompetent idiots and so it must a bad company. If you really need the job then you sign it knowing it’s unenforceable* and that you’ll probably violate it but so what, since it’s unenforceable. It’s an ethical dilemma.

    * Example of one I signed knowing I would break it and they probably couldn’t nail me for it: All your work during your period of employment, whether done with/for the company’s time/equipment/customers or not was deemed owned by the company and requiring advance permission to produce. So if anyone wrote an attendance program for their church choir on their own computer, or published some steamy Twilight fanfic, or any other work product, that was against the agreement. Which made it an agreement that pretty much no employee, current or future, could ever obey.

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