How to Deal With Non-Competes

To many companies large and small, technology is gold, especially when they’re creating a new product or using it to run key parts of their business. In those cases, and many others, they’ll insist you sign a non-compete agreement before they’ll bring you on as either a full-time or contract employee.

Top SecretWhen you’re facing this situation, the thing you obviously want to know is, “What do I do?” Unfortunately, there’s not always a clear-cut answer.

“In California, non-competes are not allowed and there’s nothing that prohibits Apple employees from going to work at Samsung,” says Robert Milligan, a partner in the Los Angeles office of law firm Seyfarth Shaw. “But if you work on the same type of project and do the same type of work, you can get in trouble under trade secret laws.”

California and North Dakota are the only states that prohibit non-compete agreements entirely. Although Oklahoma allows them, they’re rarely enforceable there. All of the other states allow them in one form or another.

What’s Allowed Where

The rules around non-competes vary from state to state, many of the laws are changing. Some of the recent ones:

  • Illinois: A non-compete is only enforceable if it passes a three-pronged test: would not create injury to the public, create undue hardship to the employee, and doesn’t go beyond the employer’s need to protect their legitimate business interests.
  • Indiana: Non-competes do not violate state’s blacklisting statute.
  • Missouri: Former employees are bound by both non-compete and non-solicit agreements.
  • Nevada: Non-compete agreements can be enforced against independent contractors.
  • New Hampshire: Agreements have to be disclosed to a prospective employee before a job offer or promotion is made.
  • Ohio: Non-competes can automatically transfer to the surviving company after a merger.

Do This, Before You Defect

If you’ve signed a non-compete and you plan to move on, be sure to inform your prospective employer. This helps them design your job in a way that will avoid a potential lawsuit or minimize its impact if your former company sues you.

That happened to Daniel Powers, former vice president of Amazon’s Web Services. Three months after he left the e-commerce giant, Google snatched him up to serve as Director of Global Cloud Platform Sales. Amazon sued Powers for breach of contract, but Google largely prevailed because it shifted some of his duties. In ruling on the case, the U.S. District Court said Powers could not be involved in providing cloud services to any current, former or prospective Amazon customers “about whom he learned confidential information” while working there.

In this case, Google beat Amazon to the punch by structuring Powers’ position so that it wouldn’t violate his non-compete. Says Milligan: “A prospective employer can do a number of things, like temporarily putting someone on ice or in a learning position.”

Clean Slate

Before you leave your former employer, make sure your slate is clean. One common mistake employees make is departing without erasing company data on a USB drive or their personal computer. “Good employers will make arrangements to have exit interviews and employees should say they have things on their personal computer and ask how to make arrangements to return them,” says Milligan.

If there is no exit interview, take the initiative and ask HR how to return the information. Whatever else, once you start your new job you don’t want to be caught with a digital trail that leads back to your old company

Time Limits

After six months, a year, or some time designated in your non-complete, any confidential information you hold would become outdated. At that point, it may be perfectly fine to for your employer to move you to the type of work you were doing before you joined them, Milligan says. Its willingness to work with you in this way speaks well of the company. Says Milligan: “You want to work for an employer who will give you options and let you be in a positions where you are insulated from a legal claim.”

One thing Milligan didn’t say, but we will: If in doubt, see a lawyer.

Comments

  1. BY adamchenwei says:

    Its interesting how non-compete-agreement could have such a huge influence on an individual’s professional life. I feel its more related if you are working for a large company like Google or Microsoft where technical knowledge are extremely crucial for one’s survival. But great article!

  2. BY Jim S says:

    I think the most important thing for a professional to do is to inquire whether a company requires a non-compete agreement BEFORE you accept a job. If the company does, then you should negotiate a severance package, for if/when you leave, because the company is hindering your capability to participate in the market.

  3. @Jim – I completely agree – the time to ask about that is before you accept the position, not after!

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