March 25, 4:11 am
Is the Non Compete Agreement Finally Worth Something?
Nicole C. Snyder, an attorney with Holland and Hart in Boise, Idaho, recently blogged about how the Idaho Legislature passed a bill that gives some teeth to the traditionally paper tiger of a non compete agreement.
The blog post garnered it share of comments against non competes. For example, Tac Anderson of TechBoise took a viewpoint common for larger organizations, specifically citing Hewlett-Packard. He said “HP doesn’t even make their employees sign a non-compete and they have done alright. If you don’t trust your employee in the first place don’t hire them.”
Bill Sellers of Idaho Falls commented that “this law will probably hinder creativity and overall business expansion.”
An out-of-state lawyer wrote “My law firm represents employees who are restrained from earning a living by unreasonable non-compete contracts. Your legislature should be applauded for setting an 18 month cap on non-competes but good (high-tech) business want to hire talented and experienced employees and will move out of state if need be.”
Those are valid arguments
I considered these arguments, and at one level, I concede their points. Large companies may not need them. And at that high level, they may certainly affect creativity and business expansion. Also, if a non-compete is required AFTER a person has been hired, I would certainly consider it unreasonable.
But from there I have to disagree with the crowd. Non-competes may be what truly protects many small businesses—especially ones that cannot afford hefty legal fees for fighting someone who steals proprietary technology.
And if signing a non-compete is a requirement of employment (as in, you don’t get hired until you sign the non-compete), then such an agreement is a legitimate agreement.
Without non-competes, small, niche companies have plenty to lose:
Example - A small printing company offering unique services hires and trains a sales rep. After the rep has built a sufficient book of business he sees a lot of potential in the unique services. He decides he can offer the same service and he knows he’ll get many of his clients to remain loyal to him, not loyal to his current employer.
He leaves to start his own competing business — taking a large percentage of his customers with him. Or he takes the ideas to another, competitive printer. Either way, the first company is on the short end of the stick.
In such cases, I see non-competes as essential. According to Snyder, “certain types of restrictions that are commonly found in non-compete agreements will be presumptively valid.” Score one for the small business person.
Filed in Business, Management, Corporate Culture, Job Seeking
Dan, this doesn’t happen very often but I’ll have to disagree with you on this. There are already laws in place that stop employees from stealing customers, you don’t need a non-compete. Also in following your previous logic, if a small biz doesn’t have the money to pursue legal action a non-compete won’t help that out either. Where legislation could be used in is defining what can and cannot be held under a non-compete but the Idaho courts through common law has already done a good job of that in my opinion.
IMHO this was unneeded legislation. I’m still trying to wade through this law to see what the real impacts could be but I’m no lawyer.
Tac —
I like what you’re saying about legislation needed to define what can and cannot be put into a non-compete. That’s probably where the legislature OUGHT to focus.
Like you, I’m not a lawyer, so I don’t do legalese very well and I despise all the loopholes and legal wrangling.
Here’s my main premise: We can’t predict the future. Let’s say a small computer repair company hires a person who knows nothing about computers, and the owner invests hundreds of hours equpping this person with what he/she needs to know. One day they have an argument and the employee leaves — and the next day opens a computer repair shop a block away.
Without a non-compete, the person is much more likely to follow that course of action (if he so desires). But if the person took the job with the non-compete signed “”"at the time of employment”"”, then he’s going to think twice about opening up a competitor business, if for no other reason than fear of having to fight his own legal battle against the non-compete agreement.
If he has to wait 18 months before doing so, he’ll likely find other work.
And this goes back to what you say, that we need to look at **what** can be contained within a non-compete.
Does it prevent the person from working for a competitor? From opening a competing business? What?
But perhaps what bothers me most about all this is the “agreement” part of it. I think that if someone takes a job and knows he’s signing a non-compete as a condition of employment, then he, too, is making a choice. If he wants the job and he’s willing to accept that restriction in exchange for someone giving him a job, he should honor that agreement. To arbitrarily decide down the road that it was unfair is itself, unfair. He accepted the deal. He should live with the deal.
If he thinks the non-compete is unfair, he shouldn’t take the job. Then, if the employer can’t get people to work for him because of his non-compete, maybe he’ll rethink his non-compete requirement.
BTW - this is why I say non-competes created AFTER employment starts are unreasonable.
So perhaps we agree more than we realize on this. If only the laws already in place were enforced, we probably wouldn’t need all this additional legal maneuvering.
-DB