Non-competes ought to be illegal everywhere - not just California

David Donatelli's defection from EMC to HP has opened up interesting discussions about the nature of non compete (NC) agreements.  Steve Duplessie wrote a piece this AM opining over how these things ought to work.

Tom Petrocelli remarked in Twitter this morning that the issue was that employers don't guarantee lifetime employment & advancement. Tom's point is right on the money.  The days of employer/employer loyalty are mostly gone - especially in the light of the recession which has put lots of people on the street without a lot of warning. NCs are a relic from the past that we ought to abolish. 

A world without NCs shifts the potential for being abused from the employee to the employer.  In a world where employers can fire people at will, employees should be able to work where they want. There needs to be laws with teeth to prevent employers from being harmed by having trade secrets stolen and used against them. These are already in confidentiality clauses in employee agreements. 

FWIW, Steve, OJT typically would not qualify as a trade secret.

Comments

[Geoff Mitchell]

Mark,

I don't like non-competes any more than the next guy, but firstly, DD signed one - and that was his free choice to do so. Normally when you sign a non-compete at this level, it is a condition of a promotion or greater responsibility and the person is normally provided significant compensation for doing so (restricted stock, options, executive package, etc).

If this is the case, I would assume that if DD wishes for his non-compete not to apply, he would plan on returning the parts of his compensation package over the last few years that he has benefitted from back to EMC.

[marc farley]

Geoff, you wrote

"he would plan on returning the parts of his compensation package over the few years that he has benefitted from back to EMC"

Could you clarify what you are saying here? Do you think he should give back his salary, stock options, other compensation for the last couple years?

I'm sure EMC has benefitted from Donatelli's excellent work there the last couple years. Heck, he was featured prominently in their recent V Max announcement. EMC would not have done that had he not been excellent at his job. Mark Hurd would not have hired him for this critical job at HP if he had not already proven his mettle as a star technology exec.

I also disagree with your characterization of employees signing NCs as being any kind of "free choice". Its never a free choice. They are a condition for employment. Companies will hire employees without them in place sometimes but they always get them signed eventually if the employee wants to continue working there.

[nate]

I'd think the EMC guy is pretty smart and took the NC into account when deciding to leave. I'd be curious if he got a deal with HP where HP would go to bat for him legally if EMC decided to go after him.

[Geoff Mitchell]

I don't believe that 100% of people @ EMC are on NC contracts. I don't know the specifics of Donatelli's, but my point is that for him to progress to the upper eschelons, the company likely asked him to sign a NC to protect itself and gave him compensation as an incentive.

It is always a free choice whether to sign these or not. You can always choose not to - you're not being waterboarded.

On your other point, of course EMC benefitted from Donatelli's employment. My point was that he should not have to return what he has earned over the last few years, other than any compensation that was tied directly to his NC.
BTW, there are thousands of execs on NC's who are not excellent at their job, as for one example, the recent banking crisis has shown us.

Donatelli's excellent record over the long term at EMC stands as his worth.

[Bill]

@Geoff_Mitchell-

Non-competes are inherently coercive. Your statement "you can choose not to (sign the non-compete)" is the equivalent of condoning other coercive behavior behind corporate doors and saying "you don't have to work here if you don't like it".

Yes, people can choose to change their profession or move. It is difficult sometimes to exercise that "choice"... it is not without cost.

I'm against any coercive act with regards to employment. That covers non-competes as well as mandatory unions (try getting a job at an automobile plant as an auto-worker without your UAW card).

I can't recall exactly, but I do believe that I was required to sign the NC when I joined EMC "back in the day". I didn't care, as I knew the clause was ineffective in California. I was not an executive, but rather a lower level individual contributor.

Note that NDAs are still useful for controlling employee behavior should they jump ship. And that's the way it should be. The penalty should be for the behavior that harms the company (revealing secrets, etc.), not for something that does not in itself damage the company.

[Calvin Zito]

Hey Marc,

I think you're making this point but the law of the land (in this case California) trumps all opinions here on DD and his EMC NC. He doesn't have to return any compensation because of his NC; that clause is illegal in the state of California. Get over it - he keeps his compensation, will have a nice home in the the Los Altos foothills, and will be running HP's $20B ESS business.

I didn't hear any EMC employees crying when Mark Lewis and Howard Elias left HP StorageWorks for EMC. But then again, I'm not aware of any HP employees that were crying either. ;)

The EMC whiners need to get on with life post-DD.

[John F.]

Yes Calvin,

You're gloating now. Check back in in 6 months and let us know if you still feel the same way.

John

[Nigel]

Very succinctly put Marc. Most places I have worked even as a contractor have included NCs in the contract and I have twice been restricted as to where I could work because of them. And thats at my level – what on earth could I reveal that would damage a company.

While I agree that NDA should suffice, it is of course far more difficult to determine if somebody has breached NDA, whereas it is blatantly obvious if you shack up with a direct competitor. Just playing Devils advocate.

[marc farley]

Nigel, it comes down to where the burden should lie for the inherent risks of employing people. The worst case scenarios are 1) individuals may be forced into career changes that result in the substantial loss of earning potential solely because they worked for a dishonest and jealous employer or 2) employers hire dishonest workers who willingly turn their trade secrets against them. In the first scenario, the individual has a huge burden - in many instances they are legally bound by the dishonest employer's contract because they don't have the economic means to sustain the effort. In the second scenario, the employer typically has legal resources at their disposal to take legal action against the ex-employee. This doesn't say the cost of a lawsuit is minor, but businesses by nature are better equipped to challenge a contractual breach than individuals. It is ridiculous to assume that individuals and business have the same ability to pursue legal recourse.

NCs are an attempt to punish workers who take acquired know-how to competitors. The problem is that know-how is not specific to a certain employer and therefore it does not give them a competitive advantage, unlike trade secrets, which do and deserve to be protected by confidentiality obligations.

Here in the United States, individual freedoms, such as free speech, right to bear arms and the pursuit of happiness are supposed to be the underlying tenets of our democracy and legal system. There is nothing about NCs that is consistent with those rights. The California courts got it right. Of course, I'm just a blogger - so what do I know?

[Bill]

@Nigel-

In the spirit of friendly debate, I'll counter the Devil's advocate position.

Switching to a competitor doesn't defacto damage the first company (other than loss of a productive person). Revealing trade secrets or company internals ~does~ damage the first company directly. Do we jail people based on their looks, or do we wait to see their actions? Should sports cars be banned because they are capable of going ~criminally~ fast, or should we jut go after the reckless drivers that do so? Just because it is hard to catch someone breaking a contract, doesn't mean we assume that he will and punish him proactively.

Civil law and criminal law are different, but the issue of fairness should remain. Signing on with a company shouldn't result in the modern equivalent of indentured servitude, even if you are shackled with golden handcuffs.

If EMC deems it self a competitor in the free-market economy (or the facsimile we have today), and you know they see themselves as such, then they could have found a way to keep him. If they couldn't satisfy his needs, and HP could, then he should be free to go.

Just my two libertarian cents.

[Dave]

In the case of EMC I'm quite certain that not all EMC employees in MA are bound by non-competes. I believe EMC applies the requirement to Director level positions and above-- but am not positive of that.

MA is an extremely employer-friendly state and companies here take advantage of the law-- almost to a firm.

I'd be shocked if Donatelli has anything but an iron clad agreement with HP to defend him. DD has uprooted his life for HP.