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A technology professional working at a large company was recently asked to sign a noncompete contract and confidentiality agreement that gave the company a royalty-free license to any “invention” he created while working there and up to six months after leaving the company. The employee, who declined to offer his name or the company in question, was worried about signing his creative freedom and future competitiveness away and called out to the Slashdot community for advice.
Responses ranged from a sarcastic “good luck fighting it” to “dont worry, its not enforceable” and, from the employee himself, “obviously, its time for a new job,” each underscoring the hazy area noncompete clauses occupy in modern workplaces.
Employees hate them, employers consider them necessary, and although they are almost never brought to court—and even when they are, are rarely enforceable—they strike enough fear in the heart of workers that many would rather stay put than risk being sued for violation of the contracts term, say employment lawyers.
“Id sign them, but Id get a little worried,” said Jeffrey Neu, who worked as a Web developer for eight years before becoming an attorney with a specialization in Internet and technology law, in Red Bank, N.J. Once he became a lawyer, he began to understand what these contracts were really all about.
“It depends on the employer; a lot of employers use them to quasi-scare the employee into staying with the company because they think they cant go to another one unless it is far away,” said Neu.
In fact, noncompete clauses rarely make it into court, and when they do, theyre difficult to uphold in full, lawyers contacted for this story said.
“Usually, unless trade secrets or company goodwill are at risk, theyre not enforceable. Judges are very reluctant to enforce these against a low- to middle-level employee. Against bigwigs, its another story,” Dave Elchoness, an employment lawyer and human resources consultant who has advised on and litigated on these cases for years in Boulder, Colo., told eWEEK.
In one of the most famous cases involving “bigwigs,” Microsoft sued former executive Kai-Fu Lee in July 2005 after he had been tapped by Google to run its China operations. Though five months later the parties settled the matter privately —just a month before it would have gone to trial—it thrust the wide use of noncompete contracts in technology into an open conversation.
While laws vary from state to state, in general, noncompete agreements can only be applied to what companies can legally protect, and that in and of itself is difficult for most companies to define.
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“Whats protectable about the companys interest? Companies might identify certain things, and put disclaimers around them, such as secret projects [and] pricing issues, but if theyre really not confidential—if, in fact, this pricing information is widely available—this clause wont hold up,” said Elchoness.
Though its almost a given that the stack of papers an employee is asked to sign before starting a job includes a noncompete agreement, even if an employer does choose to sue a former employee who has breached the contract, courts are less and less interested in upholding such agreements, especially in the technology arena, sources said.
“The Internet has changed the ways people think about collaboration, and governments are increasingly seeing that the exchange of ideas is good for commerce,” said Neu.
In fact, the epicenter of the technology development world—Silicon Valley—exists in a state where noncompete agreements are nearly impossible to uphold. Californias notoriously open legal arms to competition and the free exchange of ideas has fueled the tech boom, many argue.
Courts outside of California seem to have taken notice, as well.
“Courts these days tend to limit these contracts to the utmost ability that the laws allow. Generally when someone drafts a noncompete [its] very broad—too broad—and courts will whittle it down, striking clauses to make it very limited,” said Neu, who argues that this is as much in the interest of competition as it is in thinning court dockets.
Of course, its one thing for a lawyer to know that most noncompete agreements are almost never upheld in court, but thats little consolation to low or midlevel techies who fear that if they dont sign the agreement, theyll either lose their job or the ability to get another one in their field. A lawyer can always advise, but legal advice is rarely free.
“What a noncompete cant do is keep you out of your industry. It can keep you out of certain segments, technology, regions,” said Elchoness. “It can keep you out of certain areas where you would potentially use confidential information. But it all comes back to what is the employers protectable interest and their protectable interest is never going to be, Jim cant be a software coder anymore.
“Theyre going to interpret it in the least restrictive way possible.”
So what would a lawyer tell the Slashdot poster asked to sign away his rights to anything he created at his next company for six months?
“Get a lawyer. Theres no way thats enforceable—its overbroad and overprotective,” Neu said.
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