Noncompete Clauses Increasingly Pop Up in Array of Jobs

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Noncompete Clauses Increasingly Pop Up in Array of Jobs
By STEVEN GREENHOUSEJUNE 8, 2014
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A noncompete clause he signed prevented the stylist Daniel McKinnon from working near his previous employer for a year. Credit Katherine Taylor for The New York Times
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BOSTON — Colette Buser couldn’t understand why a summer camp withdrew its offer for her to work there this year.

After all, the 19-year-old college student had worked as a counselor the three previous summers at a nearby Linx-branded camp in Wellesley, Mass. But the company balked at hiring her because it feared that Linx would sue to enforce a noncompete clause tucked into Ms. Buser’s 2013 summer employment contract. Her father, Cimarron Buser, testified before Massachusetts state lawmakers last month that his daughter had no idea that she had agreed to such restrictions, which in this case forbade her for one year from working at a competing camp within 10 miles of any of Linx’s more than 30 locations in Wellesley and neighboring Natick. “This was the type of example you could hardly believe,” Mr. Buser (pronounced BOO-ser) said in an interview.

Noncompete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.

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John Hazen, head of his own paper company, says the noncompete clauses protect businesses. Credit Matthew Cavanaugh for The New York Times
There are plenty of other examples of these restrictions popping up in new job categories: One Massachusetts man whose job largely involved spraying pesticides on lawns had to sign a two-year noncompete agreement. A textbook editor was required to sign a six-month pact.

A Boston University graduate was asked to sign a one-year noncompete pledge for an entry-level social media job at a marketing firm, while a college junior who took a summer internship at an electronics firm agreed to a yearlong ban.

“There has been a definite, significant rise in the use of noncompetes, and not only for high tech, not only for high-skilled knowledge positions,” said Orly Lobel, a professor at the University of San Diego School of Law, who wrote a recent book on noncompetes. “Talent Wants to be Free.” “They’ve become pervasive and standard in many service industries,” Ms. Lobel added.

Because of workers’ complaints and concerns that noncompete clauses may be holding back the Massachusetts economy, Gov. Deval Patrick has proposed legislation that would ban noncompetes in all but a few circumstances, and a committee in the Massachusetts House has passed a bill incorporating the governor’s proposals. To help assure that workers don’t walk off with trade secrets, the proposed legislation would adopt tough new rules in that area.

Supporters of the pending legislation argue that the proliferation of noncompetes is a major reason Silicon Valley has left Route 128 and the Massachusetts high-tech industry in the dust. California bars noncompete clauses except in very limited circumstances.

“Noncompetes are a dampener on innovation and economic development,” said Paul Maeder, co-founder and general partner of Highland Capital Partners, a venture capital firm with offices in both Boston and Silicon Valley. “They result in a lot of stillbirths of entrepreneurship — someone who wants to start a company, but can’t because of a noncompete.”

Backers of noncompetes counter that they help spur the state’s economy and competitiveness by encouraging companies to invest heavily in their workers. Noncompetes are also needed, supporters say, to prevent workers from walking off with valuable code, customer lists, trade secrets or expensive training.

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Joe Kahn, Linx’s owner and founder, defended the noncompete that his company uses. “Our intellectual property is the training and fostering of our counselors, which makes for our unique environment,” he said. “It’s much like a tech firm with designers who developed chips: You don’t want those people walking out the door. It’s the same for us.” He called the restriction — no competing camps within 10 miles — very reasonable.

“The ban to noncompetes is legislation in search of an issue,” said Christopher P. Geehern, an executive vice president of Associated Industries of Massachusetts, a trade group leading the fight to defeat the proposed restrictions. “They’re used in almost every sector of the economy to the seemingly mutual satisfaction of employers and individuals.”

The legislative fight here pits two powerful groups against each other: venture capitalists opposing noncompetes and many manufacturers and tech companies eager to preserve them.

John Hazen, chief executive at Hazen Paper, said his 230-employee company in Holyoke, Mass., spends heavily to train workers on sophisticated machinery and elaborate papermaking processes.

“Noncompetes reduce the potential for poaching,” said Mr. Hazen, whose company makes scratch lottery tickets and special packaging. “We consider them an important way to protect our business. As an entrepreneur who invests a lot of money in equipment, in intellectual property and in people, I’m worried about losing these people we’ve invested in.”

The United States has a patchwork of rules on noncompetes. Only California and North Dakota ban them, while states like Texas and Florida place few limits on them. When these cases wind up in court, judges often cut back the time restraints if they’re viewed as unreasonable, such as lasting five years or longer.

“In most states there has to be a legitimate business interest, and it has to be narrowly tailored and reasonable in scope and duration,” said Samuel Estreicher, a professor at New York University School of Law.

Daniel McKinnon, who had been a hairstylist in Norwell, Mass., lost a court battle with his former employer who claimed that Mr. McKinnon had violated the terms of his agreement when he went to work at a nearby salon. Mr. McKinnon said that he did not think the original restriction — to wait at least 12 months before working at any salon in nearby towns — still applied because he had been fired after years of friction with the manager there. Shortly after being fired, he went to work at a nearby salon.

But a judge issued an injunction ordering him to stop working at his new employer.

“It was pretty lousy that you would take away someone’s livelihood like that,” said Mr. McKinnon, who for the following year lived off jobless benefits of $300 a week. “I almost lost my truck. I almost lost my apartment. Almost everything came sweeping out from under me.”

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RECENT COMMENTS

Serolf Divad 7 minutes ago
Non competes are just the modern equivalent of indentured servitude. They give the employer tremendous new leverage to exploit workers by...
terry brady 8 minutes ago
As someone that sat on the sidelines for two years believe me that non-competes can be ruthless. The reason for not competes relate to...
Eman 8 minutes ago
The article states, "...Christopher P. Geehern, an executive vice president of Associated Industries of Massachusetts, a trade group leading...
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He resisted the idea of traveling miles from his apartment to a new salon, saying that would have meant an unpleasant and costly commute.

“The salon where I worked was doing just fine — I don’t see why they needed to do this,” he said. “I basically had to give up a year of working.”

Wendi S. Lazar, an employment lawyer in Manhattan, said she saw an increase in litigation to enforce noncompetes. “Companies are spending money, hiring lawyers, to go after people — just to put the fear of death in them.”

State Representative Lori Ehrlich, one of the main sponsors of the Massachusetts legislation to bar noncompetes and vice chairwoman of the Joint Committee on Labor and Workforce Development, said that many people had complained to her about the restrictions being set for employees.

“It’s hurting growth in the economy by decreasing worker mobility and squelching start-ups,” Ms. Ehrlich, a Democrat, said. “They’re hurting families by making it so people are unable to work for an extended period of time. This has increasingly become exploitative to workers.”

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Matthew Marx, a professor of entrepreneurship at the M.I.T. Sloan School of Management, said a recent study he did found that half of the nation’s engineers had signed noncompetes, with a third lasting more than a year, and some more than two years.

“Where noncompetes are not enforced, there’s a more open labor market — companies compete for talent,” he said. “We used to have a saying at the Silicon Valley start-up where I worked, ‘You never stop hiring someone.’ They can go where they want. People are free to leave and start companies if they’re not happy.”

Professor Marx said California’s ban on noncompetes was a major reason Silicon Valley was thriving. If a few employees there have an innovative idea and their bosses don’t want to pursue it, they can leave to found a start-up. But in Massachusetts, if employees with noncompetes bring that innovative idea to their boss and it is rejected, they are stuck — or they would have to leave the company and wait a year before they could pursue their new idea. (Or they could move to California, where the courts would not enforce the Massachusetts agreement.)

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Mr. Geehern of Associated Industries of Massachusetts denied that the California economy, with a 7.8 percent jobless rate, was doing better than the Massachusetts economy, with a 6 percent rate.

“If noncompetes are so onerous and burdensome, why aren’t we seeing a significant migration of talent away from the companies that use noncompetes toward the companies that don’t use them?” he said. “The companies that use noncompetes still attract plenty of the best and brightest.”

Michael Rodrigues, a Democratic state senator from Fall River, Mass., said the government should not be interfering in contractual matters like noncompetes. “It should be up to the individual employer and the individual potential employee among themselves,” he said. “They’re both adults.”

[Deleted]

This is insane. Just another way to trap people in jobs and suppress wages

[irishbride2]

I get why they are needed in some industries.

But they are essentially not I enforceable in our state. I don't know anyone who hasn't gotten out of one who has tried. So the fact that companies keep doing it is annoying.

[Deleted]

H works in high tech in MA. His previous job forced him to sign a noncompete that was extraordinarily broad, and tied it to a pay reconfiguration that would have left him with massive cut in salary if he didn't sign. So he did.

Given how large and prohibitive the scope was, we just gambled that it wouldn't hold up in court when H took a new job a few weeks ago.

There is no reason a child care provider or pesticide applicator needs to sign a noncompete. Ridiculous.

[IIOY]

Here in PA, you can't just slap a non-compete on any job. There has to be actual, proprietary information of import at stake.

[Deleted]

Jun 9, 2014 5:29:02 GMT -5 irishbride2 said:

I get why they are needed in some industries.

But they are essentially not I enforceable in our state. I don't know anyone who hasn't gotten out of one who has tried. So the fact that companies keep doing it is annoying.

Even if they aren't enforceable the average Joe may not know that and think they are stuck working at Wee Tots daycare for $10/hr forever even though Kiddie Center is paying $12/hr

[irishbride2]

Jun 9, 2014 6:31:27 GMT -5 @septimus said:

Jun 9, 2014 5:29:02 GMT -5 irishbride2 said:

I get why they are needed in some industries.

But they are essentially not I enforceable in our state. I don't know anyone who hasn't gotten out of one who has tried. So the fact that companies keep doing it is annoying.

Even if they aren't enforceable the average Joe may not know that and think they are stuck working at Wee Tots daycare for $10/hr forever even though Kiddie Center is paying $12/hr

Right which is why it's obnoxious that companies keep doing it.

[Deleted]

Despite the fact that low income workers are apparently stupid, most of them are still amazingly aware that the average child care facility doesn't know their ass from their elbow and won't be hiring a lawyer any time soon.

[Deleted]

Jun 9, 2014 7:00:10 GMT -5 @helenabonhamcarter said:

Despite the fact that low income workers are apparently stupid, most of them are still amazingly aware that the average child care facility doesn't know their ass from their elbow and won't be hiring a lawyer any time soon.

You'd be surprised many centers are now large corporations/franchise. A lot of these centers put non-solicitation agreements in their enrollment forms so parents can't go and hire their favorite daycare worker to be a private nanny. 

And I wasn't implying they were stupid, I was just picking an easy example. I work with candidates all day long that will tell me things like I can't move because I have a non-compete. Why the fvck does a secretary need a non-compete or a marketing coordinator? Maybe if we are talking about the VP of Marketing then use a non-compete may be appropriate.

Also if you fire someone you shouldn't be able to hold them to a non-compete like the guy in the article. 

[irishbride2]

I hope you do not think that I was implying the average daycare worker was stupid. But I do think the average american is intimidated by the threat of legal action against them, simply because it could potentially be incredibly expensive for them. They think (understandably so) that a corporation has a ton of money to waste to fight something like this and will just go after them with a vengeance. That intimidation stops a lot of people from taking the risk of fighting things like non-competes.

[iammalcolmx]

Non completes don't hold up in Georgia.

[lasagnasshole]

Even when non competes don't hold up, the employee can still have to litigate that to get a ruling in his or her favor. Not everyone knows they don't hold up, and of those who do, not everyone has the resources to fight it. It's such a bullshit thing to do.

[Deleted]

A noncompete for a camp counselor? That's ridiculous.

Non compete clauses have a time and place but just aren't necessary with most industries.

[sugarglider]

Jun 9, 2014 7:29:29 GMT -5 irishbride2 said:

I hope you do not think that I was implying the average daycare worker was stupid. But I do think the average american is intimidated by the threat of legal action against them, simply because it could potentially be incredibly expensive for them. They think (understandably so) that a corporation has a ton of money to waste to fight something like this and will just go after them with a vengeance. That intimidation stops a lot of people from taking the risk of fighting things like non-competes.

Yeah; this is actually a big problem with non-competes. Companies will put these ridiculous, unenforceable clauses in contracts but a lot of bright, talented individuals will assume that they're bound to those terms because they're in this signed contract. I would have assumed the same before I worked as a legal secretary.
They're not allowed at all in California, except to protect the goodwill of a business (like when a partner in a partnership leaves). Yet, they'll still pop up...a risky game for employers to play if they really care about any of the other terms in the contract.

Also, I love that Orly Lobel is quoted here. I've had the pleasure of studying under her this past year as a visiting student. She's awesome, and her book (referenced in the article) is really interesting.

[sugarglider]

Jun 9, 2014 7:49:06 GMT -5 @mrsbecky07 said:

A noncompete for a camp counselor? That's ridiculous.

Non compete clauses have a time and place but just aren't necessary with most industries.

There's actually a 1973 case from Maryland upholding a noncompete in a camp situation, but it was for a director of the camp whom the camp had highlighted in marketing materials. The noncompete was also pretty narrow in geographic scope. From what's in the article, they definitely seem pretty different.

Millward v. Gerstung Int'l Sport Education, Inc.

(Sorry--I remembered reading the case in school and had to look it up when I saw the lead.)

[Deleted]

Jun 9, 2014 8:19:26 GMT -5 sugarglider said:

Jun 9, 2014 7:49:06 GMT -5 @mrsbecky07 said:

A noncompete for a camp counselor? That's ridiculous.

Non compete clauses have a time and place but just aren't necessary with most industries.

There's actually a 1973 case from Maryland upholding a noncompete in a camp situation, but it was for a director of the camp whom the camp had highlighted in marketing materials. The noncompete was also pretty narrow in geographic scope. From what's in the article, they definitely seem pretty different.

Millward v. Gerstung Int'l Sport Education, Inc.

(Sorry--I remembered reading the case in school and had to look it up when I saw the lead.)

In general MD's non compete laws are pretty good. I'm actually pretty familiar with them due to past work and family situations.

The director of a camp is very different from a camp counselor.

[heyjude]

They aren't enforceable in CA. But my H's old employer tried to add one into an employment contract (he was in news) and I was like ummmm no.

[sugarglider]

Jun 9, 2014 8:43:35 GMT -5 @mrsbecky07 said:

Jun 9, 2014 8:19:26 GMT -5 sugarglider said:

There's actually a 1973 case from Maryland upholding a noncompete in a camp situation, but it was for a director of the camp whom the camp had highlighted in marketing materials. The noncompete was also pretty narrow in geographic scope. From what's in the article, they definitely seem pretty different.

Millward v. Gerstung Int'l Sport Education, Inc.

(Sorry--I remembered reading the case in school and had to look it up when I saw the lead.)

In general MD's non compete laws are pretty good. I'm actually pretty familiar with them due to past work and family situations.

The director of a camp is very different from a camp counselor.

Totally different. Also in that they restricted her from working in camps near ANY of her old camp's locations. My 1L trial motion was on MD noncompetes. I actually used it as my writing sample, which was a little awkward in CA since the analysis is much more simple here.

[msmerymac]

Jun 9, 2014 8:49:30 GMT -5 heyjude said:

They aren't enforceable in CA. But my H's old employer tried to add one into an employment contract (he was in news) and I was like ummmm no.

My CA company has a non-compete clause. We work with proprietary information, but the industry is such that it's very sales-based and if you leave our company, the chances of going to a competing company/a company working with our company or starting your own is very high. That said, everyone knows everyone and attends trade shows where they all meet the new people, so just having a network of people to work with is NOT proprietary information. Data is. And data ages fast. So unless you literally steal a hard drive full of data and immediately take it to another company, which is illegal in OTHER ways, you aren't doing anything wrong or unusual. 

What's really bullshit is that someone left our company about 6 years ago for VERY good reasons, and I believe started her own company. The owners flipped out and had everyone working there sign the non-compete AGAIN, even though 1) we had already signed it in our employment contracts and 2) it's non-enforceable in CA. It was just one big intimidation tactic. However, we now have new ownership and no one has tried to enforce the non-compete since then.

[Deleted]

Talented, capable workers absolutely do get threatened by these agreements. I mean, my husband and I were so intimidated by his that we seriously considered the pay decrease just so that he could look for a new job and get out of there.

[aurora]

Jun 9, 2014 7:36:25 GMT -5 lasagnasshole said:

Even when non competes don't hold up, the employee can still have to litigate that to get a ruling in his or her favor. Not everyone knows they don't hold up, and of those who do, not everyone has the resources to fight it. It's such a bullshit thing to do.

This.

H was under a 1-year non-compete at his previous company and walked a very careful line for the first year of starting his company as a result.  He had been advised that it probably wouldn't hold up under our state's laws, but we didn't want to deal with the lawsuit in the meantime.  (The company has since sued a different employee who left and that ruling is still pending, so we were right to be concerned that they might sue.)

We were lucky in that we didn't need H's income so he was able to wait out the year to do what he really wanted, but that's obviously not an option for many people who would therefore feel pretty stuck. 

[Awkward]

I had to a sign a three year noncompete at my very first job in high school. At a pretzel kiosk at the mall. :?

[ttt]

Jun 9, 2014 5:01:38 GMT -5 @septimus said:

Joe Kahn, Linx’s owner and founder, defended the noncompete that his company uses. “Our intellectual property is the training and fostering of our counselors, which makes for our unique environment,” he said. “It’s much like a tech firm with designers who developed chips: You don’t want those people walking out the door. It’s the same for us.” He called the restriction — no competing camps within 10 miles — very reasonable.

This is effing ridiculous. You're a goddamn summer camp. You don't have some sort of secret formula for training 19 year old camp counselors. GTFO with that BS. 

[lasagnasshole]

And to make this political, anyone who is concerned about stifling innovation (I'm looking at you, anti-regulation crowd) should be concerned about this. This really inhibits the free flow of ideas throughout our economy.

[sugarglider]

Jun 9, 2014 10:15:41 GMT -5 lasagnasshole said:

And to make this political, anyone who is concerned about stifling innovation (I'm looking at you, anti-regulation crowd) should be concerned about this. This really inhibits the free flow of ideas throughout our economy.

Totally! I actually wish they had included more sound bites from Prof. Lobel. The whole point of her book is that trade restraints limit / discourage innovation. I'm very pro-employer...but I don't think noncompetes are, at least from a big-picture perspective, good for employers.

[Deleted]

Jun 9, 2014 9:40:09 GMT -5 Awkward said:

I had to a sign a three year noncompete at my very first job in high school. At a pretzel kiosk at the mall. :?

What?! Were you forbidden from working at other pretzel chains, or all fast food product places?

That kind of non-compete is a joke. I can't even.

[PinkSquirrel]

I'm in MA and my H's last non compete was crazy. It essentially forbid him from working in IT for a year after he left his last position. He was working for a company that handled the computers for smaller companies. Very little of his actual job was tied to the company he actually worked for, it was mostly specific to the client. We would have had to move to find a new job if they had actually enforced it.

[pinkdutchtulips]

eons ago when i worked for Blockbuster Video in college, i had to sign off on a noncompete clause .. a freaking video store !?! thankfully, when i jumped ship 2 years later to a rivial store (the Wherehouse) it didn't ruffle any management folks and i spent another 3 years there before heading off to law firms where years later i discovered conflict waiver hell.

[omgzombies]

My DH works for a company where a non-compete would be reasonable. There are maybe two or three other companies that do what they do, and there is a ton of access to proprietary information. Even they don't bother with a non-compete because it's so unenforceable.

[sugarglider]

Jun 9, 2014 10:49:36 GMT -5 PinkSquirrel said:

I'm in MA and my H's last non compete was crazy. It essentially forbid him from working in IT for a year after he left his last position. He was working for a company that handled the computers for smaller companies. Very little of his actual job was tied to the company he actually worked for, it was mostly specific to the client. We would have had to move to find a new job if they had actually enforced it.

Lobel's book actually talks about a study contrasting tech in SV and MA. They booth have great talent pools (Berkeley/Stanford vs MIT/Harvard), but look at which is more thriving... (I should look it up to get a better quote/analysis).