of an Adman
Friday, October 25, 2002
There’s something I’ve
been meaning to write about and, in light of certain bits
of information that have recently made their way to me,
I figured today was the day to address it.
Consider it the "dirty little
secret" of many California employers: "The Non-compete
Clause." What’s that? Basically, it’s a
contract provision that would, if enforceable, prohibit
an employee from leaving one employer to go to work for
a competitor or starting his/her own business that is similar
to the former employer's. Sound ridiculous? Well, it is.
And that’s why, while non-compete clauses may be a
standard feature of employment contracts in many states,
they're banned under California law. (And recent legal developments
see them dying in other states now as well.)
I’ll show it to you spelled out
in even greater detail. (So you won’t worry should
the time come that you want to leave your place of employ
to create your own firm, work at another firm, approach
former clients on your own, etc.) Straight from the lawyer’s
mouth, here’s the deal:
"For those businesses and corporations
intrigued by the attractiveness of non-compete clauses used
in employment agreements, recent developments may cause
you to think again. Under California law, a non-compete
clause in an employment agreement is unenforceable and can
not be used to prevent an employee from seeking work elsewhere
in the same field or with competitors. Non-compete agreements
will only be upheld when the sale of a business is involved
and the agreement is used to prevent the seller/competitor
from opening up the same business within a reasonable distance
from the prior one.
Having knowledge that non-compete clauses
are unenforceable, some organizations have workers sign
these agreements anyway as a "scare" tactic to
prevent the employee from seeking work with the competition.
However, a California case has recently brought to light
that the use of these non-compete clauses as "scare"
tactics will not be tolerated. In D’Sa vs. Playhut
Inc., an employee sued his employer when he was fired for
refusing to sign a non-compete agreement. The employer claimed
that it could not be held liable because the non-compete
clause was unenforceable anyway. The California Court of
Appeals found the employer liable stating the ineffectiveness
of the non-compete clause is not apparent to employees.
Therefore, in states where non-compete
clauses are unenforceable, like California, employers should
refrain from including these clauses in their agreements
as they may be liable for damages incurred by the employee
in reliance on this non-compete clause. In order to protect
their interest, employers can only now draft their agreements
to prevent the disclosure of trade secrets."
Here’s one last official take:
California's Business and Professions Code 16600 provides,
"Every contract by which anyone is restrained from
engaging in a lawful profession, trade, or business of any
kind is to that extent void." Despite continuing attempts
to challenge the validity of that 1872 statute, California
courts have held fast. Non-compete clauses are not enforceable
in California, even if the contract provides that another
state's law is to be used in any interpretation of the contract.
Regardless of all this obvious information,
some employers know, but don't care, that their non-compete
agreements are not enforceable, in whole or part. They might
try to get you to sign on the dotted line anyway. Just remember,
it's an intimidation tactic to protect that for which they
have no right to protect. They count on employees not knowing
or checking its legality. If you don't sign it, they might
terminate or refuse to hire you, or deprive you of some
benefit or perk. But you could have legal recourse if this
happens to you.
I read an excellent quote recently
from Douglas Towns, an Atlanta-based employment law expert,
on how many employers take advantage of workers by misrepresenting
these non-compete agreements. "Employers will seek
to push the envelope for deterrent effect," Towns says.
"Business ethics don't really get involved here."