Current Problems with Non-Competes In The US
In my previous post, we discussed how we got to the present situation where 47 of 50 U.S. states allow some form of non-compete agreements. Let’s now take a look and how the underpinnings of these laws are being challenged.
Non-compete agreements have never been popular with anyone except employers. Most employees don’t read the agreements but if they did they would likely be offended by the notion that they can’t make professional moves freely if such moves take them to a competitor of their current employer. Enforcement and use of non-competes has gotten more harsh in recent years. A recent New York Times article by Steve Lohr focused attention on a couple such situations.
The article highlights the travails of Brian Conolly, an engineer who lost his job at a diagnostic device company in a layoff during the 2008 financial crisis. This fellow met with a potential new employer after the layoff. He soon received a call from his prior company informing him that his non-compete prohibited him from joining any firm in the diagnostic device space. In this case the product and the underlying technology were different from his previous employer. Despite these facts Conolly was forced to take work outside his field until the expiration of the one year non-compete.
Does this seem reasonable to you? It doesn’t to me. The company laid off Mr. Conolly. in that situation there’s a question of basic fairness in the decision of whether to enforce the non-compete. Most employees sign non-disclosure agreements in addition to the non-compete. These NDA’s also prohibit the disclosure or use of confidential information on behalf of the new employer without limiting the ability to obtain appropriate employment. Conduct damaging to the prior employer could be addressed via the NDA, especially in the situation where the employee left the prior employer without fault at the company’s behest.
It’s not difficult to understand why companies with sophisticated technology want to protect it using tools like non-competes. How about sandwich shops? Believe it or not, Jimmy John’s has received a ton of negative publicity due to the fact that they required low-wage employees in their shops to sign non-competes that prohibited them from working in any sandwich shop within 2 miles of a Jimmy John’s anywhere in the U.S. What kind of information does a sandwich shop need to protect? How can that be reasonable in view of the fact that a line worker at Jimmy John’s is prohibited from making money at nearby sandwich shops? The answer: It’s not. Jimmy John’s recently dropped this requirement for its employees after at least one state sued them to limit this practice.
It’s easy to understand why companies that spend a lot of money to create intellectual property wish to protect it. It’s another thing altogether when people who are laid off are prevented from employment in companies with non-competitive products or when fast food workers are prohibiting from changing jobs or adding a second job. Both of those cases take the concept of non-competes too far and explain why opposition to non-competes is coalescing.