Wednesday, January 13, 2010

Non-Compete Agreements: Are They Worth the Trouble?

TechCrunch's Apple And IBM Resolve Employment Dispute; Papermaster Can Now Get To Work raises this question:

Well, now he can finally go make future iPhones and iPods for Apple. The two companies have settled out of court. It kind of makes you wonder why companies even bother with non-compete clauses in employment contracts, especially when they are overly broad. More often than not, they are not worth the paper they are written on.
(CNN Money published a timeline of the case here.)

While I do not generally oppose using non-compete agreements, they do have limitations:
  1. They do not last forever.
  2. The business might lose employees.
  3. The business must enforce the agreement - that is go to court, pay court costs, pay legal fees - which may cost more than what is saved.
For more abstract problems there is Trade Secret Litigation and Free Speech: Is it Time to Restrain the Plaintiffs? by Elizabeth Rowe.

Think of non-compete agreements as a tool. They have their uses and the business must consider how they will use. I would point out that garden leave exists as an alternative/parallel tool to non-compete agreements.

Non-compete agreements exist to protect the employer from unfair competition.

Businesses contemplating the need for a non-competition need to have a long discussion with their attorney before turning them loose on creating a non-compete agreement. If you need a lawyer for a non-compete agreement, please contact me so we can set up a meeting.