Noncompete clauses can keep tech in check
Apple may have a real fight on its hands if it believes Mark Papermaster is the right man to nurture the iPhone.
In an age where employees move between companies as often as relief pitchers change teams, noncompete agreements seem an outdated concept. But lawyers say the noncompete agreement that Papermaster signed with IBM is serious business that demonstrates how companies are increasingly looking to enforce restrictions on their most important employees, and that could force Apple and IBM to share valuable information to make their argument stick.
Getting out of a noncompete
clause isn't easy--unless you live
in California.
IBM is suing Papermaster for violating the terms of a noncompete agreement, which he signed in 2006, when he accepted an offer to run Apple's iPhone group in October. He claims that since he'll be working on a product that does not compete with anything IBM offers, that agreement should not apply. But it may not matter: the agreement he signed contains broad provisions regarding where and how Papermaster could seek employment for a year following his departure from the company, and it's very enforceable in New York, where IBM is based.
The two parties are scheduled to have a status conference later Tuesday, and we could learn as early as then just how determined IBM is to send a message to the rest of the tech industry and its own employees. One sign IBM is taking this case very seriously: It's using longtime legal partner Cravath Swaine & Moore, who represented IBM in the SCO trial, to fight the Papermaster battle.
"These cases are prosecuted as a deterrent to others," said John Siegal, a partner with Baker Hostetler in New York. "In case people are going to be following a high-level executive, (a company) is going to impose limitations to get the rest of the staff to think twice or three times (about leaving)."
Don't fence me in
Covenants not to compete (generally known as noncompete agreements) are perfectly valid everywhere but California, where they have been outlawed. They are generally regulated, however, to make sure they are "reasonably limited to time and space," said Robert Scott, a professor at Columbia Law School and director of the Center on Contract and Economic Organization. That means employers can't keep you on the sidelines for 10 years or allow you to work only on the moon.
The central question surrounding Papermaster's noncompete--and really any noncompete--is whether his activities at Apple would harm IBM. "The court has to find that the noncompete is necessary to protect the interests of the employer," Scott said.
Papermaster signed the noncompete (click here for a PDF copy) in 2006 when after a 15-year career at Big Blue, he joined an "elite" team of IBM managers called the Integration and Values Team (I&VT). He claims the information discussed at the three meetings he attended was "high-level" and didn't involve IBM trade secrets. According to IBM's complaint, however, that group is a collection of 300 senior managers at IBM who are responsible for "addressing the most difficult and important issues facing IBM, such as developing corporate strategy and driving innovation and growth, and I&VT members work with the most sensitive strategic information the company possesses."
But according to an interview that IBM human resources executive Randy McDonald gave just before the company filed suit against Papermaster, I&VT seems more focused on solving the "thorniest" problems that IBM's customers are having integrating technology into their businesses, rather than developing any specific technology. "I&VT is about talking business first," McDonald said during the interview.
Nonetheless, IBM will point out that the agreement covers "any entity that engages in, or owns and controls a significant interest in any entity that engages in, competition with the business units or divisions of the company in which you worked at any time during the two (2) year period prior to the termination of your employment."
So, then do Apple and IBM compete because they both make servers, even though no rational observer of the server market would consider Apple a true competitor to IBM, Hewlett-Packard, Dell, and even beleaguered Sun Microsystems? Do they compete because they both design chips, even though IBM's go into servers and game consoles and Apple's will one day go into iPhones?
It all depends on what the judge considers to be the most relevant issues at hand. "What always happens in these cases is that every company in the world thinks that everything it does is a trade secret," Siegal said. "Under the scrutiny of a judge, that gets winnowed down to real specifics, such as whether the guy was engaged in activities and had knowledge of things that would give Apple an advantage in unfair competition."
And that's where this case could get juicy.
Laying down the cards
"It may also be that this litigation serves some ancillary purpose, that in discovery, one or both of these companies is seeking to find out more about the plans and activities of the other," Siegal said.
IBM and Apple may not want to
share their road maps for the next
year in a courtroom.
IBM will likely have to explain to the judge exactly how Papermaster's specific knowledge harms Big Blue's short-term interests by laying out just where those interests lie. Apple could have to do the same thing to prove that it doesn't plan to use that knowledge to start a new business or improve an existing one, even though it had Papermaster sign an agreement that he would not disclose any confidential IBM information to Apple upon joining the company. "Sometimes in these cases, competitors find out a lot about each other," Siegal said.
As a result, these cases rarely proceed to trial, since the preliminary stages tend to drag on and often the "secrets" at issue aren't worth the prolonged involvement by upper management. Papermaster's hope is that the judge agrees with his claim that nothing in his proposed role at Apple overlaps his role with IBM.
"The court (could then) put restrictions on his conduct for Apple that falls short of an outright prohibition on his working for Apple," Siegal said, satisfying the letter of the noncompete by prohibiting him, for example, from running the XServe group or the P.A. Semi chip team for a year but allowing him to run the iPhone group.
Noncompete clauses don't appear to be going anywhere, despite California's decision to ban them earlier this year. If anything, companies are getting bolder about their use of restrictions like noncompete clauses, Siegal said, which could start to affect more and more of those executives looking to move on from deteriorating situations. And if you refuse to take that next great job because the company requires a noncompete, the employer will likely find somebody who won't hesitate.
"While most states' laws say they are disfavored as a matter of law and policy, the fact is they are very often enforced," Siegal said. "I'm not certain there is a (growing) trend toward enforcement, but there is a trend toward using these agreements and seeking to enforce them."
Tom Krazit writes about the ever-expanding world of Internet search, including Google, Yahoo, online advertising, and portals, as well as the evolution of mobile computing. He has written about traditional PC companies, chip manufacturers, and mobile computers, spending the last three years covering Apple. E-mail Tom.
That's the main reason why I would NEVER sign one of those agreements, or I would insist on a codicil that says if I get fired/laid off, the non-compete clause does not come into effect.
Non competes are really for the sale of busiensses. That way the old owner can't go across the street and open up the same business they just sold you and steal all the busienss that you just thought you bought into.
-R
A Non-Disclosure Agreement (which is perfectly rational) should be sufficient (and they're usually standard fare for programmers and sysadmin types).
A non-compete is a product of the 1980's, and should've died back then.
If I'm an employer that doesn't want you to compete against me later, and you're a competent, solid employee, I'd simply do my best to retain you. Conversely, if you're an incompetent employee, I'd want you to work for a competitor... ;)
"Rule #1: Never sign a non-compete. "
I'll add to that:
Rule #2: Never work in the IT industry where non-compete clauses are commonplace and required by most companies. If you DO want to work in the IT industry, then you'll probably need to sign one of these necessary evils.
They shouldn't be an issue in this day and age, but they are here so you deal with them. While Penguinisto's comments are very high and mighty, they are also unrealistic in the real IT world. I wish it wasn't so, but that's simply the way it is. Hopefully times will change.
Yes, I've turned down job offers (one specifically because of a non-compete) because of a refusal to negotiate from the employer.
It sucks, it's not easy to do, but consider this: If they're inflexible on something as stupid as a non-compete covenant (and think they require one because there's no other way to keep you than to entrap you), then why in the hell would you want to work for them? Do you think that every other aspect of working for them will become a magical dreamworld? If they're so eager to show you up-front that they want to limit your options, then why would you willingly do so? If it were a matter of acceptance or starvation, sure, I can grok that - but unless that's the situation, you won't get anywhere in your career without negotiation or standing up for yourself.
Also, consider this: You claim that they are common and required "by most companies". I haven't seen one since 1996, and hadn't signed one since (IIRC) 1993. NDA's OTOH I've seen plenty of, and have signed one almost with every new job - maybe you;re confused about the terminology?
Dont EVER sign one. Walk away. Better yet - RUN. Tell them where to shove their NCA and tell them to tell their stinkin attorney to shove it tightly up there too.
However, non-solicit agreements are VERY enforcable, i.e. companys poaching employees.
The problem is, it is a double edged sword. It is also telling IBM job applicants to think twice before joining.
That said, Papermaster did sign it (and thus may be --depending on jurisdiction-- be bound by it).
Is the language of the non-compete even enforceable? In many cases, they're not worth the paper upon which they are written. Non-compete clauses often are created to intimidate an employee more than anything else.
What is the legal climate of the state in which the lawsuit is filed? As noted, in California, a non-compete clause is worthless. But some states still provide a safe haven for employers that want to brandish a non-compete as an intimidation weapon. I was party to one such lawsuit in the state of Minnesota, in which the former employer used its largesse to try to intimidate two ex-employees leaving the company to jump to a start-up. Their new employer had its ducks in a row, and eventually, both sides settled out of court in a decision that proved to be inconsequential. But it left the two ex-employees scarred and bitter.
I would believe a judge would place considerable burden on IBM to show why its lawsuit has merit. My hunch is that this will settle pretty quickly and quietly (but for the press that make noise about pretty much anything these days).
Of interest to some of you is the fact that you might have signed a non-compete and never had a clue that you did. Here's an example: At one company, employees received a congratulatory email thanking them for their hard work, and providing them with a bonus in the form of additional shares of company stock. To accept the bonus, the employee only had to click on a link in the email. What they did not likely do is also click on fine print nearby, that was a shrink-wrap agreement related to the awarding of stock that was SUBJECT TO ACCEPTANCE OF A NON-COMPETE AGREEMENT. In short, the frigtards buried the non-compete in the fine print of the acceptance of the bonus stock award.
Yes, this sort of thing happens. An attorney who reviewed the agreement was blown away at how insidious it was, and thought he could successfully sue to have it overturned were it not that he had to recuse himself because his firm was of counsel to - get ready - the company that used the shrink-wrap non-compete agreement disguised in the bonus stock offering.
And kudos to Tom Krazit for a well-researched article. That's pretty rare these days.
Indeed - some folks can be pretty sneaky about such things (your lawyer friend was right though - it would die very quickly in court - precicely due to its blatantly deceptive nature and lack of a complete copy of said agreement for you to sign, among a lot of other reasons).
See: http://www.peoplefinders.com (or
http://www.peoplefinders.com/summary.asp?fn=Mark&mn=&ln=Papermaster&city=Austin&state=TX&age=&dobmm=&dobdd=&doby=&vw=people&Input=name)
http://www.traviscad.org/tcad_search.php?mode=name&kind=real (or
http://www.traviscad.org/travisdetail.php?theKey=156545)
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by Dr_Zinj
November 19, 2008 4:50 AM PST
- Real simple.
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Reply to this comment
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(23 Comments)A non-compete is only valid for as long as the company is continuing to pay me as much as I would make working elsewhere.
Anything else is a form of legalistic slavery.
Here's my recommendation.
Draft an addendum contract that stipulates that the company must continue to pay you your salary and benefits that you were making at the time of your layoff or termination for the entire period of their non-compete contract. Add a paragraph in there that renders their non-compete null and void in the event that you do not received any pay or benefits from them. Then run it by a lawyer for proper language.
If they hand you an non-compete, you hand them that copy and tell them that it's non-negotiable if they want to push the competition claus in your contract.