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Non-Compete Agreements and the Abyss

By John | November 5, 2008

With all the hoopala regarding the recent IBM/Apple spat over Mark Pappermater’s non compete, I thought I might add to my “Abyss” series of blogs.

You could say I earned my law degree on the street. I always joke that I paid 50k for my “law degree” the year I left my first startup. I have only signed a few non-competes in my life. One was after I left Exxon to go to work for a software company startup. When I left that startup for another startup, I met my “first” lawyer. My new lawyer friend asked me this: “You seem like a smart guy right? “. Then he said “Why in the hell would you ever sign an agreement like this?”. Since then I have negotiated my way around at least 100 non-competes over the last 20 years. Here are some of the things that I have learned.

a. When talking with a new opportunity either as a job or a consulting contract make sure you ask for all agreements right up front. Start working these in parallel with other items for the gig. If you don’t do this up front, you will be at a terrible disadvantage when they hit you with the dreaded “Employee Agreement” as the last thing. You are very vulnerable at that point. At that point you really like the job and the people and you could get yourself into an “Ah what the heck” moment. Trust me, I have tried to hire a lot of really smart people over the years that didn’t even know or remember if they had signed a non-compete.

b. Let me make one thing perfectly clear. When dealing with a contract, no matter how much you like the people you are dealing with, they are your opponent. Don’t ever fall for the “It’s just a boiler plate we use, we would never enforce it.”. If they would never enforce it, then why do you need to sign it. I have actually had some companies say to me “Why don’t you trust us?”. In fact, one time it was the lawyer on the other end that asked me that question. A contract has no friends and should not be taken personal by either party.

c. “Non-compete agreements are not enforceable.” is a myth. Sometimes the question is not if your opponent is going to sue you; however, the question could be whether the non-compete holder will sue the company that is planning on hiring you. Sure, some states have better employee protections than others. However, this sometimes can confuse people. Sometimes the state might look like a pro-employment state on the surface, when in fact, what that really means is that the state is really pro-employer. My non-formal legal training has taught me a few uncontravertable truths. One is that it is not whether your opponent has a gun, but it’s whether your opponent will use it.

d. At all cost try never to sign a non-compete. Try and make it a non-negotiable item. This can be difficult if your opponent is a very large company. I always try and spin the question to the non-compete requester “Can you afford to not work for a year?”. If you can’t find some middle ground then this might not be the best company for you to work with.

e. There are strong non-competes and weak non-competes. My non-legal analysis of a strong non-compete is when they ask you one final last time … “Do you understand and agree with this contract?”. Or even better, “I have reviewed this contract with a legal advisor.”. An even stronger non-compete is when you are compensated for signing the agreement. My second non-compete agreement included stock options and a monthly compensation for my rights to non-compete. However, the strongest non-compete is when your opponent is much $larger$ than you.

f. Ninety percent of the time you CAN negotiate your way out of a non-compete.

g. If you get the “Our lawyers say to put the verbiage that you want in our contract and send it back to us.” response, act fast and only put in exactly what you need. I once changed a 10 page contract, to be in my favor, by just adding one sentence to the contract.

h. If the negotiation is going to be more complicated, then try the “I am really stupid.” and wear them down approach. Go at least three rounds of revising the agreement where you don’t even try to sound like you know what you are “legally” talking about. This will frustrate the hell out of your opponent’s lawyer. Then after you see signs of weakness go for the kill. Oh, by the way, this is all before you even show the contract to your lawyer for final approval.

i. Confidentiality agreements can be non-competes in sheep’s clothing. A non-disclosure from IBM could be more lethal than a non-compete. Sometimes clauses that imply “We do everything, and everything you see is confidential.” can be killer. Addendums work really well in my non-legally trained opinion. You can flip the agreement if you can sneak a few goodies in a well crafted addendum. You are betting on your opponent’s bureaucracy driven laziness. Yes Virginia, even big time lawyers can be tricked.

Topics: ibm, nov08001, other, papermaster, theabyss | 11 Comments »

11 Responses to “Non-Compete Agreements and the Abyss”

  1. Robert Says:
    November 5th, 2008 at 9:17 am

    C’mon John – tell what the sentence in section G was!

  2. John Says:
    November 5th, 2008 at 10:23 am

    Busted… I was being lazy. First I have to remember the vendors name, then I have to find the doc. However, since you were kind enough to read my post I will dig it out. By the way if you or anyone else find this kind of stuff interesting I can dig out some other gems. Reviewing contracts is actually a hobby of mine these days.

    John

  3. John Says:
    November 5th, 2008 at 10:57 am

    “to which Contractor has delivered services on behalf of XYZ corporatopn hereunder,”

    Prior to that addition the contract said that any company that they do business with was a company I couldn’t do business with for a year. My one sentence flipped it. The key point is you want to turn vague into specific whenever possible. That particular deal was a 6 week sub contract deal through the XYZ company. I had not worked with this new customer prior to XYZ introducing me to them. That brings up one more point. Contracts have to be fair on both sides.

    Anyway…

  4. IBM v Apple in the Law-o-Sphere | IT Management and Cloud Blog Says:
    November 8th, 2008 at 8:45 am

    [...] clueless about the law. Furthermore, there are quite a few technologist who have been drinking the “non-competes” are not enforceable Kool-Aid. I can’t tell you the amount of times I have heard [...]

  5. Robert Says:
    November 9th, 2008 at 10:35 am

    I’d say it was useful, rather than merely interesting :)

  6. Tom Says:
    November 11th, 2008 at 6:04 pm

    I just spent 3 months in court because my former lawyer sued me over a non-compete signed 16 years ago. The law was on our side, but in the end we had to settle because we ran out of money and couldn’t afford the trial. Plus my new employer got cold feet over interference claims.

    Large companies are basically free to write overbroad non-competes because they know that 99% of the time the employee can’t afford his defense. the legal term for this is “in-terrorum” quite literally legal terrorism. That is why I feel there needs to be a national non-compete statute. It would require salary to be paid for the duration of the non-compete.

  7. Tom Says:
    November 11th, 2008 at 6:05 pm

    should be “employer” not “lawyer” inthe first line, sorry

  8. IBM v Apple - The Ironic Twist | IT Management and Cloud Blog Says:
    November 12th, 2008 at 5:18 am

    [...] Non-Compete Agreements and the Abyss [...]

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    [...] When I write the Book [...]

  10. Susan Says:
    May 11th, 2009 at 2:14 pm

    Very satisfying read–column and posts. I linked to your page for an upcoming article on Examiner.com (I’m the Portland OR Unemployment Examiner). I’m writing a series about abusive recruiting practices and I’m delving into this topic for the first time. Non-competes are persuading people that they “have” to be unemployed because their contracts say so.

  11. Karrie Says:
    May 19th, 2009 at 7:47 pm

    Interesting read.
    I am just beginning my court appearances for a non-compete.
    I’m not sure how it will play out – seems it goes 50/50 in most cases. I’m sure that mine will not go in my favor. . .why would it be okay to have a job in this economy!?!?!

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