Earlier this year I weighed in on the Donatelli/EMC non-compete drama with a brief post about the nature of non-competes.

Since then I have read several new articles and opinions about the topic of non-competes. I am currently following two: Boston.com’s Clause for Concern, and Bijan’s Revised non-compete legislation doesn’t go far enough.

Here’s my take in a nutshell:

I agree that non-competes make no sense for rank-and-file employees (a.k.a. employees at will). I’ve been the victim of a non-compete on at least one occasion during a layoff at the turn of the century.

However, I do believe non-competes are fair game for any employee under a formal employment contract (esp. key personnel, founders and senior executives). It’s a voluntary mutual commitment - a covenant if you will - and there’s no rational reason that non-competition language should be universally excluded from such an arrangement.

Rep Brownsberger should ditch the arbitrary $50k cutoff and craft the bill in the context of employment at will versus employment under formal contract. If employers want non-competes, such a law would make it much harder for them to eliminate employees at the drop of a hat without justifiable cause. And, if employees want better than at-will job security - which is what most senior execs enjoy today - then they can sign on the dotted line. Both sides would get the security they seek at a cost.

I went on to write,

And, to be clear, I’m not talking about severance contracts issued during the layoff of at-will employees. We both know those are usually non-negotiable “take it or leave it” contracts that many employees feel compelled to sign, on short notice, in exchange for less than desirable compensation.

Let’s not confuse those with the compensation packages of executives and founders negotiated up-front as a condition of employment.

And,

If employers want non-competes, I’m suggesting that they be forced to enter into formal employment contracts with new hires (i.e. not at-will) where compensation - including any severance and perks - is negotiated up-front just as it is now for most founders and executives.  At-will employees should have no such requirement as a condition of employment or severance.

To suggest that non-competes should be eliminated completely is shortsighted and naive, in my opinion. Such agreements do have legitimate applications in the context of certain employees, particularly those nearer the top who will acquire broad intimate knowledge of an employer’s strategies, tactics and operations (as was the case with Donatelli and EMC earlier this year).

It would be naive to believe that NDAs and similar instruments designed to protect IP are effective in that context. In contrast, non-competes wholly eliminate the possibility of knowledge misuse and abuse.

As for Massachusetts and California, there is absolutely no way for you and I to meaningfully quantify the impact of their attitudes toward non-competes.  What I’ve read to-date is little more than opinion. Nobody knows for sure what the impact has been, positive or negative.

Do you have an opinion about non-competes? Join one of the conversations at Boston.com or www.bijansabet.com.

This entry was posted on Tuesday, July 21st, 2009 at 2:19 pm and is filed under Non-Competes, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.