Earlier this week, California’s Supreme Court reaffirmed the state’s position on noncompete clauses: they’re almost never valid, except for in a few specific circumstances. While this has been the state’s policy since 1872, the law recently came into question in the case of Edwards II v. Arthur Andersen LLP, in which the accounting firm tried to uphold a noncompete contract Edwards signed in 1997.
The point in question was a “narrow restraint exception”, which effectively punished employees for joining a competitor, but didn’t prohibit them for doing so. If the ruling had gone the other way, companies would be allowed to restrict employees’ pensions and stock value in retaliation for their departure. The Court’s ruling has stricken this exception, affirming that any such punishment is illegal.
However, this ruling has no bearing on confidentiality agreements – companies are still allowed to defend their intellectual property and trade secrets. But this is much harder to enforce, as evidence is usually always indirect and there’s rarely a smoking gun. The ruling also has no impact on another one of the law’s exceptions, which allows for non-compete agreements during the sale of shares in a company. For example, Google could lawfully require the owner of a company it acquired to sign a noncompete agreement as a means to protect its investment.
For Californians, nothing will change. But what about other states with growing tech communities, like Massachusetts and Washington, where noncompete agreements are allowed? Many people have blamed the relatively small growth of the tech sector in these states on their noncompete clauses, because they prevent the “best and brightest” from forming or joining their own companies at will, and some blogs have suggested that this ruling might change things.
Daniel McCoy, an attorney at Fenwick and West who specializes in employment litigation, says that the ruling is too subtle to have any impact on the law’s standing in other states. Because there has been no real change, no precedent has been set that didn’t already exist, and there’s little for activists to rally around.
Silicon Valley is the world’s technology hotbed, bringing both talent and revenues to California. If the potential economic gains to be seen in states like Massachusetts and Washington aren’t enough of an incentive to drive them to change their policy, we can’t expect this ruling to change anything.
Just a bunch of bureaucracy in the end…
http://blabtech.blogspot.com
Even in MA, one of the worst for laws that restrict an individual’s right to work (for competitors) there has been relatively little success in litigating non-compete clauses.
For the average tech worker, even in an engineering capacity central to proprietary design work, there is little chance that you can’t change jobs at a moment’s notice. For executives with strategic roles and internal knowledge of business plans – it’s been a wee bit worse.
@alan
unfortunately non competes are enforced quite a bit in MA. Actually it’s enforced the most.
check out the stats here:
http://opencomp...hat-truly-bind/
as a VC in MA, I will tell you it comes up a lot. entrepreneurs can’t hire or recruit with the same ease as their SV counterparts. or many entrepreneurs simply aren’t willing to take the risk of litigation.
Jaason,
I have a non-compete for the company I sold, does this mean I can go start a similar business without repurcussions?
I just left a comment on Jason Alba’s Jibberjobber.com site about this same thing, It won’t change anything. It still comes down to one simple factor: Your money Vs. their money. The one with the most money or the least to lose wins, but really no one wins. If that company truly believed in it’s own competency, they wouldn’t need them. It really all comes down to relationships and intellect. Without either you are not worth the ink the court puts on paper. My suggestion for anyone wanting to fight a non-compete, read it long before you leave, have an attorney read it, document your last few months and look for loopholes and whatever you do, leave the right way. You still don’t want to burn the bridges, no one likes an arsonist.
Money may be one thing, but if a defendant can get a summary judgment earlier through this then not as much money will be needed.
You still don’t want to burn the bridges, no one likes an arsonist.
Why isn’t the (plaintiff) company considered to be burning a bridge in a situation like this?
Completely agree to Jason.Such things come and go but hardly get an attention.
great news and reporting….non compete’s are nonsense and although ip and information must be respected, restricting someone fro competitive actions is ridiculous and legally, unenforceable. thanks for the good post.
have to give a shout out to Fenwick & West! They are great. Fenwick is such a strong supporter of tech and start-ups and non-profits in the Valley – just a terrific group of laywers to work with.
[& Danny McCoy is the Joshn Duhamel character on Vegas
(high tech quality input to this conversation I know....)]
It’s niave to believe that the Silicon Valley continues to be a hot bed for tech. For certain tech, yes, but for web related companies, it’s a vanishing market. VERY few companies and people in internet care about the Silicon Valley these days. Watch for that to continue as less and less need to rely on the city for talent.
It will always be home to other forms of technology, just not web.
Whatever you are smoking, pass some of that.
he’s right.
if you don’t believe it, let’s do a poll of “web 2.0″ and see just how many developers are in San Fransisco (or even in California for that matter)…
The “valley” is almost a metaphor anymore. It’s very much not 1980… applications come from all over the globe and those that do come from the U.S. are not even dominated by the Valley. The biggest and oldest (one latter paves way for the former) are in the Valley, but that is simply a product of history… most of the new companies coming up are nowhere near Silicon Valley (physically speaking).
Soon, the people who think it’s all about “The Valley” will be akin to those who insist AOL is the harbinger of innovation and web-coolness.
Gary K. loves AOL… neener neener.
get off your twitter and get into the “REAL” world. maybe you’ll appreciate what he’s saying.
barriers to entry are certainly lowered, and geography is not a hindrance, but for a wealth of knowledge, support, events, and opportunities you can’t beat the valley. And last time I checked Sand Hill Rd was still in Silicon Valley.
First of, there are other things “Tech” then just web sites. In Green Tech, the US currently is nowhere, although Silicon Valley has now finally started to invest in it. Robots? Where are the US companies? Batteries? Not in Silicon Valley. Hydrogen cars?
New devices? OK, Apple’s iPod and iPhone. How about eee PC from Asus in Taiwan? Surface in Redmond?
Web? With the Chinese Internet now already at the same size as the US (and having room to grow several times larger), and other markets such as Japan, Russia, Europe, the US market is just a significant *niche* of the world market.
Most of the web is about people and culture, not about “hard” technology. However, Americans have difficulty adapting to other cultures. In the last couple of weeks, we have discussed here Facebook’s inability to adapt for Japan and Germany, mobile phones in Japan… People born in the US typically speak only 1 language and — at best — have seen foreign countries on trips like “see all of Europe in 5 days”. They don’t understand other value systems (see the absolutely ridiculous treatment of China in US MSM and blogs). And the first generation immigrants in the US are typically under so much pressure to assimilate that they don’t contribute their own multicultural knowledge.
So: I don’t drink Jason Kincaid’s kool aid.
One problem is that with large companies making so many acquisitions and becoming so vertical – there could be large, growing gray areas in what could be seen as a competitors.
A company could expand their territory of what types of areas could be covered – and the employee would have less and less options
I studied some aspects of IP but certainly not this one. Thanks for the post.
HP touches on every aspect of the technology industry that it is hard not to work for a company that would compete with it. This is a good ruling and should be consistent to all 50 states. Companies nowaday are getting better and universally expanded to every areas where there are growth.
I can agree that if a company provides financial incentive for an ex-employee not to work for a competitor for a period of time but most non-compete agreement goes by default without paying employees after the job engagement.
Hey bud, nice blog you have going. Stop by mine sometime and join my MyBlogLog community. Let me know what you think.
Does anymore know if a similar situation applies to Australia (eg. non-USA)?
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IS TC on holiday today, no posts!
helllooooo were are you??? No one… OK
Back to old greatness TC – like the article. Thank you.
Dear Techcrunch
I like your coverage of iPhone 3G.
Can you format your blog so that it will be easier to read on iPhone?
Thanks
Alon
I’ll accept your judgment about the ruling not changing anything, but it’s a damn shame. Non-competes are regressive, and resemble nothing so much as restraint of trade or involuntary servitude; may it go their way in the long run.
More on this subject on my own blog, Trust Matters, at http://www.trus...om/trustmatters
Interesting…..
schoolshift.com