Breaking (?) News: State Supreme Court rejects noncompete clauses

Been a LONG time since I posted on Saturday, but this is pretty interesting.  I got it from the mailing list this morning.

Read this article and the comments about California’s Supreme Court finally ruling noncompetes as garbage (er, unenforceable, even illegal).

This single issue has plagued hundreds of professionals whom I’ve met over the last two years, and I’m sure hundreds of thousands of professionals who just want to make a living.

One issue brought up in the comments is that now we’ll have employees going off and starting their own gig with no regard for the employer’s intellectual property (IP):

“Well there goes a bunch of companies leaving California. Why would they want to be bound by laws that allow employees to steal their clients and the company secrets.”

Many comments are in favor of this.  I can imagine this will bring a whole rash of intellectual property lawsuits, and the reality is a company is going to be able to outspend me (and you, probably) in court.  They can sit around with their salaries and lifestyles, while we tap into our retirement to fund a legal proceeding in court, trying to get a paycheck again.

It’s not over, but it’s a good start, I think.  Everyone who seems to know anything about noncompetes have indicated they are virtually unenforceable… this just seems like one more nail (a big nail) in the coffin.

Will this help you?  Will this affect your future employment?  How will companies react to this (i.e., what policies will they put into place, perhaps not sharing IP as freely as before), and most of all, will the federal government follow in California’s tracks, and when?

Interesting.  But I’m sure there will be adverse consequences.

5 thoughts on “Breaking (?) News: State Supreme Court rejects noncompete clauses”

  1. I dont see why this is such a big deal. As you point out, non competes have not been enforceable anyway and I dont anticipate this move to have any significant change in behavior for an employee or an employer. After all, california is just one state and the faster its laws become similar to other states, the better it is going to be for business. An an HR professional in a company that recently made a california based acquisition I can tell you that our biggest headaches are from there and we have nearly shut down that business now. So any changes like this are positive and can only attract employers to do more business in california, which in turn would be good for the people of california. Good Move – this one.

  2. Very interesting, indeed! It will be interesting as well to see the ramifications and changes of relationships between small and large companies i.e. as subcontractors, etc.

    Thanks for sharing, Jason.


  3. Jason,

    As you know from my previous post, this is a passionate subject for me. Non-competes are used to keep VERY successful people from being able to take their success with them when they leave. As someone who believes strongly in relationships, I don’t feel that this should be up to the company, it should be up to the client, after all it is their money. If a company can’t keep it’s clients on when someone leaves, shouldn’t that responsibility fall on the company itself. I come from a culture where they think sales people are a dime a dozen. If that was really the case, they wouldn’t need non compete agreements would they?

    I think this may be a hollow victory because their are other routes companies can take. My situation involved a multi-billion dollar company (Sunbelt Rentals) and they dragged me through the coals. I smartened up and fired my lawyer and learned to surf on coals at their expense. It cost me a lot to fight it, I estimate income lost at approx $320k not to mention the collateral credit damage and the scarlet letter branded on my chest for future employers (hence the reason I have gone into entrepreneurship). The bitterness comes from the fact that I gave notice, trained my replacement for weeks, introduced him to my most valuable clients and basically paved the road to a seamless transition. I had no intentions on competing, I was leaving the industry for a while, after all, I left a legacy there with a super-successful territory, I created four of their largest accounts from the ground up and made many more into national accounts, I couldn’t top that. I changed my mind when they decided to keep 1/3 of my final commission check in the amount of $4100 saying it was expenses on their end, but could not define this. They began to trash me to my previous clients, who are still my friends to this day, and I began getting prank calls and text messages (very childish in my opinion, but tracked to three specific employees). I took three months off and received an amazing offer from a company that appeared outside of my non-compete, apparently their office was 1.8 miles too close. Sunbelt filed for an emergency injunction which was approved without a hearing, I found out a week later. I won in the appellate court and was awarded attorney’s fees, they filed again. They gained another injunction. It’s just a vicious cycle from there.

    This was their first suit since winning against another powerhouse: H&E Equipment, in which they won a $21MM settlement. Don’t tell H&E these agreements are unenforceable, I think they might cry at this point. If you remove the non-compete itself, they would have tried a different way: proprietary information and intellectual property. The courts do a very poor job at determining what defines these terms. It varies by state but leaves room for anyone to argue. Now that you mention it, the courts do a very poor job of doing anything other than to go by their jaded views of statutes meanings, however right or wrong they are. Ultimately it comes down to who has the most money and what the other person is willing to give up. I was willing to fight no matter the cost, which was the only reason I “won”. Nobody really wins unless you get a huge payout, so it was a very expensive draw? However he outcome, I wouldn’t expect anyone to get away with “looting” a company of customer lists and other proprietary information, but I can foresee people being allowed to make a living in something they enjoy without having to worry about the new company firing you over a lawsuit from your old one.

  4. Since being unemployed in February 2008, I have had to pass on multiple contracts because of the no-compete I have with my former employer. I have seen this employer pursue legal action against former employees when they felt the agreement was breached. (Conversely, I’ve seen my former employer look the other way regarding new employee with no-competes in place when it is to their advantage.) I’m in no position financially to defend myself if they decide to come after me. I have decided to bide my time and wait until the agreement is over before pursuing any work that even might compete. Because of the conditions of my no-compete, I cannot even go to clients who have FIRED my former employer or who have outright said they would not hire my former employer — even if these clients want to work with me. It’s just stupid.

    In the meantime, I look for one of those “transitional” jobs and wait for my no-compete to expire. February 2009 cannot come fast enough!

    Thanks for such a great site. It’s encouraging to know we’re not alone. I refer jibberjobber to every job (or soon to be job) seeker I know.


  5. Non-competes breed medocrity and “good” not “greatness”.

    I don’t believe they are unenforceable, especially in a republican state, but they do/will, in the end, leave companies with only the employees not bold enough to leave, or not lucky enough to be laid-off/fired.

    If I ever sign a non-compete again, I will add a clause stating that it is null/void in case of any kind of employer-directed termination, layoff, reduction in salary, or any other move by the Company to which my earnings and/or reasonable expectations of earnings, promotability and/or expectations of a fair, enjoyable working environment have become diminished.

    Basically, “don’t mess with me, and I won’t mess with you”.

    Sounds fair to me.

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