The fact that hairdressers feature highly on the list of professions frequently sued for breaching non-compete clauses neatly illustrates the wide variety of industries affected by restrictive covenants that effectively ban employees from seeking work with a competitor once they leave.
In the technology world, non-competes are rife, and the reason is quite simple. “Trade secrets and confidential information are key to the success of almost every business in the technology industry, and that’s why lawsuits in this world are more common, and also why obtaining the relief that the plaintiff wants is easier than in a lot of other industries,” says John R. Bauer, partner at law firm Lawson & Weitzen in Boston.
While many technology companies have non-compete clauses to cover themselves, the reasons why go beyond concerns about their rivals getting their hands on any product design secrets.
In the cloud computing arena, for instance, there is a huge demand for sales talent. It is for this reason that Amazon is suing a former Amazon Web Services (AWS) sales executive in Seattle for taking a job with Google Cloud, which is alleged to constitute a violation of a non-compete agreement.
While technical talent may know the ins and outs of the technologies that could help their rivals prosper, the sales team will have the customer knowhow and close ties to organisations working in specific geographies or vertical markets.
And it is here where the cloud sales agent’s non-compete clause would share a degree of overlap with the one a hairdresser may have to sign. “Among hairdressers, goodwill is really important,” says Bauer. “If a salon hires a hairdresser and helps them to build up a following, and then that hairdresser leaves to go to another salon or start his or her own, it’s not uncommon for the first salon to file a lawsuit to enforce a non-compete – sometimes they win, and sometimes they lose.”
Judges can enforce a non-solicit clause instead of a non-compete one, which may not preclude the employee from working for a competitor, but stop said employee from contacting customers they dealt with while working for a former employer.
Aside from intellectual property and goodwill, there are also trade secrets which both sales and technical employees may be privy to that need to be covered by non-competes. “It doesn’t have to be about knowing how to design a driverless car, it can also be knowing the profit margins of the company, knowing plans in development, undisclosed financial figures and plans for expanding employment,” says Bauer. And while it makes sense for employers to put non-competes in place to protect themselves, it may be harming technology innovation altogether – particularly in the cloud computing space where there are three clear dominant suppliers in AWS, Google Cloud and Microsoft Azure. But non-competes are not enforceable everywhere; perhaps most surprisingly, they are not enforceable in California, the home of Silicon Valley. The general consensus is that this is to ensure that the talent pool can move from one employer to the next in the technology hub of the US. As a consequence, places like Massachusetts have had a talent drain. “People from places like Boston have moved to California to avoid being forced to sign a non-compete that would preclude them form starting their own business or moving to another competitor,” he says. But the three cloud giants are not just located in California – they have global offices – and this is why court cases pertaining to non-competes still occur in other regions. While one argument is that California would remain an innovative place to work, enabling people to use what they’ve learnt to create their own business, or join smaller cloud suppliers – the vast majority of the US and other jurisdictions around the world may not cater for that same type of innovation.
