What You Need to Know About Non-Competes
Technology is gold to a startup, especially when it’s creating a new product or using it to run key parts of the business. In those cases, and many others, the company will insist you sign a non-compete agreement before you come on board.
When you’re facing this situation, the thing you obviously want to know is, “What do I do?” Unfortunately, there’s not always a clear-cut answer.
“In California, non-competes are not allowed and there’s nothing that prohibits Apple employees from going to work at Samsung,” says Robert Milligan, a partner in the Los Angeles office of law firm Seyfarth Shaw. “But if you work on the same type of project and do the same type of work, you can get in trouble under trade secret laws.”
California and North Dakota are the only states that prohibit non-compete agreements entirely. Although Oklahoma allows them, they’re rarely enforceable there. In one form or another, all other states allow them.
What’s Allowed Where
The rules around non-competes vary from state to state, and many of the laws are changing. Some examples:
- Illinois: A non-compete is only enforceable if it passes a three-pronged test: It would not create injury to the public, create undue hardship to the employee and doesn’t go beyond the employer’s need to protect its legitimate business interests.
- Indiana: Non-competes do not violate the state’s blacklisting statute.
- Missouri: Former employees are bound by both non-compete and non-solicit agreements.
- New Hampshire: Agreements have to be disclosed to a prospective employee before a job offer or promotion is made.
- Ohio: Non-competes can automatically transfer to the surviving company after a merger.
Before You Make a Move
If you’ve signed a non-compete and plan to move on, be sure to inform your prospective employer. This helps them design your job in a way that will avoid a potential lawsuit or minimize its impact if your former company sues you.
That happened to Daniel Powers, former vice president of Amazon’s Web Services. Three months after he left the e-commerce giant, Google hired him to serve as Director of Global Cloud Platform Sales. Amazon sued Powers for breach of contract, but Google largely prevailed because it shifted some of his duties. In its ruling on the case, the U.S. District Court said Powers could not be involved in providing cloud services to any current, former or prospective Amazon customers “about whom he learned confidential information” while he was working there.
In this case, Google beat Amazon to the punch by structuring Powers’ position so that it wouldn’t violate his non-compete. Says Milligan: “A prospective employer can do a number of things, like temporarily putting someone on ice or in a learning position.”
Before you leave your current employer, make sure your slate is clean. One common mistake employees make is departing without erasing company data on a USB drive or their personal computer. “Good employers will make arrangements to have exit interviews and employees should say they have things on their personal computer and ask how to make arrangements to return them,” says Milligan.
If there is no exit interview, take the initiative and ask HR how to return the information. Whatever else, once you start your new job you don’t want to be caught with a digital trail that leads back to your old company.
After six months, a year or some time designated in your non-complete, any confidential information you hold would become outdated. At that point, it may be perfectly fine for your employer to move you to the type of work you were doing before you joined them, Milligan says. Its willingness to work with you in this way speaks well of the company. Says Milligan: “You want to work for an employer who will give you options and let you be in a positions where you are insulated from a legal claim.”
One thing Milligan didn’t say, but we will: If in doubt, see a lawyer.
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- When’s the Right Time to Join a Startup?
- 10 Traits of an Ideal Startup Employee
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