IT Employment

California upholds ruling that noncompetes are invalid

At least in the state of California, noncompete contracts are invalid. The long-standing law was challenged in a recent lawsuit but it stands.

At least in the state of California, noncompete contracts are invalid. The long-standing law was challenged in a recent lawsuit but it stands.

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A law regarding noncompete contracts that has been on the books in California since 1872 was recently challenged but upheld. The law, forbidding management to restrict employees' options in their next job or business, was challenged in the Edwards vs. Arthur Andersen case. (Edwards was a tax manager who had signed an invalid noncompete clause.)

Noncompete contracts started being more commonly used by companies during the dot-com boom in order to prevent employees from taking their valuable knowledge of technology to competing companies.

According to a CNET News article, the fact that this law was upheld is "good news for California-based tech employees who want to take their skills to another company, or head a start-up that may directly compete with their former employer."

About

Toni Bowers is Managing Editor of TechRepublic and is the award-winning blogger of the Career Management blog. She has edited newsletters, books, and web sites pertaining to software, IT career, and IT management issues.

10 comments
Tink!
Tink!

For the typical tech jobs we should not be restricted in what TYPE of jobs we can apply for. Because we should be able to apply for the jobs that we are best qualified for depending on our skills. And non-compete contracts should indeed be invalid. To give the employers peace of mind they should have employees sign a confidentiality agreement. Which allows the employee to still work the same jobs at other companies, but holds them to keeping the company specific or trade secrets confidential until a specific amount of time (I think it's a year) has passed. I do think though, that there are a few exceptions where the technology IS the job where this may not apply. Not sure how one would deal with that.

michael.tindall
michael.tindall

...is the one that says "we will pay you and treat you well enough to make you want to stay". Otherwise, let 'em try and enforce it. Make sure they understand JUST HOW EXPENSIVE you are willing to make it for them, and how much you will humiliate them in open court. The skill sets that once were the sole domain of the geek are now commonplace...and the pool of unemployed IT staff grows with each graduating class. Former employers who sign no paycheck should have no more control than lovers we've broken up with, cars we've scrapped, or houses we've sold. You can't have free-market capitalism both ways.

cbader
cbader

I will spare you guys all the gory details of my previous job situation, but suffice to say it really sucked. So I left that position to take a job at one of our clients (Im in California BTW), my former employer kicked and screamed, said I had a non-compete, etc. My new employer and I collectively thumbed our nose at him and now I am happily employed. The comedic justice of it all....Im in charge of managing the account of my former boss, so anything he wants/needs to do he has to get my approval.

cyberdragon666
cyberdragon666

I see why an employer would want to stop you from going to a competitor BUT in todays job market that is not acceptable. Most companies treat their employees as expendable and it's not as easy to walk off your job one day and get another job the next. The LAST thing anyone needs is someone telling them you can't use the job knowledge you have to get another job. It's like saying if you quit you have to change careers at least until your non-compete is up. NOTHING should stop you from advancing your career. NOTHING.

eric
eric

Without a common base of knowledge, reader speculation and opinion may be fun but it doesn't help us understand the issue. Isn't the blog leader supposed to provide some background here?

NemesisTWarlock
NemesisTWarlock

What if you spent the last 10 years building up a successful business and then decide to cash in? The buyer pays premium dollar for you company, the knowledge, the customers, the reputation, and then you set up another business immediately and start selling the same product to all of those customers that you originally built up. Is this fair? Doesn't the buyer have ANY rights?

JamesRL
JamesRL

When my emplyer buys another company, they only do it on the basis that the company they acquire will remain more or less intact, including retaining the key personnel. We have them with golden handcuffs for a few years, and as they are employees, they can't form their own companies or go to a competitor till that specific contract ends (2 or 3 years). James

Mabrick
Mabrick

If an entrepreneur spends 10 years building a profitable company and then sells it great! If the buyer then treats the "purchased" customers badly they have made a major mistake. If the original entrepreneur wants to start over again for the sake of the customers (and the profit they now want to give back to him) that is not his mistake. The business was the buyer's to lose. So, to answer your questions: 1. Yes, its perfectly fair. Welcome to capitalism. 2. No, the buyer has no rights once the sale is complete...well, except for the right to fail because of their own bad business practices. Good riddance I say!

Bebedo
Bebedo

The California case involved an employer forcing a non-compete clause on a non-equal. The employee would not have been hired had he not signed the contract as offered. There is no bargaining power, leverage, nor fairness in that. It is almost the same to say a contract is invalid if signed while someone holds a gun to your head. The case given where someone sells off a business is a sale of "equals". In this case, no one is forcing the sale, nor is employment at stake -- the sale is a voluntary measure. In this case, a non-compete clause is entirely appropriate, as it is not in the buyers' best interests to purchase a company with extremely transient bonds, and have all the clientele move with the seller.

The 'G-Man.'
The 'G-Man.'

Just how many off the same kind of products and services can you find. They are everywhere, mostly by the process you just described!