Those Unethical Noncompete Clauses

noncompetesIt would not unseat the presumptive and early-declared winner of the 2014 Ethics Alarms Corporate Asshole  Of The Year Award (of which, by the way, there is new news: the consumer Comcast got fired for complaining about its lousy service is suing), but sandwich chain Jimmy John’s outrageous noncompete clause in its employee contracts puts it in an enviable position of strength to be runner-up Corporate Asshole, if that is its aspiration.

It must be. Non-compete clauses are roundly detested in the law, often illegal, and frequently struck down by courts as unconscionable. They are justified, if at all, when an employee has a management-level position in a high tech or sophisticated knowledge and innovation field, or when he or she is a prominent industry figure  who could instantly harm a company by leaving and launching direct competition. Increasingly, however, companies have been using tight job markets to foist noncompete provisions on lowly service employees too, as fine-print additions to contracts that the employee is unlikely to have thoroughly read or understand. The New York Times reported on a Massachusetts man who sprayed pesticides on lawns for a living, and who had to sign a two-year noncompete agreement to do it. A  standard textbook editor was required to sign an agreement banning him from working for another publisher for six-months if he left his position. A marketing firm pressured a newly-minted Boston University grad to sign a one-year noncompete pledge for an entry-level social media job, and a even summer interns at an electronics firm had to agree to a yearlong ban.

What’s going on here? In the case of legitimate noncompete clauses, it is the excessive and inappropriate use of a powerful  tool to protect intellectual property,  guard against losing hard-won clients and customers, and avoid poaching by competitors. In cases like Jimmy John’s, the clauses cripple the mobility of employees with little negotiation leverage, leaving them vulnerable to mistreatment without recourse.

The United States has no consistent approach to noncompetes.  California and North Dakota ban them outright, while other states like Texas and Florida allow wide discretion in their use. Even in states that permit such clauses, judges will reduce the time restraints as unreasonable if they are too long.

For a low-level sandwich chef at a restaurant chain, any restriction is an unethical restriction. Jimmy John’s clause isn’t designed to protect secrets and invaluable corporate innovation: any competitor who wants to steal a sandwich recipe just has to order one and look between the slices of bread. The only motive for making mere employees sign such agreements is to limit their ability to quit for a better salary, benefits, and working conditions. It isn’t just Jimmy John’s, either. Wendi S. Lazar, an employment lawyer in Manhattan, told the New York Times that she is seeing more companies go to court to enforce noncompetes, noting that  “Companies are spending money, hiring lawyers, to go after people — just to put the fear of death in them.” Matthew Marx, a professor of entrepreneurship at the M.I.T. Sloan School of Management, says that noncompetes constrict the labor market, making it harder for companies to compete for talent. “We used to have a saying at the Silicon Valley start-up where I worked,” he told the Times.  “‘You never stop hiring someone.’ They can go where they want. People are free to leave and start companies if they’re not happy.”

Or free to make submarine sandwiches at another chain where they get more respect.

Massachusetts State Representative Lori Ehrlich is sponsoring legislation to bar noncompetes after hearing complaints from constituents over such contractual restrictions. “They’re hurting families by making it so people are unable to work for an extended period of time,” she explains. “This has increasingly become exploitative to workers.” Oh no, says her legislative colleague Michael Rodrigues. Government should not be interfering in contractual matters like noncompetes. “It should be up to the individual employer and the individual potential employee among themselves,” he counters. “They’re both adults.”

Both adults, one of which who needs a job desperately and the other with power, money and leverage enough to make a desperate low level employee sign away the opportunity to find greener pastures.

My verdict: using such clauses on service positions like sandwich maker is unethical corporate thuggery, and I blame the lawyers. They know that companies are not really going to take a sandwich-maker to court,  that the publicity for doing so would be deadly and that a judge would be likely to laugh in the company lawyer’s face. Yet they write such provisions so their clients can use them to intimidate employees who don’t know about the limitations on such clauses, and who don’t have lawyers of their own to enlighten them. There is nothing wrong with a reasonably limited noncompete clause when the job is highly skilled, the employer extends time and effort into training and education, and when the risk of that employee being poached by a competitor or taking important customers with her when she leaves is real and substantial. Making a sandwich maker, a bank teller, a grocery clerk or similar low level employees sign them is despicable, however.

Since so many employers and their lawyers can’t locate their ethics alarms regarding this practice, it should be illegal.

__________________________

Pointer, Spark and Facts: Jezebel

Source: New York Times

Ethics Alarms attempts to give proper attribution and credit to all sources of facts, analysis and other assistance that go into its blog posts, and seek written permission when appropriate. If you are aware of one I missed, or believe your own work or property was used in any way without proper attribution, credit or permission, please contact me, Jack Marshall, at jamproethics@verizon.net.

7 thoughts on “Those Unethical Noncompete Clauses

  1. They know that companies are not really going to take a sandwich-maker to court, that the publicity for doing so would be deadly and that a judge would be likely to laugh in the company lawyer’s face.
    You don’t practice in employment law, do you Jack?

    The number of published U.S. court decisions involving noncompete agreements rose 61% since 2002, to 760 cases last year, according to research that the law firm Beck Reed Riden LLP conducted for The Wall Street Journal. Since most cases are settled out of court and most opinions aren’t reported, that tally is likely low.

    http://online.wsj.com/articles/SB10001424127887323446404579011501388418552

    Unless the employee is lucky enough to get someone pro bono, they can’t afford to contest even the flimsiest such clause, one that as you said would be laughed out of court – if they had legal representation.

    • We’re not disagreeing, though. No company is going to take a sandwich maker to court on a non compete. A pro se could win it. The only point to such clauses used that way is as an unethical threat, a bluff. And it only has to be called once.

  2. As a condition of employment, I made my current company indemnify me against my old employer re my non-compete. I’m glad I did. My old company fought it — as I suspected they would. We ended up getting what we wanted because my old non-compete was the most ridiculously broad document I had ever seen. I happily signed it 7 years ago knowing it was unenforceable.

    Unfortunately, not everyone is a trained attorney (with experience in employment law) when presented with such documents.

    • Is it ethical to sign a document to gain consideration (a job) when you have no intention of abiding by the terms, regardless of how unethical the document may be?

      • A term that is unenforceable and void due to public policy might as well not be there at all. Since you can’t, by law, agree to be bound by it under the law, there is nothing unethical about signing an agreement with such a clause fully intending to ignore an illegal provision. Is it unethical to pretend to be fooled by someone trying to cheat you, when you aren’t fooled at all? No.

  3. Does it strike anyone else as odd that a big corporation such as Jimmy John’s would actually know that a former entry level employee has taken a job with a so-called competitor?

    Does the local newspaper report on such things? Perhaps a Sandwich Blotter — ‘Mr. S. A. Monella, formerly of Jimmy John’s is reported to have taken a position at Subway.’

    Does Big Sandwich maintain an extensive database of which we were previously unaware?

    • “Does it strike anyone else as odd that a big corporation such as Jimmy John’s would actually know that a former entry level employee has taken a job with a so-called competitor?”

      One more reason to conclude that the clause is BS, and designed to bluff and intimidate.

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