Be Wary of Non-Compete Bans, Policy Analyst Warns

Writing in RealClear Markets, Andrew Wilford’s “Ban of Non-Competes Isn’t a Slam Dunk, Even for Workers” takes a hard line on the benefits of non-compete agreements.

Wilford primarily focusses on the employer’s “substantial investment in time and training before they actually return some value to the company training them.”  In a world where non-competes are barred, “new opportunities would be reduced as businesses become leery of investing in new employees.”

Wilford appears to argue that newly-hired employees arrive at the employer without much in the way of value. If employers add so much value to their employees through training and other investment efforts, then why would companies engage in any screening efforts at all?  But, as we all know, they do exactly that through interviews, credit checks and other formalities.

If it is indeed true that employers make a “substantial investment in time and training before they actually return some value to the company training them,” then the proponents of non-competes would do well to make an effort to quantify the true cost to employers of such efforts. In the context of such determinations, does the employer actually go “out of pocket” by, for example, hiring trainers? Or, does the investment take the form of a newer employee merely shadowing and observing a more senior one?

For Wilford:

there’s also other cases where non-compete agreements are logical. Companies entrusting employees with sensitive trade secrets or proprietary information of course do not want those employees running to their competitors with it. That information would undoubtedly be valuable to those competitors, but it doesn’t mean that businesses protecting themselves is a bad thing.

Here, Wilford is on shakier ground. After all, a workplace could simply require that the employee execute a standard confidentiality undertaking, which would prohibit such employee from disclosing any workplace specific information to any third party or from using it for any purpose other than to benefit the employer.  At the same time, the employee would not be barred from going to work for a different employer, assuming the employee remained in compliance with the obligations under the confidentiality accord with the prior workplace.

Some employers that utilize non-competes fail to consider the cost and effort associated with their enforcement. These are considerable and will deter even well-funded businesses from going down the road of seeking even temporary remedies to enjoin a former employee from breaching a binding non-compete agreement. A full-blown court or arbitration battle over a non-compete clause “on the merits” will just add to that tab.

With non-compete rights binding on a former employee, an employer’s best bet may be to target subsequent employers of such person. They can bring claims premised on tortious interference with contracts theories of liability against such entities, which are more likely than the former employee to have “deep pockets”. To steer clear of such controversies, many new employers demand that prospective employees certify they are not bound by non-compete arrangements with their former workplace.

For employees bound by a non-compete agreement with a former employer, they may want to consider the extent to which they are permitted to become an independent contractor in their industry. With the barriers to entry to such positions lowered considerably (where “gig” work web platforms take the place of a conventional employer), this approach may be the most realistic approach for an individual bound by a non-compete provision to pursue.

Are you trying to navigate your way through a thorny issue involving a non-compete provision or agreement? If so, contact us to schedule an introductory consultation with Castle Garden Law.