Mayer Didn't Have a Non-Compete, But Your Competitor Might
Google executive Marissa Mayer left many unanswered questions this week when she gave notice to Google and started working as the CEO at one of the web-search giants competitors, Yahoo. One of the queries making the rounds on Mayers Google Plus circles and everyone elses Twitter feeds caught our attention: Did Marissa Mayer have a non-compete?
The short answer is: No. California law doesnt permit strict non-compete agreements. But the larger question got us thinking. Non-competes and restrictive covenants vary greatly state to state. What lessons can employers and their counsel draw from the discussions Mayer and her new employers likely had before she made her potentially litigious move to Yahoo, a direct competitor?
We spoke with general counsel and advisors across the country for a two-part look at the issue. Today well start with tips for how employers can protect themselves when hiring from competing companies, and in part two well look at the process from the employee point of view.
How can employers protect themselves when employees make a move like Mayerss? Michael Greco, a partner at Fisher & Phillips, deserves the credit for bringing this to our attention in a blog post explaining why Mayer does not have a non-compete clause in her contract. In short, its a state-by-state thing.
The first step companies ought to take when luring talent from their competitors is to understand the legal language around non-competes available in their state. Greco admits theres an enormous administrative burden on a company asked to write 50 different non-compete agreements for every state. But I think you need to take a thoughtful approach to the terms of the agreement you intend to rule out, Greco said. In an earlier post on the subject, he suggests employers identify the jurisdictions in which they have employees and group those jurisdictions into one of three categories:
- States where covenants are generally enforceable, but courts will modify, sever, or blue pencil overbroad agreements.
- States where courts will not modify overly broad agreements and instead strike down the entire agreement.
- Problem states where the law is so unique that specific state language is necessary.
Employers should adjust their agreements based on the employees they are concerned aboutlike executives, branch managers, and senior information technology officersand draft reasonable restrictions that protect legitimate interestslike intellectual property and trade secretswith the position of that employee in mind.
For senior executives, you may conclude you need a full-blown non-compete, Greco advises. For someone in your sales force, you need an agreement that says dont solicit or do business with competitors for a period of time. And for your tech folks, all you need is a confidentiality agreement.
Overall, Greco suggests getting counsel involved early and considering the mistakes an employee could make: be clear that he or she shouldnt take or sabotage any business records from their employee; make sure an employee knows he or she should not solicit or tell employees they are departing.
Megan Belcher, vice president and chief employment counsel at ConAgra Foods, agreed that the key is to start early in the process, particularly to protect oneself from being sued by the other company.
Its a good idea to discuss what, if any, restrictive covenants the person may have in the talent-acquisition phase, Belcher said. You dont want to spend the money on getting them here, interviewing them, investing time and money, only to realize you cant employ that person.
This happens more than some might think, Belcher said, and it leads to what she considers employers number one mistake: not finding out a recruited employee is bound by a restrictive covenant early enough to avoid litigation.
Employers need to proactively ask the questions that would get a candidate to disclose these covenants, she said, and before moving ahead with an offer, asses the state law issues.
Theyll hire and take a wait-and-see approach, Belcher said of many employers. Sometimes thats the right approach. But the key is that you and your newly acquired employee decide thats the right approach to take. You need to all know that so that youre on the same page.
Logan Robinson teaches corporate governance at the University of Detroit Mercy School of Law and was previously general counsel for the automotive supply company Delphi and Chryslers international operations. Robinson said companies considering the language of a non-compete agreement for a new employee ought to consider the lessons of Europes non-compete model.
The E.U. model requires employers, if they have terminated an employee and decide to enforce the non-compete, to continue paying the employees salary.
Maybe that person is sitting in their garden or on vacation or whatever, but they are being paid, Robinson said. An employer has to really think about how worried they are about this flow of know-how to a competitor and decide theyre only going to enforce that agreement in an extreme situation.
Greco, in his post on the top 10 things to do when an employee joins a competitor, reminds companies that the territory is dangerous.
An easy mistake can inflame passions of the prior employer because lets face it, these cases, in addition to presenting legal issues, are emotional, Greco said.