By Will Braynen
Illustration by Donna Blumenfeld
Nothing in this article should be taken as legal advice; I am a software engineer, not an attorney.
In a 2016 survey cited in a Brookings Institution paper on the topic, nearly half the engineers said that they are subject to a noncompete. In 2015, Hawaii followed California’s example, making noncompetes unenforceable for the information-technology sector. Why other states wouldn’t do the same is unclear to me—big lobby? After all, it seems to me that noncompetes in the information-technology sector are bad for the state economy and for employees alike. Moreover, you might find all kinds of weird things in your contract. For example, I’ve been under contract to not wear to work clothes made by certain brands. What’s in your contract? Are you currently subject to a noncompete and what does it mean for you?
What’s in a contract?
From a real contract with an IT staffing agency in Portland, Oregon:
In the eighteen (18) months following separation of employment with Employer, Employee agrees to provide Employer with the name of subsequent employers and the positions assumed within seven days of acceptance of the position.
If you see this in a contract you are being asked to sign, I think you should ask for it to be removed. I mean, I wouldn’t sign it, just as I wouldn’t sign this:
In the eighteen (18) months following separation, Employee shall wear silly hats and keep one's head cleanly shaven and nicely waxed under them silly hats. Especially when you work for anyone but us.
But then again, I am a proud man. Nor am I bound by visa constraints. Nor do I think these are reasonable things to request via a legally binding contract, at least in the context of software development.
What about noncompetes in general then? In particular, what about noncompetes between an employee (e.g. software developer or quality-assurance engineer) and an employer in the information-technology sector? What should our attitudes be towards noncompetes?
California
An old friend—let’s call him Finch—once told me that whenever he nicely asked any former employer if he could go work for another software firm despite having a non-compete clause in his employment contract, any former employer would always say, “Yeah, don’t worry about.” People are nice, my friend said. This was definitely true of Finch. Finch always saw the best in people. This was in California.
It’s true: many people might well be nice in California. The thing about California though is that state law there prohibits employers from enforcing restrictive covenants, which includes noncompetes. This means that the noncompete part of the employment contract is not legally binding in California. However, because of severability, a provision typically included in contracts, other parts of the contract would still be enforceable even if the non-compete clause is not. So do not mistakenly infer that the rest of your contract is not legally binding either just because it has a non-compete clause.
I have no legal expertise, but I suspect things might become more complicated as more California-based firms launch remote offices or simply let their devs work remotely from other states. That’s because I do not know which state’s laws apply. Similarly, if all of the firm’s clients are in a different state and the employee wants to go after those clients, I am not sure which state’s laws apply. But barring these complications, in the simple case when everyone is in California—employer, employee (the dev), and the clients—noncompetes are not enforceable.
Why would then an employer knowingly have something in a contract they wrote that is not legally enforceable? Why would they ask you to sign what you likely perceive as a legal document that is not actually legally binding? Good Question.
I suspect, whatever the answer to the Good Question, it is because the employer is doing so intentionally and not merely knowingly. And I suspect it is not because the employer intends for the contract to be morally binding. This is not my area, so I am just guessing here. However, the impression I get is that it’s because of people like my friend Finch: people who are informed enough to have read their contract, but not informed enough to know that it is not in fact legally binding. After all, this makes it possible to exercise some degree of control over others even if it’s null and void and so an empty threat.
But that’s California.
Oregon
In Oregon, where I currently work, the law is a little in flux on this issue and my impressions are mostly from a few years ago when I really delved into it. But my impression is that today, still, noncompetes can be enforceable in Oregon. (Exceptions are listed in Oregon state law, which I assume is written to presuppose an “or” between clauses whenever an “and” is not explicitly stated.) Here is an example of what you might see in your contract:
Non-Competition.
Employee agrees that during his/her employment with Employer and for a period of eighteen (18) months immediately following the termination of Employee’s relationship with Employer for any reason, whether voluntary or involuntary, or with or without cause, Employee shall not compete directly or indirectly with Employer in any form or manner, alone, as a sole proprietor, employee, consultant, owner, partner, officer, director, shareholder, member, adviser, or agent or in any way connected with any business in competition with Employer within the State of Oregon.
Needless to say, this is worded rather broadly, which is not good for you (the employee). But why 18 months? Well, because if it said anything longer, it would exceed the time limit placed on noncompetes by Oregon state law.
Questions you might have for your attorney
First off, your employer’s attorney’s job is to protect your employer’s interests, not yours. So if your employer offers (which is rare but nice, I think), do keep that in mind.
If you signed a noncompete, then you might wonder (a) whether it applies to you and (b) what constitutes competition.
Whether it applies to you
In Oregon, a noncompete might not apply to you if, for example, the first time your employer notified you in writing that a noncompete is a condition of your employment is less than two weeks before your first day of work. Similarly, it might not apply to you if your annual income was below (or equal to) the median family income for a four-person family, so in Oregon probably roughly below $62,000. With an average annual salary somewhere between $90k and $100k, most devs in Oregon likely make more than that and so do need to worry about a noncompete if they signed one.
If you already signed a noncompete and are deciding whether to violate it, the next questions might be (i) what are the odds that the employer will take you to court, (ii) what are the odds that the employer will win in court, and (iii) if they win, what does it mean for you. The answer to the second question—will the employer win in court—in part depends on whether the contract is reasonable. But what’s considered reasonable in this context I have no idea, especially when the reasonable person standard might split along two perspectives: that of the reasonable employer and that of the reasonable employee. As an employee, for example, I do not think it would be reasonable to be barred from working for anyone else in your state; but what do I know.
Probably all questions for state law and an Oregon-licensed attorney.
What constitutes competition
What constitutes competition? For example, if you are working as a contractor at company X (e.g. Nike or Intel) while officially working for company Y (e.g. an IT staffing agency) and X wants to hire you to work for them directly, would you be competing? (You are officially working for Y even if you are physically spending your days at X’s headquarters if, for example, your W-2 is with Y and not X.) In fact, would you be barred from working in the state of Oregon as a software developer altogether if you were you to leave Y?
Could you freelance on the side outside your regular work hours with X or would that be considered competition with Y? Could you open your own consulting firm in another state and help X solve complicated engineering problems under tight timelines using your own team of Navy Seal software engineers? (I don’t think it matters where your consulting firm is based so much as where your clients are, but I could be wrong.) Is the nature of Y’s business the making of shoes or semiconductors, or is it IT staffing or software-development consulting? If the latter, the is there a real difference here between IT staffing and consulting and if there is, then what constitutes staffing and what constitutes consulting? Or is the nature of Y’s business the making of software broadly construed?
Are noncompetes good for SOCIETY?
A noncompete protect the interests of the company (the employer) that is asking you (the employee) to sign one and obviously does not protect yours. There is a conflict of interest. But are noncompetes good for the public interest? Are they good for the economy? Do they protect the weak against the strong in cases when the weak should be protected or do they do the opposite?
Aside from sheer self-interest, there are at least two moral considerations here: efficiency and fairness. (There is also the freedom consideration, but never mind that.)
Efficiency
All I really know is that noncompetes are unenforceable in California and the software-development business is booming there. Correlation isn’t causation (e.g. California also has Stanford and Berkeley, lots of venture capital firms, and sunny weather that draws talented folks from places like Boston to the Bay Area), but nevertheless, might it be a contributing factor?
I assume it is is in the public interest to have efficient markets. Market efficiency is a function of how closely a market approximates a perfectly competitive market. Among other things, this means that competition is good for a healthy economy. (Not necessarily hypercompetition that makes everyone’s physical and mental health suffer, but just regular good-old competition.) Noncompetes are noncompetition agreements. Noncompetition is the opposite of competition. And lack of competition is bad for market efficiency. What am I missing?
In practice, noncompetes limit the worker’s freedom to (a) set up a competing business of her own, and (b) to go work for someone else. These are different in kind. The first is about the kind of competition mentioned in the previous paragraph. The second is about labor mobility. Lack of labor mobility, as I understand it, is also bad for market efficiency. Again, am I missing something here?
I suppose states are competing with other states for employers and job creation—for example, competing to attract firms from the tech sector to come set up shop in their state. And I suppose enforceable noncompetes could be part of the incentive structure. However, surely there are better incentives to offer employers. Moreover, this same incentive can backfire and contribute to a brain drain.
Either way you slice it, I would think that making noncompetes enforceable is worse for market efficiency than making them unenforceable.
Fairness
Why does an employer need to be protected from employees? Employers are typically in a more powerful position than their employees. If they weren’t, it would be employees drafting up contracts and asking employers to sign whatever they have drafted up. But as is, it is employees who typically need to be protected from employers. Noncompetes, however, do the opposite. Is this shift in power justified on fairness grounds and if so, how exactly?
Software developers are not unionized—or at least I don’t know of any—and so I do not think it is the case that software developers are more powerful than their employers because they are members of a powerful labor union.
Extreme supply-demand ratios favoring devs could, at some point, tip the balance of power. But it would require a bit of flushing out exactly why having demand for one’s labor is relevant to the noncompete question. Perhaps the having of sufficient employment options explains why restricting them in such-and-such way fairly balances the interests of the employee with that of the employer. But I would have to hear more.
If you, as the employer, have spent time and money training an employee, it might indeed be unfair if your freshly trained employees were then poached by your competitor without properly compensating you. In that case, a noncompete would protect the employer from other employers by not allowing an employee to work for the competition. But if so, then it shouldn’t be a noncompete, but instead should be a compensation-for-training clause. Could the employee buy himself out? When I worked for an IT staffing agency (which took a third of my paycheck every month), I was bound by a noncompete and yet had to pay out of pocket to attend a professional conference; what, in this case, justifies a noncompete?
Software development does not usually appear to have trade secrets (e.g. so much is open source, albeit the Page Rank algorithm was patented) and training costs are a combination of schooling that the employee has paid for herself (e.g. a computer science degree or a bootcamp) and the natural byproduct of working on real-world projects with more senior engineer (e.g. via feedback on pull requests). “You have worked with good engineers and so, as payment for this bit of professional development, cannot be allowed to work with anyone else” cannot be good justification, can it? If firms want to justify having noncompetes on the grounds of training costs, then in the case of software developers who have computer science degrees, employers should pay back the developers’ student loans.
In short, I do not see a fairness argument for noncompetes between employer and employee in the development of software, especially when the employer invested zero resources into the employee’s training. But I might be missing something.
Be nice
Or at least polite and professional. Know your rights and ask questions, negotiate your contract before you start a job if you can and need to (because that really is your best time to negotiate), but don’t be a jerk about it. Even if you are legally or morally entitled, try not to act it—whether you are an employer or an employee. Life is just all of us trying to figure it all out together. Professional life is no different. My intention here is not to moralize. I just feel like I’ve had to remind myself of this, especially when this touches on touchy issues of control and power and the question of their fair and just allocation. And chances are, whomever you speak with about this on the side of the employer is also an employee, just like you.
Where to get more information
If you have a legal question about this for practical reasons, I think you would be well advised to speak with a local attorney. In fact, a few years back, I saw Jim Vogele about this myself. And if you are curious to see what the state of the art is when it comes to empirical facts and public policy recommendations, then there is always google (or a search engine of your choice) for university and think-tank papers—for example, I linked to a Brookings paper in the opening paragraph.