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California Lawsuit Wants To Weaken Noncompetes (axios.com) 125

Posted by msmash from the moving-forward dept.
An anonymous reader shares a report: California already prohibits companies from enforcing noncompetes within the state, but a Bay Area life sciences company is asking a state court to go even further. Veeva Systems is suing three of its East Coast-based competitors and asking a California Superior Court judge to declare that it has the right to hire employees who have signed such agreements. Veeva also wants a court to limit the use of non-disparagement and confidentiality agreements. "Non-compete agreements are bad," the company said in its suit. "These agreements limit employment opportunities. They suppress wages. They keep employees trapped in jobs they do not want, and they keep employees from fairly competing with their former employers. These agreements restrict fair and robust competition for employees."
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California Lawsuit Wants To Weaken Noncompetes More

California Lawsuit Wants To Weaken Noncompetes

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  • one solution (Score:5, Insightful)

    by ganjadude ( 952775 ) on Tuesday July 18, 2017 @04:01PM (#54834767) Homepage
    make the company that makes you sign a non compete pay you full salary for the duration of the non compete, whether you are actually working or not.

    • Re:one solution (Score:5, Interesting)

      by grasshoppa ( 657393 ) on Tuesday July 18, 2017 @04:04PM (#54834777) Homepage

      Take this a step further, require them to report your last day of employment as the last day of the non-compete. Ie: no employment gaps on your resume.

    • Re:one solution (Score:5, Interesting)

      by beelsebob ( 529313 ) on Tuesday July 18, 2017 @04:09PM (#54834801)

      Actually, that's (not quite) the reason why non-competes are invalid in CA. The court ruled that a company wouldn't just have to pay you your full salary, but in fact would have to pay you more than your full salary during the non-compete period. The justification was that during this period you would not be keeping up with the latest technologies, and your skills would bit-rot. You'd become inherently less employable, and the company must compensate you for that.

      • Re:one solution (Score:5, Interesting)

        by alvinrod ( 889928 ) on Tuesday July 18, 2017 @04:43PM (#54835033)
        That and most people in the software industry (and I imagine many other fields) switch jobs for a pay raise. Even that alone is enough to justify asking for more than your previous salary. The fairest way to do it would do a non-compete would be for the previous company to have an option to pay whatever your next employer is offering (or something close to 100% of that amount) to not work for them for some period of time.

        I think that alone makes it a fair compensation and there's nothing stopping a person from updating their skill set while they wait for the non-compete clause to expire. If you want to stay sharp, there're are plenty of open source projects to get involved in and there are plenty that are using new languages, technology, etc.

        • Re: (Score:1)

          by Anonymous Coward

          except you can't really improve your skillset without work experience, because that's where the edge cases happen.

          But I speak as a database geek.

          Real world work involves all sorts of craptastic data that only happens at work, whether it is 3rd party data or cleaning up internal data form one's systems before sending it to the 3rd parties (or the accounting system...). At least for that aspect, one does not get experience with dealing with crap data outside of work environments. And every company is differen

      • Indeed, it's related to a general trend that most companies would rather throw away old employees than maintain a long term relationship. You'll find hot tech start-ups in the Bay Area with very high churn rates. Ordinarily this would be a problem, but the culture here wants to believe there is some huge advantage to switching jobs every 30 months or so.

        • but the culture here wants to believe there is some huge advantage to switching jobs every 30 months or so.

          There is: your salary goes up, and in general is maximized according to what your value on the open market is. Companies won't give decent raises if you stay with them long-term, but by getting a new job you reset your salary to what the current market rate is. The downside to this, of course, is lack of stability for the employee, but it does help keep you from getting stuck in a rut.

          Now how this si

          • The employer sees an immediate cost reduction from hiring a cheaper person. The loss of productivity of the turnover won't be felt for months. Existing employees are still gaining skills/knowledge, so they will mask the issues for a little while. Takes about a 6 months to a year for the negative impact to be felt, and even then, it is difficult to quantify (project that is already late runs a bit later, bugs that would have been fixed within a day with former employee take a week with lesser experienced one

        • You'll find hot tech start-ups in the Bay Area with very high churn rates.

          Churn is good. New employees bring new ideas and fresh perspectives. Geographic areas with high churn rates have higher productivity rates than areas with more stability/stagnation. Churn-friendliness is one reason that California has been successful despite the high taxes and stifling state bureaucracy.

          I have found that the most productive workers are "boomerangs", that leave, work somewhere else for a few years, and then return. They already know the people and culture, and return brimming with ideas

          • I don't know, I like to retain company knowledge and have a stable company culture. Some of the most productive tech companies in silicon valley like Apple and Intel have many employees pushing 10 years at the company.

        • Re: (Score:2)

          by Jack9 ( 11421 )

          > the culture here wants to believe there is some huge advantage to switching jobs every 30 months or so.

          It's not just the culture, unless that culture is capitalism in information industries. Experience with skills are equated to proficiency in software usage/development everywhere. Now you have specific industry knowledge (of a potential competitor), shown a beneficial behavior (ability to stay employed), and proficiency. It's a huge salary advantage to jump every two or three years, which is why devel

    • jimmy john's will cut you down to 1 hour / week after you quit / get fired at min wage.

    • Re:one solution (Score:4, Interesting)

      by MangoCats ( 2757129 ) on Tuesday July 18, 2017 @04:37PM (#54834979)

      I work for a major corporation which has this provision in its non-compete, no doubt as a bone for the "unconscionable" provisions of the law.

      The mechanism goes like this: if you want to take a job with a competing firm, first you must notify corporate legal who must review the potential move and either release you from non-compete obligations, or enforce the non-compete clause by offering you continued employment at a compensation rate matching the bona-fide offer you presented to legal for evaluation, whether or not you are actually working for the company.

      First problem: what does submitting your offer to legal and waiting for a response do to your chances of landing the outside job? what does it do to your continued career development if you end up not leaving?

      Second problem: how often does it all go as advertised, without lengthy delays, stonewalling, etc?

      Final problem: even if the company does pay you for non-compete, that's very temporary while you look for other work, basically little better than unemployment compensation - and you'll be trying to get it out of a legal department for a company that you're cutting ties with - what could possibly go wrong?

    • That's what our company does for all higher level managers, who are the only ones with non-competes. You receive 3 months worth of pay which is the term of the non-compete, it does not matter who ends employment. I work for an employee owned company so a balance between the companies interest and employees' is the philosophy we live with.

    • make the company that makes you sign a non compete pay you full salary for the duration of the non compete, whether you are actually working or not.

      You could make quite a bit of money that way, sign up for as many different jobs as you can, all with noncompetes that require you to be paid out...

    • Police: Well I hardly think this is good enough. I think it would be more appropriate if the box bore a large red label "warning lark's vomit".

      Salesman: Our sales would plummet.

    • Comment removed based on user account deletion

  • Why does CA think it can unilateral terminate a voluntary contract between an employee and employer?

    • Re: (Score:2)

      by rthille ( 8526 )

      Same reason why it's not legal to sell your heart or lungs.

    • Re:Voluntary Contract (Score:4, Interesting)

      by avandesande ( 143899 ) on Tuesday July 18, 2017 @04:13PM (#54834823) Journal
      One of the basis of contract law is that they are void if they require you do something illegal. IE if I sign a contract that makes me your slave it cannot be enforced.

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Why does CA think it can unilateral terminate a voluntary contract between an employee and employer?

      the contract becomes null and void upon termination of employment, there is no compensation to the employee, the employer has no right to enforce any contract where there is no business being conducted.

    • Because it's the sixth largest economy in the world.

    • Well one side of my previous contract basically said if I've walked past the type of work while working for them, I can't perform the work for someone else. The other side said there would be no changes to pay without a discussion involving both myself and my employer. A few days after I started they cut everyone's paycheck 15% across the board. When I left to work for a different division of the customer with someone else, guess which part of the contract was all anyone looked at?

      • Ever see a "severability" clause?

        Want to try to sue for specific performance on that 15% pay cut? I bet you really don't, given the chances and amount of any potential win.

        • Ever see a "severability" clause?

          Want to try to sue for specific performance on that 15% pay cut? I bet you really don't, given the chances and amount of any potential win.

          Yeah, I threatened them, they threatened to send their lawyers after me for breach of the noncompete. I found working elsewhere for a year, then coming back to be cheaper. I've been working for the same customer they said I could work for going on seven years now after the year away.

    • Re: (Score:2, Troll)

      by PopeRatzo ( 965947 )

      Why does CA think it can unilateral terminate a voluntary contract between an employee and employer?

      Why you stupid ass. Have you ever heard of "contract law"? It's one of the biggest areas of the law. Probably half the laws on the books are what's legal in a contract and what's not.

    • Re:Voluntary Contract (Score:5, Insightful)

      by barc0001 ( 173002 ) on Tuesday July 18, 2017 @04:26PM (#54834919)

      "Voluntary". Let's not bullshit, in almost every job offer situation the employer making the offer has significantly more leverage than the person accepting the job and will press for concessions like a non-compete. A lot of people sign on to the non-compete because they need the job today, and can't worry about the nebulous effects of the non-compete as it may apply in the abstract future. Employers know this and take full advantage of it because once the employee is in the door, that's one more thing keeping them there even if the work environment starts to suck.

      Those reasons alone are why it's not a bad idea for CA to void these "agreements".

      • Plus the fact that Silicon Valley companies have become some of the biggest jerks in history at swinging non-compete, anti-poach and other employee abuse agreements around as wildly as they can possibly imagine.

      • Comment removed based on user account deletion

    • Employee/Employer relationships are hugely lopsided. It is reasonable for the state to step in and protect the rights of the little guy. Try red-lining and negotiating your terms of employment next time you get a job. Good luck with that.

      I find it especially hypocritical that you have large companies who lobbied and won "Right to Work" laws in most states (i.e. at-will employment) to turn around and put in non-compete clauses. If you want to make it hard for employees to unionize and make it very easy/c

      • Re: (Score:2)

        by tlhIngan ( 30335 )

        I like the idea of requiring 1.5x salary for the duration of any non-compete term. If the feared damage is so great as to deprive gainful employment, then such a sum should be chump change.

        I say make it 1.5x annual salary, PLUS normal benefits as if you still worked there. You know, health insurance (or extended health insurance0, stock options, etc. And they have to pay out your regular PTO, too.

        Funny thing about non-competes, it's often applied lopsidedly. I.e., an employee joining you probably came from

        • When David Cutler took his team from Digital to Microsoft (to make Windows NT)

          I wonder how things would be different today if someone went back in time and arranged an "accident" for Cutler before he could arrange this transfer. Would MS have become the company it is now? Would they have come up with something like NT, or tried to continue on with the Win95 tech? How far would they have gotten with that?

    • Contract law [Re:Voluntary Contract] (Score:4, Informative)

      by XXongo ( 3986865 ) on Tuesday July 18, 2017 @04:33PM (#54834959) Homepage

      Why does CA think it can unilateral terminate a voluntary contract between an employee and employer?

      CA is not "terminating" a contract. It is declaring that the contract was not valid in the first place.

      What Makes a Contract Invalid? [lawdepot.com] :

      When a contract is void, it is not valid. It can never be enforced under state or federal laws. A void contract is null from the moment it was created and neither party is bound by the terms. Think of it as one that a court would never recognize or enforce because there are missing elements.
      A contract can be void for the following reasons:
      The terms of the agreement are illegal or against public policy (unlawful consideration or object)
      A party was not of sound mind while signing the agreement
      A party was under the age of consent
      The terms are impossible
      The contract restricts the rights of a party

      • You can absolutely contract rights away, just not those that would cause the court to deem the contract substantively unconscionable.

        • What Makes a Contract Invalid? [lawdepot.com] :
          ...A contract can be void for the following reasons: ...The contract restricts the rights of a party

          You can absolutely contract rights away, just not those that would cause the court to deem the contract substantively unconscionable.

          in this particular instance, the contract restricts the rights of an entity that was not part of the contract (the company that would otherwise hire you).

    • Look up Lochner v. New York where SCOUTS basically said state labor laws protecting workers were unconstitutional and all the fall out and abuses it cause till it was overturned by SCOTUS again later..

    • Re: (Score:3, Insightful)

      by Serge_Tomiko ( 1178965 )

      Oh god, libertarians.

      What would you do without the state civil court system?

      Duals? Warfare?

      Whether or not a contract is voluntary is irrelevant. What is relevant is the authority that can enforce the contract. In this case, that is the State of California and they can modify how contracts are enforced in their civil court system at will.

      • Libertarians are quite fond of civil courts and contracts, as a general rule. You can read Wikipedia and learn what libertarianism is, if you want. I promise, none of them are hiding under your bed.

    • Do you think you can operate a business without a license from the local government?

    • Re: (Score:2)

      by taustin ( 171655 )

      Because the two sides of the contract are not in an equal position to negotiate.

      And because California hates business even more than New York.

    • Contracts have to have consideration to be valid (Score:4, Insightful)

      by Solandri ( 704621 ) on Tuesday July 18, 2017 @05:18PM (#54835183)
      A voluntary agreement is not sufficient to form a contract. Contracts must also have consideration [wikipedia.org] - something you receive in exchange for something else. Often it's money, but it can also be products or services. For a contract to be valid, there must be consideration given by both sides. e.g. A contract saying all you transfer all your assets to me and that you willingly become my slave until the day you die is invalid, even if you willingly want the contract. I'm getting everything of yours, but you're not getting anything from me. So you are not receiving any consideration, and thus the contract is invalid.

      A non-compete requires the employee to give up something (their ability to work in their chosen field for a number of years) in exchange for nothing. If the company continued to pay you for the duration of the non-compete, then it could be valid. But because they company's lawyers are trying to get something for nothing, they refuse to give you any consideration in exchange for your non-compete, thus invalidating the non-compete as a legal contract.

    • There are already things that you cannot legally contract for. If California wants to expand that list, then so be it. Let's see how that works out.

      Non-compete agreements are a protection for the employer, who generally enjoys the position of power in negotiations. The company can already use salary adjustments and other benefits to dissuade employees from competing.

      If the person is a high-level executive or has knowledge of trade secrets, then maybe some protection is reasonable.

      Otherwise, screw it. Let th

  • Here on the East Coast in the Federal Circuit Courts, non-compete clauses in contracts have been declared invalid and not binding. And this will be why Veeva Systems is trying to sue in California court to make it universal—they do not want to be hauled into a court in a "foreign" state

    This is a good strategy for Veeva. It is a pre-emptive move in a court of their own choice

    • Non-competes are illegal in CA.

      • Not only that, this issue has already been resolved. "Application Group, Inc. v. Hunter Group, Inc.", 1998, dealt with an issue that sounds very similar to this one. It was decided in California court that the out of state agreement was not enforceable within the state.
        (http://online.ceb.com/calcases/CA4/61CA4t881.htm)

        I'm not sure what is different about this new case.

  • I thought the People's Republic of California was a paradise for tech workers?

    In all seriousness - violating a non-compete (if you're dumb enough to sign one) isn't a crime. It's a contract violation. It only matters if the company you signed with wants to enforce it in civil court. It has nothing to do with your new company- short of them potentially losing you when the old company takes you to court.

    This is very easy to fix. Don't sign a non-compete. Ever. Unless the company demanding it pony's up som

    • Re:Just Say No (Score:4, Insightful)

      by MightyMartian ( 840721 ) on Tuesday July 18, 2017 @04:19PM (#54834863) Journal

      And when the six other people behind you get jobs and you don't, why, you can always eat your principles!

      Sometimes egregious behavior needs to be squashed by the courts or legislatures, and not just simply left up to the free market Invisible Hand.

    • Re:Just Say No (Score:5, Informative)

      by OrangeTide ( 124937 ) on Tuesday July 18, 2017 @05:07PM (#54835149) Homepage Journal

      I work in the tech industry and I'm a pretty good negotiator when it comes to payment and other terms for a new job. But I've never been able to refuse to sign a non-compete and still get the job. It is likely impossible for a new college grad to refuse a non-compete, who doesn't have nearly as much power in these situations as I do.

      Now if you are a successful executive, then you have way more power and those kinds of things can be negotiated. But I assure you that at least in the Bay Area tech industry, you will find it difficult to negotiate anything like a severance package before your first day.

      Now if you're being terminated anyways, you should politely refuse to sign any new paperwork. If they want you to sign something bad enough that's when the severance packages come in. Sadly I've worked at places that cut 10% of their staff to save money, and to save even more money did not give severance to a single one of them. And rather than give them a 2 weeks notice, the company was concerned about employee sabotage and gave no notice other than everyone was invited to a room full of moving boxes and security escort. That's how some of the tech industry operates in my professional experience.

      • In most states, such overly broad agreements won't hold up. They have to be related to actually competing against the prior company by using trade secrets or confidential information, not just using the same basic skills that any company uses. My guess is that since most people won't bother to expend the resources to take it to the courts, that companies just do this as a boilerplate agreement.

        As for severance packages, you almost never get agreements on those in advance. The sole point of any severance

        • I had lawyers from Amazon send my new employer and myself envelopes full of bunch of bullshit about non-compete policies. So they really will go to the effort to do some posturing and intimidation tactics. My HR director told me to ignore it, so I hung onto it for a few months before throwing it in the trash.

  • I signed an employment contract with an East Coast sub-contractor that was drawn up by a New York City attorney who had no clue about CA labor laws. In particular, a $500 per day fine if I don't give a proper two-week notice ($5,000 max) that wasn't kosher in CA. When a push came to a shove, I told the sub-contractor to run the contract by a CA labor attorney. The contracting agency that hired the sub-contractor bought out my contract to avoid legal hassles. I then got a proper employment contract and a hig
    • Was that a contract with a specified duration, or an at-will employment agreement? If it was a contract, then I'm surprised that California wouldn't allow agreed-upon penalties for terminating the contract early. If it was for at-will employment, then yeah, imposing a penalty for not giving two weeks notice would be unenforceable, since that directly contradicts the definition of at-will.

      • Was that a contract with a specified duration, or an at-will employment agreement?

        It was an open-ended contract.

        If it was a contract, then I'm surprised that California wouldn't allow agreed-upon penalties for terminating the contract early.

        In 20+ years of IT support contracting, I've never seen penalties imposed for terminating the contract early.

        If it was for at-will employment, then yeah, imposing a penalty for not giving two weeks notice would be unenforceable, since that directly contradicts the definition of at-will.

        A coworker who worked for a different sub-contractor has a provision in his contract to earn an extra month of pay bonus if he gave a four-week notice.

        • Was that a contract with a specified duration, or an at-will employment agreement?

          It was an open-ended contract.

          I could see how a court would consider an open-ended contract to be equivalent to at-will employment.

  • When I had an employer try to get me to sign a non-compete ( months after I stared working there), I said I would agree if he would agree not to hire my replacement when I left for the same period of time. If I can't replace my employer, he can't replace his employee. That ended that discussion. I left a few weeks later.

  • I'm going to assume they mean for people coming to work in California.

    Well, other state courts will rule the non-competes still apply as state X laws, where it was agreed to, apply.

  • A Minnesota judge hasn't upheld a non-compete in over 40 years. As long as you're not taking trade secrets with you, feel free to move to the competition.

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