As you may have noticed, I live in Miami. And I’m a huge Miami Heat fan (and have been since long before LeBron James came to town). So my mind is squarely on tonight’s game 7. But the news coming out of the NBA isn’t all about the Heat and the Spurs. There’s also been a lot of chatter about the Boston Celtics’ head coach, Doc Rivers, being “traded” to the LA Clippers. Some of the news reports have mentioned that Doc’s contract contains a noncompete clause.
Ken Vanko has a very good blog post about Doc’s noncompete. I want to examine in more depth one point Ken makes: Leverage.
What’s happening between the Celtics and the Clippers is a great example of how having key employees execute a noncompete can benefit the company in unexpected ways. The Clippers want to hire Doc as their head coach. But they need to get the Celtics to waive the noncompete. In exchange, they are offering players like DeAndre Jordan, an up-and-coming young center. Essentially, because the Celtics must consent to Doc coaching for another team, they are in a position to demand valuable compensation.
The same can happen in other industries. I’ve seen situations where a competitor was willing to agree to refrain from competing in certain geographic markets, or not to target certain key clients, in exchange for allowing an executive with a noncompete to work for the competitor.
Of course, before waiving a noncompete, a company must be very comfortable that allowing the departing employee to work for the competitor will not damage the company. For example, this may work where the departing employee was likely to leave anyway, and she is leaving for a company that doesn’t present a real threat. Here, the Celtics seem to be entering a rebuilding phase, so it’s unlikely that they will be facing the Clippers—a team that’s not in their conference—in the playoffs anytime soon.
If a company is going to waive a noncompete, it is important to enter into a new contract with the departing employee and the company where she will be working that sets forth the conditions of the waiver. At a minimum, the contract should include strict nonsolicit and nondisclosure obligations and an acknowledgement that the departing employee returned all company property (including documents and electronically stored information).
It will be interesting to see how it plays out with the Celtics and Clippers. In the meantime, let’s go Heat!