The New York Times published an article yesterday discussing the increased use of noncompete agreements in nontraditional industries. The article starts by talking about a 19-year-old college student who had a job offer to work as a summer-camp counselor withdrawn as a result of a noncompete agreement she signed at another camp:
Colette Buser couldn’t understand why a summer camp withdrew its offer for her to work there this year.
After all, the 19-year-old college student had worked as a counselor the three previous summers at a nearby Linx-branded camp in Wellesley, Mass. But the company balked at hiring her because it feared that Linx would sue to enforce a noncompete clause tucked into Ms. Buser’s 2013 summer employment contract.
The article also talks about a lawn-maintenance person, an entry-level social-media marketer, and a hairdresser, all of whom had to sign restrictive covenants.
As more and more employers require restrictive covenants, there has been increased push-back. Against the backdrop of Massachusetts’ proposed ban on noncompetes, the article goes on to discuss arguments for and against employee restrictive covenants. Some argue that noncompetes stifle innovation:
“Noncompetes are a dampener on innovation and economic development,” said Paul Maeder, co-founder and general partner of Highland Capital Partners, a venture capital firm with offices in both Boston and Silicon Valley. “They result in a lot of stillbirths of entrepreneurship — someone who wants to start a company, but can’t because of a noncompete.”
Employers argue that the opposite is true:
“Noncompetes reduce the potential for poaching,” said Mr. Hazen, whose company makes scratch lottery tickets and special packaging. “We consider them an important way to protect our business. As an entrepreneur who invests a lot of money in equipment, in intellectual property and in people, I’m worried about losing these people we’ve invested in.”
There has always been a dispute about restrictive covenants’ effect on macro-level economic health. From my perspective, I am more concerned about using restrictive covenants to my clients’ benefit, as opposed to resolving this dispute; the policy implications of restrictive-covenant law are irrelevant to companies trying to protect their proprietary information. But the article leaves out a real-world benefit: increased certainty for employers and employees.
When permitted to use restrictive covenants, employers and employees have a better understanding of what will happen when the employer/employee relationship terminates. Employers can more comfortably share proprietary information with their employees, knowing that the restrictive covenants protect the employers’ interests. And employees know the precise limitations on their future employment, which can better inform their employment-related decisions.
Regardless, as I’ve discussed over and over, companies seeking to protect their proprietary information need to consider whether to require restrictive covenants. As long as the applicable jurisdiction permits them, restrictive covenants are often a company’s most powerful weapon to prevent unwanted disclosure.