When Noncompetes Attack

Noncompete agreements aren’t always appropriate. This is a pretty simple concept that sophisticated companies don’t always grasp. I’ve written often about how noncompete agreements can be a company’s most powerful tool to protect its trade secrets and proprietary information. But only if the employee has access to trade secrets and proprietary information. When a big company takes a blunderbuss approach and makes all of its low-level employees sign noncompete agreements, it can backfire.

In the past few months, companies like Jimmy John’s and Amazon have faced backlash after the media learned that they were forcing sandwich makers and warehouse employees to sign noncompetes. This week, the Wall Street Journal ran a story about Stephanie Russell-Kraft, a former reporter—apparently entry level—at Law360. When Ms. Russell-Kraft left to work at Reuters, Law360 informed Reuters that she had signed a noncompete agreement while at Law360. Reuters fired her for not disclosing the noncompete when she applied.

Now, Law360 is facing bad PR (as reflected in these articles in Slate and Above the Law). Far worse, the New York Attorney General is now investigating Law360 to see if it violated New York labor laws.

I’m not going to claim to be an expert in the legal news-wire business. But it’s hard to see how an entry-level reporter would have access to proprietary information justifying a noncompete. In almost all circumstances, companies should limit noncompetes to senior executives and employees with access to proprietary information and trade secrets.

That’s not to say that companies shouldn’t take steps to protect against lower-level employees misusing or disclosing confidential information. Many times, this can be accomplished by less restrictive agreements such as nonsolicitation or nondisclosure agreements. I’ve found that courts are much more willing to enforce these types of agreements.

This brings us back to one of the key themes that you will find throughout my blog posts: each company needs a personalized strategy for protecting its trade secrets and proprietary information. This strategy should implement appropriate protections, which will often include targeted noncompete agreements. But too many companies force all employees to sign noncompetes. As we’ve seen recently, the company can come off as a bully. Or worse.

UPDATE: Here’s an interesting interview with Russell-Kraft.

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