In his July 9th “Executive Order on Promoting Competition in the American Economy,” President Biden encouraged the Federal Trade Commission “to curtail the unfair use of non-compete clauses… that may unfairly limit worker mobility.

Once primarily limited to executives or salespeople with strategic customer relationships or highly-technical positions with access to intellectual property, more and more employers are using non-compete clauses to prevent rank and file employees from going to work for competitors.

Mike Coffey and guest Jim Zadeh, JD discuss the practical and ethical considerations in the use of non-competes. In this thirty-minute episode, the speakers will address whether there is a business case for employment non-compete agreements and what makes a non-compete agreement enforceable.

 

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Jim Zadeh

Jamshyd (Jim) M. Zadeh, Esq. is president and owner of the Law Office of Jim Zadeh, P.C. Based in Fort Worth, Texas, Zadeh has 32 years of litigation experience.

Zadeh’s law office is in the beautifully renovated historic Cobb-Burney home located at 1555 Rio Grande Ave., Fort Worth, TX. 76102

Zadeh’s law experience includes representing:

  • Numerous individuals and companies in personal injury cases
  • Companies and individuals in business disputes
  • Employees and employers in employment related disputes

He also serves as local counsel in Tarrant County and throughout Texas and prepares appellate briefs as needed.

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Transcript

Jim Zadeh: If you want to protect your business and you have this law out there and you have the right to invoke this law, then have everybody sign it.

But if you’re an employee and you’re going in and you’re getting onboarded, or you’ve got a new job, look at your paperwork.

Sometimes they label them at the top trade secret and the employee will think, well, I’m not going to violate trade secret law, but buried in there are these non-compete and non-solicit agreements.

[intro music]

Mike Coffey: Good Morning, HR!

I’m Mike Coffey, and this is the podcast where I talk to business leaders about bringing people together to create value for shareholders, customers, and the community.

Please follow Good Morning, HR on Apple podcasts, Stitcher, Spotify, or wherever you get your podcasts. You can also find us on Facebook or at goodmorninghr.com.

In his July 9th executive order on protecting competition in the American economy, President Biden encouraged the federal trade commission to curtail the use of non-compete clauses that might unfairly limit worker mobility.

Once primarily limited to executives or salespeople with strategic customer relationships or highly technical positions with access to intellectual property. More and more employers are using non-compete clauses to prevent rank and file employees from going to work for competitors.

Is there a business case for employment non-compete agreements?

What makes the non-compete agreement enforceable?

And our non-compete agreements simply the 21st century version of indentured servitude?

Joining me this morning to discuss the practical and ethical considerations in the use of non-competes is Jim Zadeh, a business law attorney and Adjunct Professor at Texas A&M School of Law. He is principal at the Zadeh Firm based in Fort Worth, Texas.

Good morning, Jim.

Jim Zadeh: Morning Mike, how are you doing today?

Mike Coffey: I am good. How are you doing Jim?

Jim Zadeh: Good. Why is your face all red Mike?

 

Mike Coffey: I spent the weekend in Santa Barbara and, as ever thought I didn’t need sunscreen because I’m from Texas and I was wrong, so yes, I’m a little beat red.

 

Jim Zadeh: In California by the way, speaking of non-competes is the only state in the country. Well, there’s three of them, but it’s the primary one that does not allow non-compete agreements, so you were safe from non-compete agreements while you were getting your face burned. But now that you’re back in Texas, you’re subject to these agreements.

 

Mike Coffey: Oh, okay. Well the bigger issue there is, nobody really wants my business. But it used to be commonly believed that non-compete agreements are largely unenforceable everywhere, so walk us through that history.

 

How did we get from when I started in HR 30 plus years ago when everybody said, oh yeah, don’t even waste your time with the non-compete to now where cashiers are getting them.

 

Jim Zadeh: Yeah, so I’ve been a lawyer for 32 years, you’ve been in HR for 30 years. When we started there was no such thing as a non-compete law. What it was is judges would come in and look at non-compete agreements that businesses entered with their employees. And the judges would make a decision as to whether the non-compete was valid or not.

 

So, when I started at a big law firm, one of the very first things I was tasked to do was to go down to the court and talk to the judge, and say to the judge, “Hey, I represent big business and I’ve got a non-compete with Mrs. Smith. And she’s going out and competing against us. Can you please enforce it?”

 

And he would say, Mr. Zadeh why are you trying to keep Ms. Smith from making a living? And I would say, well, your honor, she signed this contract. And he said, no, I’m not going to keep her from making a living.

 

And then the big business picked up on this and started enacting statutes. And when they enact a statute, then you go in front of the judge and you say, judge, I’ve got this non-compete and it complies with the statute and you have to enforce it. And the judge doesn’t have any opportunity to undo it, because now he’s got to follow the law.

 

When that started to happen, business figured it out, and they started passing these non-compete laws about 30 years ago throughout the country, going state by state. And currently right now, there are 47 states that allow some sort of non-compete agreement.

 

There’s three states that do not, or DC’s not a state, but it’s California district to Columbia. And of all places, North Dakota don’t allow non-competes. But all other states allow non-compete agreements in one form or another, so really for about the last five or 10 years, non-competes have been enforced against everybody from the janitor, all the way up to the CEO.

 

And now there’s kind of a backlash. And so what you’re seeing with President Biden, and what you’re seeing with some other states is they’re saying, wait a minute, these non-competes are really kind of messing up… Like if we’re having a cup of coffee and the server comes and serves us, that server could be subject to a non-compete agreement, they couldn’t go work down at the coffee shop two miles away because their employer decided to make it so they couldn’t do that, so some states, eight of them as of now have said, if there’s a low wage worker, they’re not subject to the non-compete.

 

And then you have at the federal level with Biden kind of directing the FTC to say, let’s look at these non-competes and see if there’s something we can do on the federal level. As you know, Mike at the federal level, nothing gets done. And so right now with the FTC, we’ll be looking into it, but I don’t see a federal statute coming in, so it’s up to the states to do it piece by piece.

 

Mike Coffey: And that warms my little libertarian HR heart. But let’s eventually get into the pushback on these, but what makes an enforceable non-compete? Are there limitations that need to be in a non-compete? Or can I just say you can never work in the background screening industry ever again for the rest of your life?

 

Jim Zadeh: Yeah. There’s got to be some limits on them. Obviously, you can’t say you can’t work anywhere in any job ever again, that wouldn’t work. Most states have three kind of limiting factors. One is how long it can be, so like in Texas, there’s been some courts that have upheld up to five years long, I don’t think that’s fair. I think one or two years is pretty standard.

 

The next is scope, so that is, what’s the area? Like can you do it just for restaurant workers? Or can you just do it for tech workers or in medical? Can you just have the doctor not work within his particular field or her particular field?

 

And then the last one is geography. You can’t make it for the whole world, so what’s a reasonable geography. Now reasonable for a doctor in Texas is like four to 10 miles, reasonable for a salesperson who has national accounts it could be the whole country, so those are the three things.

 

The other kind of thing that you need to have, at least in Texas and other states is it needs to be ancillary to an otherwise enforceable agreement. What that means is you need to have another agreement in addition to the reasonable non-compete. Businesses have gotten around it, courts have gotten around it and really kind of taken that requirement and it’s rarely used anymore, but that’s what you need to have something that’s a valid non-compete.

 

Mike Coffey: But, so that ancillary agreement, would that just be in the employment context? I mean, the agreement is, is that you come to work for me and I pay you.

 

Jim Zadeh: No, it’s not that wiped out, but it is for example, there was a case that came out where a guy was getting some stock and they said, well, that was enough. The usual one is you get training or you get access to trade secrets, those are the usual. Otherwise enforceable agreement is, Hey, we will give you training. In exchange for the training you give us the non-compete agreement, that kind of thing.

 

Mike Coffey: Okay, so it’s like consideration for the agreement not to compete.

 

Jim Zadeh: Pretty much. Yeah.

 

Mike Coffey: But you said that increasingly those are going away. I mean, I don’t know what the side agreement would be for restaurant staff or just your basic admin clerical position.

 

Jim Zadeh: That’s the thing, right? Those eight states are coming in and saying this isn’t right. There’s cases of janitors that have been subject to non-compete agreements. And that’s why you have these eight states saying you can’t do it for low wage workers. You can’t do it.

 

The distinction I make is operations and sales. I get it, if you have a sales guy or sales lady who you have put a lot of time and energy into, and establish national accounts, and they control 30% of the sales of the company, and they can walk out tomorrow and take all those customers, I get that, that’s what a non-compete is designed for.

 

But if you’ve got someone in operations and accounting, how are they going to hurt the company if they leave? I mean, you can typically find someone else to do that job, and they’re not going to go out and steal a bunch of business from the company, so I think that’s kind of the trend.

 

They haven’t got all the way there yet on distinguishing between sales and operations. But that’s kind of the thing I use in the court with the judges. If I have someone in operations saying, how’s Ms. Smith going to hurt if she leaves.

 

Mike Coffey: So what happens now if an employee is subject to a non-compete and they leave that employer and decide they’re going to go into the same role with a competitor, even though they’ve got a non-compete. What’s the recourse for an employer who wants to enforce that non-compete?

 

Jim Zadeh: Right, so that’s the thing I get questions for all the time. That’s what I get employees call me and employers call me, what can I do?

 

The first thing is from the employee side, don’t tell your employer where you’re going to work, don’t put it on LinkedIn, don’t let anybody know. If they don’t know where you’re working, then they can’t figure out that you’re competing against them. And some knuckleheads go out there and blast it on Facebook and LinkedIn, and they’re just asking for it.

 

But second is what typically happens is if an employer finds out that employees are competing, what they’ll do is go to their lawyer and their lawyer will tell them, okay, here’s our options. Number one, we can do a demand letter, a shout across the bow. And that’ll cost you 500 bucks to a thousand bucks, unless you’re a big firm in Dallas, and then that’s-

 

Mike Coffey: And what’s a demand letter? Tell us what would be in that demand letter?

 

Jim Zadeh: A demand letter for example, Mike, you have an HR company and you go out and you work for another HR company, so your former employer comes to me and says, Hey, I don’t want Mike working for this new company. I write a letter to the new company and to you saying cease and desist working at the new HR company, you’re in violation of the agreement.

 

And if you fail to cease and desist, we will sue you. That’s what the demand letter says. And oh, by the way, you’re damaging us. And if we sue you, we’re not only going to get an injunction to prevent you from going forward and working with that company, we’re going to get monetary damages against you and a judgment against you.

 

The reason why you send demand letters is the fear, right? You do that shot across the bow. It only costs 500 bucks. And a lot of times I’ll have employees come to me, scared to death. And they say, oh my gosh, this company is going to sue me and all this. And I tell them, wait, wait, wait. You know, are they really going to sue you? Because let me tell you what the employer’s lawyer has to be telling the employer. And that is, look, it’s going to cost between $10,000 and $15,000 just to get a temporary restraining order. And if they get a judgment against you, Mr. Or Mrs. employee, can they collect it?

Because in Texas, your house is exempt, your car is exempt, up to $80,000 worth of personal property is exempt. They can’t collect a judgment against you, so they are literally wasting $10,000 and $15,000 just to get a temporary injunction and that they will never be able to get back. They’re just throwing money into a campfire.

 

And so a lot of times the employers will just say, send the demand letter, scared the hell out of the employee, maybe they’ll stop, and then that’s it. That’s all they want you to do, so employees, if you’re out there and you-

 

Mike Coffey: Why would they send a demand letter to the new employer? Is it enforceable against that employer?

 

Jim Zadeh: It is not, so you send it to them just to scare them. It’s just another scare tactic, so if I’m the new employer though, if I have any kind of guts as a new employer, I would tell the old employer, you have a unenforceable non-compete because most of them can be picked apart. And you’re torsionally interfering with my contract with my new employee. What are you doing? And I would threaten with a counterclaim. I’ve done that in the past, so that’s some of the things you can do.

 

Mike Coffey: Let’s say the former employer is serious and really wants to enforce this. They send the demand letter and the former employee shoots them the middle finger and just continues going to work at the new place every day. What do they do then?

 

Jim Zadeh: Then they have to file a lawsuit and they have to get a temporary restraining order. And in order to get a temporary restraining order, you have to have evidence to attach to your lawsuit. And then typically in 14 days to 28 days, they will have a temporary injunction hearing. And in that hearing, the employer has to prove among other things that it’s likely to prevail on the merits.

 

What that means is you kind of have a mini trial, you have witnesses, you have the judge, you go over all of it. And the judge then decides, well, I’m going to enjoin or stop this employee from working at the new employer during the pendency of the lawsuit. During while the lawsuit is pending.

 

At that point, the employers have kind of won, because now they can drag the lawsuit out on the damaged part for as long as they want and keep you from working there, so that’s the TI hearing. The temporary injunction hearing is really it, it’s really the big deal, so these cases are super accelerated. You typically have a result within 30 to 60 days, but it is very expensive for the employer.

 

Mike Coffey: Which you’re talking $15,000 or $20,000.

 

Jim Zadeh: Yeah, and if you’re talking CEO level or C level employees, then one of the typical tactics is to extend the temporary injunction for maybe 30 days to allow discovery, which means depositions, and documents and all that. And then you get into the mid five figures and sometimes it’s high six figures.

 

Mike Coffey: And what is the judge’s criteria, when they’re looking at that temporary injunction to decide if they’re going to award that? Are they examining the whole non-compete agreement and really going… I mean, you said this is like a little mini trial, but are they really making a decision then on the merits or is there any evaluation as to what the damage would be if this former janitor from employer one was a janitor for employer two is the judge even concerned about what the impact to the former employer would be or is that even an issue?

 

Jim Zadeh: The standard is likely to prevail is one of them, so the likely to prevail is that why you have the mini trial? Are they likely to prevail? It doesn’t mean they win, it just means that the employer is likely to prevail. And that’s why you get all the witnesses. That’s why you get all the deposition testimony. It’s interesting.

 

The judge looks at the non-compete and that’s as an employee lawyer, I do it on both sides, but as an employee lawyer, that’s why I pick apart the non-compete. That’s where I will be like Judge, you’ve got a scope of services for a janitor, you have them that they can’t work in a tech field. That’s not a reasonable scope. Or you have that the janitor can’t work within a hundred miles of this place, that’s not a reasonable geography. And you start picking apart the non-compete in the court.

 

And that’s what you do on behalf of the employee and employers hate when you do that. And a note to employers, don’t get your non-compete agreement off the internet. I’ve had a couple of those where I’ve represented the employee, and man we’ve just destroyed the non-compete agreement in court. And it costs the employer a lot of money to get there. And the one case I had with that, they eventually dismissed the lawsuit

 

Mike Coffey: What are the issues there?

 

Jim Zadeh: The issues are the scope, right? I mean, if you just have this general non-compete agreement and it says anywhere in the United States, and you’ve got a janitor, what do you mean the guy can’t work anywhere in the United States as a janitor, that doesn’t make any sense. That’s not reasonable. Five-year non-compete, that’s not reasonable.

 

Things of that nature or they don’t describe the type of work that the employee does very well. They just say, this employee can’t work in tech services. And he’s somebody who doesn’t work in tech services, things like that. That’s where you pick up on them.

 

Mike Coffey: Let’s say the employer gets that injunction and that’s a temporary injection, but in order to really maintain it as enforceable, do they still have to pursue the lawsuit? If the lawsuit isn’t pursued beyond that injunction is it a moot point for that employee, if they don’t go all the way?

 

Jim Zadeh: What usually happens at that point is the employee figures out they’re going to lose. And so at that point, the employee just stops working at the place that they worked at, which is what the employer wanted in the first place. And that’s usually where they go away, they settle because the employer now knows that they can’t collect from the employee. And so why keep going, right?

 

Most of the cases are resolved at the end of the temporary injunction one way or the other. The person will just stop working for the competing employer, which is what they wanted. And I will tell you, Mike, all the way as you go through this process, there’s conversations between the lawyers trying to settle it, and most of the time we get them resolved.

 

Mike Coffey: And so if you get a temporary injunction against an employee, is it a for that specific job that, that employee has, so let’s say in the example which I hope is a little farfetched of a restaurant worker, going to work at restaurant A and you get to the injunction against them for that, but then they go to restaurant B. Do you have to go spend another 15 to 20 grand all over again, to enforce it a second time?

 

Jim Zadeh: That’s where good lawyering comes in, right? A good lawyer on the employer will make it broad enough so that it doesn’t violate it. And a good employee lawyer will make it really specific so that his employee can go down the street and work, so that’s always in the courtroom halls, that’s the devil in details. That’s where lawyering comes in.

 

Mike Coffey: And let’s take a quick break.

 

Good Morning, HR is brought to you by Imperative, premium background checks with fast and friendly service. For more information about our commitment to quality and excellent customer service, visit us at imperativeinfo.com. And if you’re an HRCI or SHRM certified professional, this episode of Good Morning, HR has been a pre-approved for one half hour of re-certification credit.

 

To obtain the recertification information visit goodmorninghr.com/credit select episode one, are employment non-competes enforceable and ethical with Jim Zadeh, and then enter the code word Zadeh. That code word is Zadeh Z-A-D-E-H. And now back to my conversation with Jim Zadeh.

 

Let’s get into where should an employer seriously consider implementing a non-compete?

 

Jim Zadeh: Well, Mike and I think you have an opinion on this too. I mean, I have an opinion just because I represent primarily plaintiffs, although I’ve represented big business. I really don’t think employers should put them on operational people at all. I think they should be judicious in who they get non-competes-

 

Mike Coffey: Like rank and file employees.

 

Jim Zadeh: Yeah, I don’t see it. I get it if you’re going after salespeople, but as far as people in operations, I don’t see it. But now look, if you want to protect your business and you have this law out there and you have the right to invoke this law, then have everybody sign it.

 

But if you’re an employee and you’re going in and you’re getting onboarded, or you’ve got a new job, look at your paperwork, sometimes they label them at the top trade secret and the employee will think, well, I’m not going to violate trade secret law, but buried in there are these non-compete and non-solicit agreements.

 

Jim Zadeh: And so employees have got to look out for it. I hope and I’ve said this, Mike, at some of the HR seminars, I hope that HR people out there can encourage the boards, and the CEOs, and the executives to kind of tone back, because what you’re seeing what’s happening is they’re overusing them.

 

And when you overuse non-competes or overuse something, you get a kickback, people start to push back. And what you’re seeing right now is push back through the eight states now that have made it low wage workers can’t have non-competes, you have President Biden doing what he did with the executive order. Businesses better be careful, they’re going to kill that golden goose here.

 

Mike Coffey: You mentioned non-solicitation agreements and the idea around trade secrets and proprietary information, that kind of stuff. Would employers be better off focusing on those kinds of issues rather than just trying to do blanket non-competes?

 

Jim Zadeh: Yeah, so just so your listeners understand a non-solicit can be two, it’s non-solicit of customer or non-solicit of employee. What that means is an employee of a company can not go out and solicit a customer, can not go ask for their work.

 

The other one is an employee of a company when they leave, can’t go in and raid the company and take their fellow employees with them, so there’s two different kinds of non-solicit agreements. Most of them are enforceable. Again, California, you can’t enforce a non-solicit of customers, but most other places enforce it. Same with the non-solicit of employees.

 

Jim Zadeh: I think the problem with non-solicits, from a employer point of view is there’s ways around that, because all it is, is one way and meaning that the employee has to solicit and go out and ask that person, that customer to come with him or her, or ask that employee to come with him or her, and the old employee can always say, oh, I didn’t ask them, they asked me, they called me, they contacted me.

 

And if the customer or the old employee reaches out that’s not a violation of the non-solicit, so I don’t think it’s a solution. I think the non-compete is really what the employer needs to protect themselves.

 

Mike Coffey: What about protecting proprietary information? Is a non-compete the way to go there, or should you have a separate agreement making certain kind of information, business confidential?

 

Jim Zadeh: Trade secret agreement, you should have a separate trade secret agreement. I mean if you really want to tie down your employees, you put them under a non-compete, a non-solicit of your employees, a non-solicit of your customers, and then a trade secret.

 

And really the other thing, if you’re an employer that you really want to put in is if an employee violates any of the non-solicit or non-compete agreements, that stops the two-year period or the one-year period from running, and so you don’t get the benefits. I’ve had some employees who violate a one-year non-compete for 11 months, and the employer comes to them and says, oh, you can’t work. And they go, well, I only got a month left. And so I’ll be done. And what are you going to do?

 

Well, there’s some clauses that employers can put in that says, no, you violate it for 11 months, so it doesn’t begin to run until the first day after 11 months, and now you’ve got the year to go. I think employers need to, I hate to be saying this, but I think employers, if you really want to protect yourself, you got to put all those in there.

 

Mike Coffey: Now as a prospective employer. And I’ve seen the question on employment applications and then interview guides. Are you subject to a non-compete from a previous employer? How important is it to a prospective employer to even investigate that?

 

Jim Zadeh: You know, I’m split on that. Sometimes perspective employers get really scared about that. If you say on your application, I’m subject to a non-compete agreement. They are like, I don’t want to get in the litigation, I’ll go hire candidate B instead of you.

 

And so that’s another reason why I tell employees to be careful about signing these non-competes it really can chill your ability to get new work after you leave that one business, because new employers might not do that. But I mean, do new employers, do they look at that?

 

Mike Coffey: Yeah, I’ve seen the questions. I’m not sure how they’re responding to it when they get that positive answer. But that would be a good question for anybody listening to the podcast to post on our Facebook or on the website. And let us know if, as an employer you’re concerned about that?

 

I guess on the flip side, if I’m a prospective employee and I’m considering this job, but now the employer and all the new hire paperwork that I actually read, which should make me the rare employee anyway, who reads all that new hire paperwork. And I see that I’ve got this non-compete agreement and I’m like, no, that’s BS. I’m not doing that. What’s my recourse? Can they not hire me just because I refuse to enter into this agreement with them?

 

Jim Zadeh: Sure, they can choose not to hire you if they don’t want to hire you. And it’s rare that I get phone calls from employees who are looking at their new hire work and find the contract and don’t sign it. I just had one last week and I’m working and we’re negotiating through the non-compete agreement with the employer.

 

But most of the calls I get is when an employee is thinking about leaving a company and they all of a sudden realized they’re subject to a non-compete, and then they realize they’ve got golden handcuffs. And they say, what do I do? At that point I look at the non-compete. I tell them whether it’s enforceable or not, in my opinion, walk them through the practical side of it.

 

And this is interesting, Mike, I think it’s interesting. What I always asked is what’s the ego of the person who’s going to make the decision as to whether to file the lawsuit. What really happens in these cases is whether or not a lawsuit is filed, depends on the ego of the president or the CEO. If they just want to show we’re a tough company and we’re going to force our agreements, then they go ahead and spend the money on the lawyers.

 

But if they’re nice people and they’re like, look, this person worked for us for five years and did a great job and gave service to our customers. And they’re really not going to hurt us over there. I don’t want to hurt them. If I hear that the ego is not real high on the other side, then I think there’s something we can work out. That’s one of the questions I ask when I’m talking to employees is what’s the ego of the person who’s going to decide whether to sue you or not.

 

Mike Coffey: As the HR guy in my circle of friends, whenever somebody has an HR question about their current employer, they come to me and I’m usually the bearer of bad news. Yeah, your employer is allowed to be an a-hole. That’s just the way it is. It’s not illegal.

 

But I just recently had one, somebody came to me who was looking at a job that she really wanted, it’s with a nationwide firm. I mean, it’s basically, everybody works remote, it’s an internet based service provider. And they had a non-compete nationwide from working for any of their competitors. There’s only a handful of competitors nationwide anyway.

 

And she was really put off by that. And she reached out to them and just said, I’m not interested in this role if this non-compete is there. And they dropped it immediately. Oh, well, that wasn’t really intended for you or for this kind of role, which it clearly was because I mean, she is the core business of what that company does as that service provider, but they dropped it.

 

How often do you see employers willing to negotiate? You mentioned you were negotiating one recently. How often are they willing to do that versus just saying, no, sorry, that’s our policy?

 

Jim Zadeh: Comes up to an ego and comes up to how much they want to employee? How much do you want this employee and what is your ego? And at that point, they may drop it and say, oh, we’re not going to do it. Or they’re going to say, you have to sign it.

 

The other area where I see it is mergers and acquisitions, so there’ll be a bunch of people in a company who don’t have non-competes and then the new hedge fund comes in and they buy the company out and they go, guess what, everybody here needs to have non-competes. And at that point, you got to go to the hedge fund and tell the hedge fund. I’m not going to have one, or I’m leaving and you have the right to leave because you don’t have a non-compete. But those guys are sharks, so they’ll probably make a sign it or fire you.

 

Mike Coffey: And let’s say, they say I refuse to sign it and they can terminate me. It’s just a condition of continued employment, right? They are saying you can terminate me if I decide not to sign it, right?

 

Jim Zadeh:

[crosstalk 00:30:37]

 

Mike Coffey: Yeah, in and out with state. Is there any difference between enforceability or the kind of consideration you have to have on the pre-employment or the agreement, the non-compete that you enter in at the time of initial employment versus one, if one of our listeners goes back to after, and goes back to the company and says, holy crap, we’ve got to… At least these five positions we really need to have non-competes, let’s email them to everybody and tell them to sign them.

 

Is there any difference in the consideration or that ancillary agreement requirement for existing employees?

 

Jim Zadeh: I think there is. I mean, there’s not any difference in the law, but practically speaking, I don’t know that there’s any consideration that’s offered when you send that email to those five employees. What are you giving those five employees to give you that agreement other than continued employment?

 

And that’s exactly what the ancillary agreement requirement is set for, so if you’re an employer and you want those five people to sign, you have got to offer them additional training, some something of value, whether it be more trade secret information, just something you’ve got to give them in consideration of that additional agreement.

 

Mike Coffey: And from a practical point of view, I’ve seen plenty of employers over the years who get a bee in their bonnet about some issue, create a new policy or a new handbook thing, and expect everybody to sign it. And maybe haven’t really thought through the practical aspects of how we’re actually going to implement this and what it’s going to mean for our employees.

 

And even if they’re successful in getting everybody to go along with it, they damage that employee goodwill and that level of employee engagement. And they’re just not going to get that discretionary effort that we’re all looking for from our employees. They’re going to get people who are just less committed to the company, more likely to just to come punch the clock and do the basics and not make that personal investment in their employer.

 

Jim Zadeh: And the other time I’ve seen employers get religion is when they have that conversation with their lawyers, about how much the TI is going to cost. And when they hear the $10,000 to $25,000, all of a sudden, they’re not so interested in enforcing that non-compete.

 

Mike Coffey: But even if they’re not willing to really enforce it, just having them probably intimidates a fair number of… It raises the bar for that employee to leave, I guess. And I guess that’s the thing I liked least about the non-competes is that I can see where they would, if an industry pretty heavily use those, let’s say it’s a tech industry, and we’re using that for our coders.

 

I could see where it would suppress wages in an industry and reduce the amount of competition in the workforce, or the number of opportunities in the workforce for certain kinds of employees, because they’re tied in and they’ve got to be willing to not work for six months or a year, or two years, or do something different and let that other skills get stale.

 

Jim Zadeh: We’re a country based on freedom, and that really restricts a person’s freedom. And so innately as an American, it kind of makes you kind of crawl a little bit like, wait, big business can control me, where I can work, how I can make a living, how I can put food on my table. I don’t like that, that’s kind of a normal deal.

 

But then if you are somebody who is in big business or is about big business, you’re like, no, that’s fair, big business has to protect themselves from their employees. I’ll tell you a little side. We as lawyers, non-competes are not enforceable against lawyers.

 

Jim Zadeh: And the argument is that under our ethical-

 

Mike Coffey: Ethical.

 

Jim Zadeh: I know under our ethical rules, that the client has to have the ability to choose the lawyer that they want, regardless of who it is, they should be able to choose who they want. And a non-compete would prevent that from happening, that’s garbage, because a patient should be able to choose what doctor they want, but a non-compete can come in there, so somehow the people who made the laws made the rules so that it favored them as opposed to everybody else.

 

Mike Coffey: Well, a lot of our legislators are attorneys.

 

Jim Zadeh: That’s right.

 

Mike Coffey: And if you put the defense bar and the plaintiff bars lobbies together, and as much as I like to complain about big business, but there’s a lot of power there, in the combined industrial legal complex.

 

Jim Zadeh: Yeah.

 

Mike Coffey: But anyway, well, thank you, Jim. That’s all the time we have this week. I appreciate you joining us.

 

And thank you listeners for being a part of this today. You can find previous episodes, show notes, and contact info for our guests, including Jim at goodmorninghr.com or on our Facebook and Instagram feeds. And don’t forget to follow us wherever you get your podcasts.

 

Rob Upchurch, is our technical producer and imperatives marketing coordinator, par excellence Katy Bautista keeps the trains running on time and I’m Mike Coffey. As always, don’t hesitate to reach out if I can be of service to you professionally or personally, and otherwise I’ll see you next time. And until then keep your chin up and think big thoughts.