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Friday, May 4, 2012

When is competition not allowed?

In the US an amazing part of the open market and entreprenurial growth has been the concept of open competition. Business is not a zero sum game. The I win you lose mentality in business has been outdated since the late 60's. Imagine having a former employer use the following non-compete to stop any an all efforts an individual might have to earn a reasonable living:

Employee agrees that during the term of this

agreement and for a period of 24 months from and after the date of termination for any reason of this agreement (the restriction period), he will not directly or indirectly, own, manage, operate, join, control, be employed by, be engaged on an independent contractor basis, or participate in the ownership, management operation, or control of, or be connected or affiliated in any manner with any individual, corporation, partnership, or any other entity, that is engaged in business directly or indirectly competitive to the then existing or COMTEMPLATED business of the company within the United States (which shall be the restricted area) Employee further agrees he shall not in any fashion, form or manner; either directly or indirectly, solicits the customer’s or PROSPECTIVE customers for employee’s own account or on the behalf of any individual or entity during the restricted period.
Look closely at this paragraph and realize that it is not from a Company which is in a specialized field nor a company that has any proprietary intellectual property to protect. This company is a services related small business who basically markets into a cold call market place with over 10,000 potential clients and 750,000 contacts who are publicly available at any time to anyone's finger tips.
So, if an individual invested in a company that provided similar services (there are literally thousands of companies that provide these identical services) that individual would be in breach of this contract. Notice the "participate in ownership" wording. If the individual did any work as an independent contractor he/she is liable for breach of contract.
The best part of this wording is the "that is engaged in business directly or indirectly competitive to the then existing or CONTEMPLATED business of the company within the United States. Contemplated covers a wide arena of possibilities which can be defined as anything the individual might do is a breach of this contract. If this company decided to get into the meat business then the former employee would be in breach of contract by working at McDonalds.
Lastly the most intriguing part is that this "business" if googled would cover every one of the following industries: Financial Services, Insurance, Investments, Advertising, Public Relations, Research, Consulting, Marketing and Sales. All these industries are out of bounds to the former employee as they are competitive to the employer according to this restrictive covenant of the contract.
Here we are in an economy that is falling apart and people are begging for jobs and yet there are small business owners out there so fearful of competition that they would deny former employees the right for almost any gainful employment. Proprietary intellectual property is one thing, basic sales and marketing is truly non protectable. Certainly existing customers should be protected and no one should be able to poach on existing customers. Yet even retail wirehouses and Insurance companies are not so limited with their versions of non-competes. One should notice that this language includes solicitation of the companies PROSPECTIVE customers. Therefore any prospect in this arena is off limits. Not to mention that this business couldn't possibly even handle 1% of the overall marketplace it is involved in it wants to protect 100% of the marketplace.

What are your thoughts about an employer attempting to enforce this type of contract in today's economic scenario?