Non-compete clauses have their place in the law but they have in my view been abused in the employment context.
The classic case of a good reason for having an enforceable non-compete arises with the sale of goodwill in a business. Proprietor X sells his business for $10M and then sets up shop next door to steal the customers of the business back to his new, competing one. In effect, this is a case of theft. Someone pays value for the goodwill value of your business and that means (usually) mostly for the revenues resulting from continued business from its existing customer base. If you take that value for that asset, it is deemed unfair under law that you should be able to grab the asset back through immediate competition for that same customer base. Buyers are savvy enough to know this and therefore require that you enter into a non-compete clause as part of the sale. And the law says, "yes, indeed, this is a restraint of trade in that it limits what the seller can do in pursuit of his trade or business following the sale but it is a reasonable restraint of trade, and hence enforceable, because it protects the value of the goodwill interest bought by the buyer for which good value was paid." Even in enforcing such clauses, the law says that they are enforceable only to the extent they are reasonably necessary to fulfill the legitimate purpose the law seeks to protect. In the sale-of-business context, then, non-compete clauses are enforceable insofar as they are limited in scope (that is, in duration and in geographical reach) in a way that the law regards as reasonable.
The problem with non-compete clauses in the employment context is that they are almost inherently unreasonable in their application. I join company X as a developer. I leave my employment after two years and I want to pursue my livelihood in the same line of business that company X engaged in, albeit not using any of its confidential proprietary technology. Yet, even though I would respect its trade secrets and not do anything the law would regard as being innately some form of unfair competition, the non-compete clause imposes an absolute bar prohibiting me from pursuing my livelihood in my very area of strength for as long as it remains in effect. This can cost me money. It can cost me opportunities. It can represent a setback to my ability to continue to develop skill levels in areas that are important for my future. All this for what? I get nothing whatever for it. Unlike the seller who just walked away with a pile of cash for selling his goodwill interest, I am not paid for being burdened with this restraint. I am simply stuck with it, to my great cost. And what is the justification for this? Again, unlike the sale-of-goodwill context, an employer does not have some right to keep competitors out of his space. All kinds of people can compete with him. What he can do, via the non-compete, is arbitrarily keep me as a former employee out of his space. Why should he have that right? Well, there is no particularly good reason except insofar as my competing with him may allow me to misuse confidential proprietary information that I got from my former employment with him. Everything else is arbitrary. Of course, even states that give maximum enforcement to such non-compete clauses will require that they be limited in duration. But two years (or whatever) is two years and this does not make it more fair to the former employee.
California refuses to enforce non-compete clauses in the employment context except to the extent necessary to protect confidential proprietary information. It has long done so and this has not stopped major employers from thriving with their tech companies in this state. Even companies that are located elsewhere have always been required to abide by these rules with respect to their employees who actually work in California. They have adapted over the years to the California rules with no serious setbacks to their financial interests.
I believe other states will in time be forced to conform to the California pattern as part of staying competitive in their bids to attract tech workers. I don't know the local situation in Massachusetts but would guess this is a key factor in the governor's decision to push for change.
In any case, this is one area where the idea of reasonableness is important to how the law should be shaped: if there is an awfully good reason why a non-compete clause should be enforced (such as in the sale-of-goodwill context), let the law enforce it to protect legitimate interests; otherwise, it is arbitrary and unreasonable and hence an unenforceable, illegal restraint of trade. This should be the rule everywhere, not just in California.
I agree with you 100%. But as an anecdote I know full time employee that was supposed to be working on a football game for company ABC. He had an arrangement to work from home. He worked for ~1 year and appeared to be very behind schedule. He then quit, started his own company, 3 months later his company shipped a football game.
my least favorite, having employees sign essentially the same when leaving a company. Really, watched a friend go through this recently. It was that or lose his accumulated vacation monies which were not insignificant.
Been through the non compete issue post hiring, in job for many years when it lands in everyone's inbox. Really? So I am all for them being punted.
The classic case of a good reason for having an enforceable non-compete arises with the sale of goodwill in a business. Proprietor X sells his business for $10M and then sets up shop next door to steal the customers of the business back to his new, competing one. In effect, this is a case of theft. Someone pays value for the goodwill value of your business and that means (usually) mostly for the revenues resulting from continued business from its existing customer base. If you take that value for that asset, it is deemed unfair under law that you should be able to grab the asset back through immediate competition for that same customer base. Buyers are savvy enough to know this and therefore require that you enter into a non-compete clause as part of the sale. And the law says, "yes, indeed, this is a restraint of trade in that it limits what the seller can do in pursuit of his trade or business following the sale but it is a reasonable restraint of trade, and hence enforceable, because it protects the value of the goodwill interest bought by the buyer for which good value was paid." Even in enforcing such clauses, the law says that they are enforceable only to the extent they are reasonably necessary to fulfill the legitimate purpose the law seeks to protect. In the sale-of-business context, then, non-compete clauses are enforceable insofar as they are limited in scope (that is, in duration and in geographical reach) in a way that the law regards as reasonable.
The problem with non-compete clauses in the employment context is that they are almost inherently unreasonable in their application. I join company X as a developer. I leave my employment after two years and I want to pursue my livelihood in the same line of business that company X engaged in, albeit not using any of its confidential proprietary technology. Yet, even though I would respect its trade secrets and not do anything the law would regard as being innately some form of unfair competition, the non-compete clause imposes an absolute bar prohibiting me from pursuing my livelihood in my very area of strength for as long as it remains in effect. This can cost me money. It can cost me opportunities. It can represent a setback to my ability to continue to develop skill levels in areas that are important for my future. All this for what? I get nothing whatever for it. Unlike the seller who just walked away with a pile of cash for selling his goodwill interest, I am not paid for being burdened with this restraint. I am simply stuck with it, to my great cost. And what is the justification for this? Again, unlike the sale-of-goodwill context, an employer does not have some right to keep competitors out of his space. All kinds of people can compete with him. What he can do, via the non-compete, is arbitrarily keep me as a former employee out of his space. Why should he have that right? Well, there is no particularly good reason except insofar as my competing with him may allow me to misuse confidential proprietary information that I got from my former employment with him. Everything else is arbitrary. Of course, even states that give maximum enforcement to such non-compete clauses will require that they be limited in duration. But two years (or whatever) is two years and this does not make it more fair to the former employee.
California refuses to enforce non-compete clauses in the employment context except to the extent necessary to protect confidential proprietary information. It has long done so and this has not stopped major employers from thriving with their tech companies in this state. Even companies that are located elsewhere have always been required to abide by these rules with respect to their employees who actually work in California. They have adapted over the years to the California rules with no serious setbacks to their financial interests.
I believe other states will in time be forced to conform to the California pattern as part of staying competitive in their bids to attract tech workers. I don't know the local situation in Massachusetts but would guess this is a key factor in the governor's decision to push for change.
In any case, this is one area where the idea of reasonableness is important to how the law should be shaped: if there is an awfully good reason why a non-compete clause should be enforced (such as in the sale-of-goodwill context), let the law enforce it to protect legitimate interests; otherwise, it is arbitrary and unreasonable and hence an unenforceable, illegal restraint of trade. This should be the rule everywhere, not just in California.