This past week, we found ourselves in the middle of a tricky negotiation concerning a ‘non-compete’ clause in an offer of employment. Both the client and candidate had valid though polar opposite positions on the necessity of the clause, its language, term and restrictions. In the end one party made concessions in return for changes to another part of the agreement. It was a lot of work for an eventuality that may well never materialize. However several recent well publicized employment battles serve as reminders that ‘non-competes’ are not a trivial matter.
Two weeks ago a US district judge ruled on IBM’s bid to prevent a senior executive from joining Dell as SVP Strategy. The employee in question was a 27 year IBM lifer who had risen to a very senior corporate development/strategy role in the company. In 2005 the executive was asked by IBM to sign a non-compete agreement. He resisted. The company advised him that his equity awards would cease if he did not sign. He acquiesced and signed, though in the wrong place, and submitted the document back to the corporation. Months later IBM noted the signature error and sent the executive another agreement to sign, presumably marking the appropriate places to sign with even brighter yellow stickies and larger ‘X’s marking where he should sign. The executive ‘never got around to signing’ the second document and the matter fell between the bureaucratic cracks until he announced his defection to Dell.
IBM argued that as their VP of Corporate Development the executive in question had critical knowledge pertaining to various IBM acquisitions and divestitures not to mention potential transactions being contemplated. He also had knowledge of the models the corporation used to evaluate businesses and the returns it expected to generate from its M&A related activities. Furthermore, though the executive ‘forgot’ to sign the non-compete IBM argued that there was a deal in principle, as evidenced by the continuance of the equity awards.
The judge ruled in favor of the executive thus rewarding his forgetfulness and making it clear that IBM had the responsibility to properly execute the agreement. No signature, no deal. IBM has launched several subsequent lawsuits accusing the executive of stealing secrets and using IBM resources to set up other businesses. It promises to be a legal mess.
IBM did win (in a manner of speaking) another non-compete judgment last year when a court ruled in favor of stopping another of its executives (this one a semiconductor guru) from joining Apple. In this instance the IBM executive argued that he was joining Apple in a role unrelated to the expertise and knowledge IBM was attempting to protect. IBM argued that the new job (EVP Hardware Development or something to that effect) was hardly distant from his area of semiconductor expertise and at best was a placeholder position/title until his one year non-compete expired. It also argued that the executive’s world-class expertise was critical to several strategic initiatives already announced by Apple.
The judge in this instance ruled in favor of IBM and ordered the executive to immediately quit Apple. But the story does not end there as IBM was then forced to deal with to a ‘return to sender’ executive who’d rather be at a competitor. With counter-suits flying in every direction IBM was forced to come to an agreement which allowed the executive to return to Apple. In a statement announcing the agreement an IBM spokesperson said, "The executive will be required to certify over the next 12 months that he has complied with his legal obligations not to use or disclose IBM's confidential or proprietary information". The press release was unclear as to exactly how such compliance would be validated.
In yet another case a senior Boston-based EMC executive accepted a role to head up a directly competitive division of HP based in California. Upon resigning the executive immediately filed suit against EMC in the state of California, asking for a judgment to void the non-compete clause in his employment agreement. EMC then filed suit in Massachusetts for violation of the key employee agreement and to enforce the non-compete in the agreement. The case, which has many moving parts, is complicated by the fact that California and Massachusetts have very different laws regarding non-compete clauses in employment contracts. It is unclear how this was resolved.
Designed to deter and protect yet difficult to enforce, non-competes are messy, moving minefields and a lawyer’s dream. They are also in almost every employment agreement we see.
Looking for a dynamic HR role? Stay away from the entrepreneurial tech sector.
January 1, 2012
In a recent survey of HR graduate students, the technology sector rated among the most coveted destinations to ply their trade. It is viewed as a world of innovative people, technologies and approaches where progressive talent management, OB/OD and related HR work awaits.
The Cry to Replace RIM's CEOs – A Truly Dumb Idea
October 13, 2011
Leaving aside the recent service outages, the shellacking of RIM in the press is a tad surreal to behold.
For the few Luddites not familiar with the firm, Research in Motion is the successful Canadian smart phone pioneer with revenues of $20bb per year, no debt and cash in the bank. They manufacture products that remain popular around the world and continue to boast technological innovations unmatched by any competitor. Their most recently launched smart phone devices have been well reviewed and appear to be selling well. And though the company's first version of its new tablet, the Playbook, has room for improvement, it is a promising piece of technology.
Context: When Companies Confuse Start-up Experience for Start-up Experience
October 7, 2011
I had the occasion this week to chat with an entrepreneur still licking his wounds from a stalled startup venture. His tale is a reminder of how easily companies misunderstand organizational context when hiring. For startups, such a misunderstanding can be fatal.
The CEO Hiring Practices at HP
October 3, 2011
The press tells us that Hewlett Packard is the largest technology company in the world with revenues of $126bb. Impressive as those numbers may appear, they do not seem to impress HP's Board of Directors. You see they do not believe that any of the firm's 324,600 employees are capable of leading it. Not one person. Not this year or last year when CEO changes were made. In fact they were apparently not capable six years ago or even eleven years ago when CEO changes were also made. But before summarily indicting the firm's succession planning/leadership development programs, it is useful to consider the track record of the external candidates who were considered better choices than the firm's internal candidates. This analysis decidedly shifts the spotlight to the competence of Hewlett Packard's Board of Directors.
The Folly of Believing What You Read
September 19, 2011
Some time ago we posted a blog titled ‘So you REALLY want to be a CEO?' which looked at the human costs of climbing the upper rungs of the management ladder. The blog was based on a series of articles immediately following the ‘resignation' of Pfizer CEO Jeff Kindler. All of these articles presented a cautionary tale of life in the fast lane, the long hours, the extensive global travel, and the shareholder pressures that accompany an uncooperative stock price. They also spoke poignantly of the physical and emotional toll that such unrelenting pressure took on the Pfizer CEO who eventually resigned in order to attend to his family and health. As it turns out however, much of this narrative may not have been true
Before sending us your resume (and then getting frustrated with us) ask who we work for
July 25, 2011
A friend of mine is a trustee in bankruptcy. As his title suggests, he and his firm serves those contemplating the ‘cleansing' process of personal bankruptcy. Potential customers compare service providers, select one, and then pay the chosen firm a fee to initiate and manage the ensuing process on their behalf. However, as soon as the relief-seeking customer signs on the dotted line, the trustee's allegiance shifts to the creditors for whom they then seek to maximize debt recovery. This shift in who works for whom must be a tad unsettling for people who already have a heap of problems and stress on their hands.
What Dating Services Can Teach Companies About Hiring
June 1, 2011
Executive-level hiring is a decidedly aspirational endeavor. Organizations idealize their workplace cultures, select for attributes that will fit into those romanticized environments, and then immerse unsuspecting hires into their ice-cold reality of their works-in-progress.
How to Survive a Startup - by Jill Ram
April 20, 2011
If you're an executive and you're thinking of joining a start-up, know what stage of a start-up to join. If the company is in its first year or so, don't expect to make significant changes. If you join after the company is somewhat established and mistakes have been made and learned from, you'll likely be more successful from the outset. If the founder has stepped aside, well, by then, the company is likely not considered a start-up anymore. It won't be functioning like a big company yet, and it won't have all the structure in place that it needs, but it will be run with more practicality and with less emotion. Timing is everything so choose it well.
Good News for the Old, Overqualified and Overlooked
March 18, 2011
It is expected that a significant percentage of the baby boomer generation will drive right past the Freedom 55 highway exit. For many the goal of early retirement will have proven to be unattainable hype, while for others the ups and downs of working will appear more attractive than the prospects of working up and down the local lawn bowling leadership board.
Pressed for time? Blame those Benedictine Monks.
February 24, 2011
It is among the principal reasons candidates tell us they are open to consider a change in employers. They are tethered to it, yet somehow it still flees. It is time, the most precious of resources, and for many harried executives they want some of it back.
Though their relationship with time may be strained, it is worth pointing out that it was not always this way. In his fascinating book Time Wars, Jeremy Rifkin chronicles the evolution of our modern relationship with time. He points out that in traditional agrarian and pastoral cultures, time was a very naturalistic notion maintained in cyclical, repetitive, biological and even sacred terms. The ‘passing of time' was cued via the changing seasons, biological lifecycles and lunar patterns and thus, the cadence and tempo of those societies were finely tuned to the cyclical rhythms of their physical environments. As he states, "Our early ancestors coveted the circle, perceiving time as eternal return, a ceaseless repetition of an endless cycle of birth, life, death, and rebirth". Since these cyclical rhythms could neither be accelerated, nor altered, the cadence of these societies' was natural and harmonious.
"I Forgot to Sign"… and Other Misadventures in the Messy World of Non-Compete Clauses
July 15, 2009