Non Compete, Non Solicit, Non Sense

July 6, 2008

There is an outbreak of irritability in many corners of the tech sector. Highly infectious, and resistant to even the best of news, it has spread to companies and individuals alike, unsettling all but the most bubbly of outlooks. Symptomatically, the infected appear uncomfortable, moody, easily agitated and at times, even a tad irrational. As one was heard warning to anyone within buckshot, “We’ll kick you in the private parts, Litigation is where we’ll start”.

And kicking they are, as evidenced by recent developments in the ebb and flow of executive talent. Last week it was reported that Softchoice Corporation is suing former employees along with their new employer, En Pointe Technologies for breach of everything. Well, perhaps not everything but pretty close. As one article detailed, the firm has sued for ‘breach of non-solicit and/or non-compete clauses, as well as clauses related to confidential information, by soliciting former customers as well as removing confidential company information before their departures’. Softchoice is irritated that its employees and customers are leaving and it is accusing its competitor of systematically stealing them. As Softchoice’s legal counsel stated, “Their model has permitted En Pointe to reap the benefits of an experienced, knowledgeable sales force without making the investment of time and resources required to develop such a sales force”. En Pointe Technologies has counter-sued, ostensibly because they don’t think Softchoice should be able to sue them for all those things (‘improper business practices’ is the specific term they used), and because it seemed like the appropriate parry to Softchoice’s legal thrust.

On the same theme, Motorola recently sued a former executive for violating the non-compete clause in his contract. The firm is seeking to stop the employee (who is now Vice-President of worldwide sales for iPhone) from working at Apple for two years and to stop him from recruiting other Motorola employees (he has already recruited two).

Employment contracts are generally pretty mundane stuff. The exception is those sections pertaining to the competing interests of employee freedom to work and move with the rights of a company to protect the fruits of its work, including its intellectual property and ideas. The ensuing muddle of non-compete, non-solicit and non-disclose type clauses, are almost always contentious in their enforceability. What is never contentious however is the legal threat they promise, for words like ‘interlocutory injunction’, whatever they mean, reek of billable hours and legal migraines which most people want nothing to do with. As a result, these clauses are a mainstay of most executive level employment agreements.

For organizations struggling in the marketplace, taking action for breach of a non-compete or non-solicitation agreement can be an effective short-term business tactic. A beleaguered corporation such as Motorola fires a loud lawsuit across the bows of both employees and competitors as a warning that defections and their solicitation will be expensive, if not painful. Such litigation freezes the market, buying time for the company to regain its competitive composure. At least one major competitor has responded by issuing an internal directive against recruiting Motorola employees.

Litigation can also be a questionable tactic for organizations, as in the case of Softchoice. Clearly flustered and frustrated by En Pointe’s success in recruiting its sales staff and customers, Softchoice issues a legal stop order temporarily freezing the exodus. But large scale defections do not happen just because En Pointe wants them to. Clearly the Softchoice employees were willing. Did they leave because of dissatisfaction with Softchoice and if so can the firm really force them to stay? Or were money-motivated sales people simply bought by En Pointe and if so, how sustainable is that for En Pointe? Hopefully it is not simply a compensation issue, for by its actions Softchoice has announced that it prefers to throw money at lawyers than at its own employees in an effort to retain them. Surely someone at the company sees some irony in that.

Interesting and irritating times indeed with lots of wild kicking going on…cover up!