The Merits of Non-Compete Agreements

December 4th, 2007

Yesterday morning I tuned into a blog conversation principally between Bijan Sabet and Fred Wilson on the merits of non-compete restrictions- mandating that employees not compete with their employer in outside ventures.

Bijan says that companies should hew closer to California’s rule, which is that an employer can’t prevent someone from working, but can stop the person from using confidential or proprietary information of the first employer in the service of the second. Fred takes the position that non-competes should be allowed, but the employer should be required to pay the employee for sitting on the bench.

It is a fascinating topic. For the record I agree with Bijan (no surprise from a California lawyer). Focusing on the mere fact of employment is a red herring. The focus should be on what the employee does, not where s/he works.

Fred offers an example where brandishing a non-compete helped prevent the VP of Sales in one of his portfolio companies from jumping to a competitor. With all due respect, this example doesn’t prove that an NDA restriction would not have gotten the preferred result, just that the non-compete agreement did so.

What really puts me in Bijan’s camp on this is that I have worked with a number of entrepreneurs coming from large companies. Almost without exception their short list of important questions in the inital meeting includes “can I do this without [prior employer] suing me for breach of NDA obligations?” The California system seems to work. I have yet to see a reason that more restrictive requirements are needed.

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