Is It Right To Enforce a Non-compete

Over the past few days there has been some intriguing commentary on non-compete agreements. This has been spurred on by the recent hire of Dave Donatelli by HP and subsequent lawsuit from his former (long time) employer EMC. Much of the commentary, mine included, though missed the most important point. We failed to consider the question “Is it right?”

I don't know the particulars of Mr. Donatelli's contract but to me the legal technicalities don't matter. Massachusetts law and California law may well differ as to whether the contract is enforceable but that too does not matter. What is not debated nearly as much is whether it is right to try and break a non-compete agreement in the first place. Steve Duplessie of Enterprise Strategy Group went there but looked at it as a business argument. What does the business get and lose from a non-compete.

What interests me is the moral argument. Having signed a number of these agreements in the past, both on behalf of myself and the company, I have confronted the moral ambiguity of the situation enough times to have an opinion. It breaks down to two questions:

1. When you agree to something freely are you bound to it?

2. Can a company effectively keep you from working when there is nothing more for you at the company?

The legal answers are different between jurisdictions. The morality is more defined – that is to the extent that any morality can be absolute.

Question 1: Should you be as good as your word?

It doesn't matter if you don't like the agreement. Don't sign it and deal with the consequences. Unless someone holds a gun to your head and makes you an offer you cannot refuse, your word should be your bond. Maybe that is an old-fashioned concept but it is the fabric of society. The social contract should always outweigh the legal one. If you agree to something, even if it is inconvenient later, you should abide by that agreement. That is what used to be called honor . Even mercenaries have a code of honor. And it matters. If you will break your agreement with my rival, then you are clearly willing to break your agreements with me. How can there be trust in that environment? Especially at the highest levels, there must be trust or business, communities, and society can't function. It doesn't matter what the law says. Law is for wrongdoers. Keep in mind, this type of behavior is one reason why we are in such a mess economically. People did what was legal but had no honor. It worked for awhile but now they are despised.

So, if you agree to a non-compete you are bound to no matter what California or Massachusetts says. Do what is legal and not moral and you lose your honor. Maybe your soul too.

Question 2: Can we indenture people like this?

The counterargument is that non-compete agreements are a form of indentured servitude. As was pointed out by many, you always can't hold people (in some jurisdictions but not all) to a non-compete if you fire them. Morally it's straightforward. The company ditched you so you should be free to go elsewhere to make a living.

What about someone who leaves voluntarily? Here the situation gets messy. For the average Joe worker, even a typical middle manager, the job is too important to survival to turn it down. It is especially hard to do so when every job requires a non-compete. Even narrow non-competes can effectively keep you from working. You are binding the employee to the company by making it impossible for them to use their skills and knowledge, especially domain and industry knowledge, to continue and further their career. In philosophy it is called Morton's Choice. You have to choose between two bad alternatives - Be bound like a slave or go bankrupt. There is no moral argument for supporting this type of agreement under these circumstances.

For an executive though, things are different. Executives are very highly compensated people who hold the most important secrets of the company in their heads. How do you not use those for your new employer to devastating effect? It is not just industry and domain knowledge that the new employer wants, it's specific knowledge of your former company. Besides, for executives in Fortune 500 companies, having a job is not a matter of survival. I doubt if any of them won't eat if they can't work for a year.

Still, no job can become a form of bound servitude. The executive who wants to leave must have a recourse, a way of working in his industry without becoming a weapon of mass destruction. That can happen by limiting what they do for awhile. In the computer industry a year is a lifetime. In the case of Dave Donatelli, storage is only one part of his portfolio at HP. One solution is to limit involvement in that group for a year. Another possibility is to pay an executive to not work for awhile. That happens a lot in buy outs. Top folks are paid lots of money to sit on the sidelines or just be pundits for a period of time. Perhaps write a book about their management philosophy or birds. Whatever. Will a year off for a C-level individual destroy their career? I doubt it. Might actually help their marriage and make their kids like them better.

Answer 1: Yes

Answer 2: No for regular people, Yes for executives with a safety valve

In a sentence – we should be bound to our word. If, however, you have the equivalent of a gun to your head – that is you need the job to survive and the employer knows it – there should be a safety valve to protect you from becoming a slave to the company. For most executives, this doesn't apply. Ambition is not the same as survival. Still, even an executive can't be bound permanently. Hopefully, cool heads will devise a solution here that is both legal and moral.

My guess is that EMC and HP will come to some agreement rather then let it go to court. A protracted legal battle in multiple jurisdictions won't help them sell anything. It's a cost they don't need. There will be an accommodation. Okay, but has trust been ruined forever?