Geller - November 2, 1999
It is common
for a company to require new hires to sign agreements that would prevent them
from working for "competitors" after they leave the company. Mark Schlack signed
a one-year contract with EarthWeb in October 1998, according to the New York
Law Journal. The following September he resigned to take a position with a new
website, Itworld.com, to be launched by IDG in January. EarthWeb tried to enforce
the non-competition clause in court, but Judge William H. Pauley III ruled in
favor of Shlack.
found in part that the new site was not likely to be strongly competitive with
EarthWeb, and that Schlack was not in possession of trade secrets, he also ruled
that in the IT industry a non-competition agreement for a term as long as one
year would be unreasonable. "Courts tend to find that in any non-compete agreement
that the nature of the restriction and any geographic restrictions have to be
reasonable," explained Andrew Kisseloff, a Norwood Massachusetts attorney who
specializes in employment law. "In this case the judge has forged a definition
of what's reasonable for IT." While companies may have rights to prevent employees
from using trade secrets and other special knowledge from going into direct
competition, according to Kisseloff a non-compete agreement cannot be so restrictive
as to prevent someone from working at all in his or her field.
decision cited the dynamic nature of the IT industry, its lack of geographical
borders, and the fact that Schlack's professional position required him to be
aware of day-by-day changes on the Internet. For someone in Mr. Schlack's position,
the judge asserted, "a one-year hiatus from the work force is several generations,
if not an eternity."
The law, it
has been said, grinds slow but exceedingly fine. Employment contracts are primarily
covered by state, not federal, law and this decision is not binding on other
cases. For that to happen it would have to be appealed; if the Appellate courts
agreed with the Judge's decision their opinion would be likely to put forth
principles that would be binding in other cases in New York. We believe that
the probability that EarthWeb will appeal is nil.
Judge's opinion in this case can be cited in other cases as exemplary reasoning,
regardless of what other states a similar suit may be brought in. Judges will
certainly weigh the opinion carefully. Although the facts of every case are
different, especially as they relate to issues of possible competition and possession
of trade secrets, the Judge in this case has made a ruling that reflects the
reality of the Internet. Each company's lawyers will have to determine whether
to modify its own employment agreements, but we'd advise IT executives to continue
to rely more on proactive means to keep valuable employees.