Webtime Now Legal

  • Written By: D. Geller
  • Published: November 2 1999

Webtime Now Legal
D. Geller - November 2, 1999

Event Summary

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.

Although he 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.

The Judge's 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."

Market Impact

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.

However, the 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.

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