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Overqualified, underemployed

Oct. 26, 2004
What is the connection between noncompete agreements and severance packages? Given the pace at which business conditions, technology and personnel change, do noncompete agreements make sense?

The scenario presented here is based on a true story, only the names have been changed to protect the innocent...

Aaron Baddidin joined the working stiffs of the world when he graduated from high school and labored for years in a manufacturing plant, where his musculature, so well developed in high-school athletics, gave him an edge. Being the observant lad that he is, Aaron noted that his coworkers have been doing the same kind of jobs for their entire careers. He also noticed that the people with the good jobs, the clean ones, working in air-conditioned comfort, not needing to do the heavy lifting, not dependent on overtime to make ends meet, had one thing in common: a formal education.

His dad always preached that the key to business success is to do only one thing, but to do it better than anyone else. Already sufficiently self-motivated, Aaron saved his money, borrowed a little more, got his act together and enrolled in a community college. He used his excellent grades at the local level as a bridge to get into the school of engineering at a state college, where he earned respectable, but not stellar, grades. Nevertheless, his GPA was high enough to garner a diploma, as well as a cherished white-collar job.

Aaron held a series of ever-more technical jobs, ultimately finding himself to be a respected and published specialist in his field. Today, there aren’t many people in the country who can do what Aaron can do. Unfortunately, there aren’t many companies that need those skills. Nevertheless, he then spent a dozen years or more honing his skills to an even finer edge.

When the economy went soggy and porous, Aaron accidentally stepped into one of its bottomless holes and tumbled into something that wasn’t exactly a bed of roses. He qualified for unemployment compensation and conducted the obligatory but perfunctory job search. Having no desire for a reversal that could lead him back to his humble beginnings, and with only unsuitable job openings in sight, Aaron studiously avoided doing or saying anything at those job interviews that might result in an offer. When he exhausted the state-sponsored revenue stream, he merely dug into his savings a little more deeply than was comfortable. He tried online job hunting. He attended job fairs. He subscribed to the Sunday edition of several big-city newspapers. He found each equally useless.

Now, out of work for a few years and somewhat desperate, Aaron regrets not having accepted one of the ignoble jobs that he could have had earlier, jobs for which he was grossly overqualified but would have provided some cash flow.

Meanwhile, across the railroad tracks, Acme, displaying its characteristically keen perception of the obvious, recognizes that labor constitutes the largest element in its cost structure. To remedy that sad state of affairs, the company has, in recent years, spent a bundle on outsourcing, automation and related technology to minimize the number of living, breathing [i]Homo sapiens[i] it needs to run and support the manufacturing system sprawled across its plant floors.

Acme management is under intense, take-no-prisoners pressure to make the quarterly numbers. Among other outcomes, this results in efforts to exploit the state of the job market. Acme is making the most of the current labor glut, and workers, however few the number required, are considered as expendable as toilet paper. For example, Acme’s wage policy is to offer nonmanagement job candidates, regardless of experience level, a salary that’s only marginally above entry-level scale. The rationale is to get the most bang for the buck right here, right now. The cold, cruel capitalistic reality is that Acme is totally indifferent. Workers can take it or leave it; there’s still a long line of people waiting outside the warm, inviting doors of the company’s personnel office.

It was late Sunday afternoon when Aaron saw the Acme job ad. He thought it was uncanny how closely the job requirements matched his credentials and skill set. Although it wasn’t a particularly challenging job, Aaron had grown weary of his consistent penurious diet of beans au gratin and lightly sautéed mystery meat. He knew he needed a job and he knew he could do what Acme needed to have done using only one hand.

Aaron promptly sent Acme a customized resume. After all, he already knew a lot about the company, its business and the job because he already spent much of his career at both of the other companies serving the market in which Acme is struggling to compete. Nearly four weeks later, he was called for an interview.

During the meeting, Aaron learned that the job paid about 60% of what he had been earning at his last job. When Aaron balked, he was told that the job under discussion doesn’t require the full range of skills he developed during his career. Acme’s isn’t buying the whole package, only the parts it needs right now. Besides, Acme’s operation isn’t nearly as sophisticated as some others in the industry.

Four weeks later, Acme made a formal offer. Squeezed by the twin desires for immediate cash flow and medical coverage, however meager the supply, Aaron accepted the position and started working for Acme. At least he’d be working at the remote periphery of his beloved, specialized field while consuming a much better grade of stomach bulk.

The industry grapevine quickly informed Nadir, Aaron’s former employer, that the star performer they fired a few years ago was now working for Acme, a direct competitor. Resurrecting the now yellowing noncompete agreement Aaron had to sign to collect his severance package, Nadir filed suit against him for violating the terms of the document and sought an injunction to keep him from revealing Nadir’s secrets.

The very same industry grapevine also informed Acme’s Mahogany Row that its new guy in engineering was having some legal troubles, a situation in which the company didn’t want to become involved. Deciding to cut its exposure, Acme terminated Aaron halfway though its customary 90-day probationary period for new hires.

How could this situation have been avoided? What is the connection between noncompete agreements and severance packages? Given the pace at which business conditions, technology and personnel can change, do noncompete agreements make sense?

A corporate consultant says:
The utility of noncompete agreements isn't linked to fluctuations in the economy. Noncompetes are intended to protect the fruit of intellectual capital that employers have paid for—a need that is not lessened by business conditions or changes in the fields of technology and personnel.

Such agreements are usually term agreements that expire at some specified future date. Assuming Aaron's agreement is still in force, it might still have been possible to have avoided this situation by taking two important steps.

First, before accepting Acme's offer, Aaron would have had to determine whether the nature of the work would have violated his noncompete agreement with Nadir. If so, then the game is over. Accepting the job with Acme would only have delayed the inevitable. If not, then his second act should have been to provide Acme with a copy of the noncompete agreement, along with his written assurance that his role at Acme would not require violation of that agreement, inviting further scrutiny of this assertion by Acme's legal resources.

Given Aaron's circumstances, he might also have considered listing the specific outcomes he felt capable of achieving for Acme, just to underscore his utility.

If the noncompete is still in force, and if any work done for Acme by Aaron would violate that agreement, Acme has a responsibility to its shareholders to protect against litigation.

Francie Dalton
Dalton Alliances Inc.
(410) 715-0484
[email protected]

An academician says:

This case opens up a can of worms. Those of us in the academic world usually have an opinion on everything. So, first, I’d question whether the noncompete agreement that Aaron signed with Nadir is legal. There’s a limit to the number of years a company can prohibit a former employee from signing on with a competitor. For example, if someone works for Nadir for only three months and learned some of its “secrets,” Nadir can’t prohibit that employee from working for another company in the same industry for eternity. In the first place, business conditions change quickly and business secrets have a short half-life. Scondly, Nadir can’t intrude on anyone’s right to make a living.

Because Aaron’s agreement was signed a few years ago, there’s a good chance that even if he had signed a long-term agreement the courts would throw it out. Some recent court decisions seem to suggest that somewhere between six months to two years is a reasonable time period. I recall a court decision concerning the telecommunications industry not too long ago that ruled that one year was too long and cut the agreement term to six months.

So Aaron may have a case against Nadir, rather than Nadir having a case against Aaron.

Do these agreements make sense? Definitely, from the company’s perspective. It’s one of the few protections a company has in making sure critical company information isn’t handed over to the competition. The agreements usually are much broader than just restricting employment – they prohibit disclosure of information. For example, one can’t quit today and then put the company secrets up for sale on eBay tomorrow.

How could this have been avoided? Aaron should have consulted an attorney before signing any agreement with Nadir to ensure the agreement was fair and that he received “reasonable valuable consideration” (usually, cash) for signing it. That might have eliminated some of the problems he now faces.

He also should have told Acme about his agreement with Nadir before they hired him. Then he could have left it to Acme’s attorneys to decide whether the agreement is valid, and whether it applies the position to which Aaron is being hired.

Professor Homer H. Johnson, Ph.D.
Loyola University Chicago
(312) 915-6682
[email protected]

An attorney says:
Aaron seems to be having a run of bum luck. Acme, on the other hand, has needlessly forsaken an employee with hard-to-find expertise whom it succeeded in hiring at a bargain-basement price.

Noncompete agreements are becoming more popular in today’s increasingly competitive market place. High-level executives and employees with technical expertise are those most often covered by noncompete agreements. Employers who use them typically do so because they don’t want an employee moving to a competitor and using confidential or technical information to woo the company’s customers. Employees, on the other hand, generally sign noncompete agreements without legal advice and without giving much thought to the consequences. Once the employee moves on to new employment, the noncompete agreement rears its ugly head, often subjecting both the employee and the new employer to prolonged and costly litigation. Prudent employers include language in their offer letters to verify that the employee being hired isn’t subject to a noncompete agreement.

Whether a noncompete agreement is enforceable is a question of state law, and every state takes a slightly different approach to the subject. California courts, for example, enforce them only under very limited circumstances. Courts in other states don’t enforce them unless they’re part of a contract of employment. In a state that takes this position, Aaron’s former employer wouldn’t be able to enforce the noncompete agreement that he signed as part of a severance package.

Virtually every state takes the position that to be enforceable, a noncompete agreement must be reasonable both in terms of its duration and its geographical scope. If Aaron left his former employer a few years ago, it’s not likely that a court would enforce Aaron’s noncompete agreement because of its duration. Once again, Acme has acted precipitously without knowledge of all of the facts.

Julie Badel, partner
Epstein Becker & Green, P.C.
(312) 499-1418
[email protected]

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