Noncompete agreements cause much confusion

Monday, February 17, 2003

NEW YORK -- The job with a rival firm sounded interesting, but Mark Stultz was doubtful even before the recruiter finished the pitch.

His skepticism eased, though, when the company wooing Stultz explained a state law -- one that says employers can't prevent workers from taking a job with a competitor.

So how is it Stultz was eventually forced to give up the marketing job he took, moving his family more than 1,500 miles along the way?

Employers have long asked workers including Stultz to sign contracts pledging they won't go to work for a business rival. And workers and companies have often been uncertain about what to make of these so-called noncompete contracts when they part ways.

But recent face-offs between rival employers and workers, all seeking advantage in an economic downturn that has made both jobs and business harder to come by, have further confused all sides.

A host of the factors shaping today's employment market -- job hopping across state lines, work on the Internet, mergers that change company ownership -- are turning even the most seemingly straightforward noncompete contracts into big question marks.

Battle over Cape grad

That point has been underscored by BellSouth Corp.'s ongoing battle to keep its No. 2 executive Gary Forsee -- a 1968 Cape Girardeau Central High School graduate -- from defecting to rival Sprint Corp. But noncompete contracts have also been snaring far less lofty workers -- including salespeople, financial traders, and software developers.

"If it takes the California Supreme Court to decide ... whether I can work, how is somebody like me supposed to know what to do?" said Stultz, whose former employer won a ruling in December barring him from taking a new job, a case that stretched on for two years in two states and received wide attention.

"The more you think about it all, the more confused you get," said Kevin Martingayle, a lawyer for a Virginia furniture saleswoman whose non-compete contract was recently tossed out by that state's Supreme Court in another closely watched case. "It's as clear as mud."

Around for decades

Noncompete pacts have been around since at least the 1890s, when companies barred traveling salesman from striking out on their own unless their new routes were at least 50 miles away -- the maximum a horse and buggy could travel in a single day.

Through the years, courts have tended to favor workers in disputes over noncompete agreements, seeing efforts by companies to collar employees too tightly as unfair restraints of trade.

Stultz's former employer, Medtronic Inc. went to court in June 2000 after he took a job as marketing director with Advanced Bionics Corp., a rival medical equipment maker in Sylmar, Calif.

Stultz had signed a noncompete contract when he went to work at Medtronic in Minneapolis, but thought he would be exempt because California has a state law explicitly banning such contracts. California's Supreme Court disagreed, ruling in December that, despite the law, it could not toss out a contract that Stultz had signed in Minnesota.

After working on other assignments for Advanced Bionics for 18 months, Stultz resigned recently and moved his family back to Minnesota.

While such contracts can't be enforced when workers lose their jobs in layoffs, the agreements they may have signed promising not to divulge company secrets stay in place, Hillman said. Those generally don't hamstring workers from taking a new position, but it does mean they need to stay aware of their commitment not to transfer information, he said.

But many workers don't think about the eventuality of moving on at the time they're asked to sign noncompete pledges.

"You don't know how your life is going to change," Stultz said. "You can't predict the future."

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