You Can’t Take It With You
Understanding non-compete and non-disclosure contracts.
By Sean O’Brien

Imagine for a second that you’re working in a snowboard factory when inspiration strikes. In a creative epiphany you invent a thingamajig that will revolutionize the industry. You work feverishly developing the gizmo each night in your garage at home. Finally, after months of work, you march into the Big Cheese’s office and announce that you have an idea that will rock his world. With a yawn, your boss says he’s not interested, and tells you to get back to work.

Now, flash-forward a few months. You’ve left that ungrateful company behind, and found someplace where you’re really appreciated. Even better, your new employer is ramping up production to make your invention. Things couldn’t be better, except for one fact: you’ve probably just broken the law.

In the highly competitive world of snowboard manufacturing, non-compete and non-disclosure contracts are becoming increasingly commonplace. Unfortunately, many new employees—eager to make a good impression when starting a job—blindly sign these contracts without understanding what they cover. What skills and knowledge can you take to your next job? Don’t make a Faustian pact with your employer; think before you sign, and realize there could be room for negotiation.

Hostage to a two-year holiday?

Non-compete contracts prevent an employee from leaving a company to take an identical position with the competition. Basically, if you’re hired to be the head of production and sign a non-compete contract, you can’t take a similar position once you leave the company—usually for two years.

hese contracts are designed to prevent the spread of proprietary information and techniques, and are often signed when an employee first begins working with a company. According to Scott Benner, general counsel of Ride, Inc.: "The use of non-compete contracts really depends on how senior the employee is, and what the employee is likely to learn about sensitive company operations. Non-compete contracts are often only used with high-level employees. At Ride, we’ve used them with our CEO and senior vice president."

Non-compete contracts generally include two parameters: geographic scope and duration. "For the snowboarding industry," says Benner, "non-compete contracts often cover all of North America—probably the world, since most manufacturers do business overseas."

The second parameter is duration, or how much time must pass before the contract expires. "In the computer industry, where techniques and strategies change quickly, the duration of a non-compete contract usually isn’t longer than six months," says Benner. "For the snowboarding industry, where things change more slowly, it’s typically two years."

Many states have different views regarding non-compete contracts. According to Jane H. Graham, an attorney at Sebris Busto, P.S. in Bellingham, Washington who frequently represents management in employment law cases: "There are states that limit what they’ll enforce. Often, these contracts are signed but not enforced by the company because of the prevailing state law."

Benner agrees, adding that even if an employee signs a non-compete contract, the company may have a difficult time enforcing violations. "Courts are keen on protecting employees from overreaching employers," he says. "However, it all boils down to if you signed the contract, you’re expected by law to abide by its rules."

Loose lips sink ships.

While non-compete contracts are somewhat rare—usually affecting only the corporate brass—non-disclosure agreements are widely used, and with a gamut of employees.

Like non-compete contracts, non-disclosure agreements are designed to prevent the distribution of company secrets to the competition. However, these agreements can cover a wide variety of issues, including which vendors you can contact, what techniques you can use, and who owns the rights to employee inventions.

"Everyone who comes to Ride must sign a proprietary information agreement as a condition of starting employment," says Benner. "Most non-disclosure contracts cover not just what the employee is supposed to disclose, but which skills and knowledge belong to the company.

"Frankly, in the snowboard industry, it’s difficult to keep track of employees and the knowledge they use while at another job. If a company strictly enforces every aspect of their contract, it would most likely prohibit the former employee from making a living."

However, Benner says that not all jobs are covered in the same way: "If sales reps leave the company, many of their skills will be portable. After all, there are only so many contacts out there, and the job generally has fewer trade secrets. "However, manufacturing positions are much more sensitive to trade-secret issues. These employees may feel trapped at a job. This is unfortunate, because employees almost have an incentive not to learn techniques and skills that could be considered secret. So, it doesn’t always benefit the company to have a bulletproof proprietary information contract."

From an employer standpoint, the language in the document should be as broad as possible—even if it’s nearly impossible to enforce each clause. "It’s hard to know what’s going on inside the offices of the competition, so it’s difficult to enforce every aspect of the contract—even if the company wanted to," says Benner. "Nevertheless, a signed contract covering a variety of issues is a good piece of paper to have available if it’s ever needed."

The bottom line, says Graham, is that a non-disclosure contract can cover any variety of issues—as long as the employee agrees to sign it. Which brings us back to our scenario. Many non-disclosure agreements also state that employees must keep, maintain, and make available to the company written records of all inventions or discoveries that relate to the company’s business or anticipated research—regardless of whether these inventions were developed on company time. What’s more, many of these contracts assert that all such inventions become the sole property of the company.

So, what’s an employee to do?

You may be thinking by this time that the deck is stacked against employees, and in order to succeed, they have to kowtow to The Man. Well, not quite.

"It’s really a matter of negotiation," says Graham. "While some companies have a take-it-or-leave-it attitude, others allow some room for negotiation. If the company really wants an employee, it might be willing to negotiate some of the terms of these contracts. My advice would be, don’t just sign anything that’s given to you. If you do sign a non-compete or non-disclosure contract, review the agreement with your employer just before you leave the company to understand what’s covered."

According to Benner: "Employees should make a point of writing down all the skills and knowledge they’re bringing to a new job. This can prevent many headaches down the line if they leave the company."

Benner also points out that employees shouldn’t be shy about questioning employers regarding any contracts they’re asked to sign: "Most people who come to work for a company will sign whatever is put in front of them, and that’s too bad. Higher-level individuals in senior management positions often have outside council to give them guidance. From the company’s point of view, that’s a good thing. Employees who take the time to read and understand these employment-law contracts will be the ones who most often abide by them."