Apple vs IBM and the non compete clause

I’ve been a critic about employee non-compete clauses.

They are not enforceable in California and as result they generally don’t come up in that state. Entrepreneurs and companies are free to innovate as long as they respect confidentiality agreement and non-solicitation agreements.

I think that is the exact right model. You never hear tech leaders in California moan about this. Instead they worry about more important things like innovation, h1b visa issues, building a great environment to work, etc.

On the hand, non-competes are standard practice in the state of MA. And according to an independent study by UCLA, MA enforces these agreements more heavily compared to other states.

Just last week IBM sued a former employee over this issue. The employee is joining Apple.

Jay Parkhill wrote a great post about the IBM lawsuit and compares it with how Apple is keeping one its stars from going to the competition. Jay’s key point:

“If Fadell worked in Massachusetts, New York or most other US states, Apple could simply tell him he could not go to work for a competitor.  Fadell’s expertise is in developing portable audio/video players, so this might make him choose between not working at all for a period of time and trying to break into an entirely new area.  Since Fadell is in California, Apple can’t do that.  Instead, Apple had to figure out how much it was worth to keep Fadell on the sidelines.  VB reports that value is $300,000 per year through March, 2010 plus stock worth $7.6M at today’s prices.

The point here is that the burden fell on Apple as the employer to protect its competitive advantage without cutting off Fadell’s ability to make a living.  Fadell could probably have survived even without the extra compensation, but others might not be so fortunate and this is why I believe California has the rule right.  If a person is that valuable, the employer should pay to keep him/her on the bench.”

That’s exactly right.