Keeping Ideas In-House

Employers seek noncompete agreements before hiring
Can businesses legally prevent employees from working for the competition? Many think they can. The question has been considered for some time, but noncompete agreements among IT professionals are quietly, and in some cases overtly, becoming standard requirements in the wake of the high-tech industry's economic downturn.

Jordan Cowman, an attorney who specializes in labor issues for Baker & McKenzie in Dallas, has seen a "steady ramp-up" of IT noncompete agreements because of the increasing importance intellectual capital plays in a company's success and because IT workers are getting easier to find.

Case in point: Last year, fiber-optic equipment provider Ciena Corp. sued three former, highly specialized employees-two sales employees and a manufacturing director-for breach of contract when they left to join competitors. "This is the hottest area of litigation I've seen," Cowman says.

Noncompete agreements vary. Some stipulate that employees stay away from competitors for a certain period of time. Others want ex-employees to keep away from their turf when they leave, often 100 miles or more. All prohibit employees from taking company secrets with them to the competition.

Previously, these contracts were common only among executive and sales employees. But according to TMP Executive Search, the recruiting division of TMP Worldwide Inc., that's changed. In its Noncompete Agreements in the Technology Sector Survey of 65 technology companies released earlier this month, TMP reported that 78% of the telecom, software, and hardware companies surveyed ask some or all of their employees to sign noncompete agreements when they're hired.

The practice is expanding into nontechnology companies, too. IT professionals are naturally a focus for noncompete agreements, Cowman says, because "they have access to sensitive information."

"Larger companies are getting increasingly sensitive about losing key employees and technology," notes David Gabriel, TMP Executive Search managing partner.

At office-products supplier Corporate Express Inc., a Broomfield, Colo., subsidiary of office-products distributor Buhrmann NV, IT employees, along with executives and members of the sales force, sign a two-year, noncompete agreement because "IT folks have product knowledge and information" that's potentially harmful if revealed, says HR director Bonnie Wagner. "It's just the prudent thing to do."

Some have learned the lesson the hard way. Three employees in product development left privately held scientific software developer Fluent Inc. three years ago to start a competing company nearby. In response, the Lebanon, N.H., company immediately instituted a policy under which every employee, from administrators to top-level executives, signs a noncompete agreement that bars them from working at a competitor for one year. Though there's some discussion regarding the terms, "for the most part, people are willing to sign," says Sarah Robbins, a senior HR administrator.

Of course, there's always a way to circumvent the contracts. One option: Live and work in California, where noncompete agreements are illegal.