“Competition is a sin.”
— John D. Rockefeller
“Unrestricted competition does not leave us survival of the fittest.”
— Rutherford B. Hayes
Imagine if you had an employee who you no longer wanted to pay, but whom you did not want to see defect to your closest business rival. Imagine if you could both terminate that employee and prevent the employee from coming back to work in your field.
A newspaper could prevent a reporter from working at a rival paper, a boutique could prevent a stylist from moving to a nearby barbershop and a sports team could keep a player from playing for their biggest rival. Non-compete clauses seek to do just that.
Earlier this week, longtime local TV news anchorman Kurt Ludlow joined Delaware’s own Tom Bosco over at WSYX 6 in Columbus after 23 years at Channel 10. Ludlow had been employed continuously at WBNS since 2003 (his second stint there) but the station’s management declined to extend his contract last May. He didn’t quit; they simply chose not to keep him. But since May of last year, he had been working at a Columbus funeral home rather than in the news industry.
That’s because Ludlow’s contract at Channel 10 included a non-compete clause. It provided that he was barred from working at another TV station in Columbus for one year from the termination of his employment with Channel 10, regardless of whether he ended his employment or the station did. That period having now expired, Ludlow was finally free to begin employment at another station.
Ludlow sued Channel 10 over the non-compete clause, but clauses of that nature are not unusual in his industry. They are also commonplace in other business sectors, especially where trade or research secrets are involved. In those areas, the non-compete clauses also serve as a barrier against industrial espionage.
News casting isn’t the only television area where non-compete clauses are commonplace. Earlier this month, it was revealed that the former presenters of BBC’s world-renowned “Top Gear” motoring program had to scrap a proposed deal to jointly create a new show on ITV in the UK and Netflix in the U.S. because their BBC contract contained a non-compete clause that prevents them from hosting another motoring show on British television.
Non-compete clauses nearly always have a set time period (one year is common) and contain specifications about the field or profession covered by the clause. Several state legislatures have moved lately to place legal limitations on the use of the clauses or the areas in which they can be used. Most recently Hawaii banned their use in contracts for employees in high-tech fields such as software in technology development. The Hawaii law, which went into effect on July 1, also permits employees in those fields to solicit their co-workers to come along with them to the new employer.
The Massachusetts legislature is considering a bill that would severely limit non-compete clauses as well. The variation in state laws on the subject also means that employment contracts for businesses that operate in multiple states will usually also contain a “choice of law” clause that specifies which state’s law will control when it comes to interpreting and enforcing the non-compete clause.
Perhaps the most unusual non-compete clause to come to light in recent years is one used by the fast-food sandwich chain Jimmy Johns that prevents its workers from taking a new job at “any business which derives more than 10 percent of its revenue from selling submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches” for a period of two years. Perhaps Quizno’s and Subway have been plundering their employees!