Non-Compete Contracts

I don't know what Washington law says about noncompete agreements, but I suspect that that is the law that will decide this case, not California. California's law does make an exception for trade secrets and the sale of a business, but based on the brief snippet above, it doesn't sound like either applies here.

In any event, I disagree with your ethical rule. I think it is sleazy as hell for employers to require employees to "agree" to terms they know to be illegal, and see no reason at all why employees should be expected to abide by such promises. Then again, I also don't think there's anything inherently dishonorable about breaching a valid contract, provided you pay the appropriate damages. As long as both sides understood what they were negotiating (and MIcrosoft certainly did), that was part of the original deal too: you do X for me, or you pay me off to put me in as good a position as I would be in if you had done X for me.

X: I only mentioned CA law because I'm slightly familiar with it.

I think I agree with your point that breaking a contract is ok if you pay the damages. That being the case, since the damages in our hypothetical are zero (since the contract would be illegal), then I suppose it makes sense to say it's ok to break it. Also, it is unethical to make employees sign an illegal contract, especially since other competing employees will sign it with no intention of keeping it.

I thought we were talking about honor here, not legality. Whether or not a given promise has the force of law behind it has no bearing on the dishonor of breaking that promise.

Also, by 'paying the appropriate damages,' one is still abiding by the terms of the contract. This is an uninteresting case, morally, and not within the intended scope of the discussion. Truly breaking a contract would be refusing to honor ANY related obligation, including payment of damages. And, as originally stated in the post, that would be dishonorable.

And just because a particular contract doesn't stipulate damages, doesn't mean it's not an agreement, willfully and knowingly entered into by all parties. Some contracts offer two routes to satisfaction: perform, or pay up. Some contracts offer only one route: perform. Both, if understood prior to agreement, seem equally binding in terms of honor.

Finally, just because competing employees are willing to violate their contracts, doesn't mean that asking me to abide by mine is unethical. Competing employees might also be willing to murder for professional advancement, but that doesn't mean that asking me NOT to murder is unethical.

Nicholas: My point is that by law the damages associated with breaking a non-compete contract are zero.

It depends on your moral code---not just in the general sense of keeping promises, but in the narrow question of whether your moral code advises you to look to the moral code of the person to whom you've made the promise.

More specifically, I expect that most employees who sign those kinds of agreements make unrealistic assumptions about the circumstances in which they might lose their jobs. In a classic example of the fundamental attribution error, employees assume that whether they will lose their jobs depends almost entirely on whether they do their jobs well. But employees can lose their jobs for all sorts of reasons, many of which the employee has no control over.

So you need to examine your moral code on this point more closely. Are you morally bound to every word of the written agreement? Is it relevant that you signed that agreement based on a variety of unwritten or even unspoken assumptions, such as how you would be treated and how much you would be paid?

I would think that the strictly moral requirement would depend on the circumstances of the employee leaving the employer.

One scenario---the one you seem to be assuming, Michael---is where the employer has behaved well, and the employee is simply skipping out to make more money with a competitor.

An alternative scenario would involve an employee who signs up at a sweatshop, where rosy promises of good working conditions and fat bonuses quickly degenerate into eighty hour weeks and no bonus. Or suppose that the employer is acquired by another company, and the employee's position is eliminated as part of the consolidation.

The problem with broad statements about moral obligations is that those obligations are no less complicated in morality than in law. If you want to take your contractual moral obligations seriously, then you must scrutinize even uneforceable contracts as a lawyer would a legal document. And if you did that, then you would probably never sign the kind of noncompete that you're talking about. In fact, you would probably only sign the kinds of noncompetes that the law is willing to enforce.

So I predict that you would come full circle: The law only enforces the kinds of noncompetes that rational, well-informed people would sign if they were not under duress.

A technical point: A right-to-work law usually refers to whether people can be forced to join a union to get a job. The law on noncompetes is very different and, so far as I know, pretty uniform across the country.

Moral code? Millions consider Microsoft to be an embodyment of the Great Satan Himself. Was the contract signed in blood? :-)

In my opinion, if you sign an agreement, contract, etc.... you've just indicated that you agree to everything contained within it.

If you have a problem with something in it, don't sign it. Ignorance, either feigned or real, is no excuse.

But Mark, that overlooks the transaction costs. Have you read the EULA for every bit of software that you've ever used? Every insurance policy that covers you? The contract associated with every credit card and bank account you've ever had?

I would bet not, unless you have a heck of a lot of time on your hands. And it wouldn't be enough to just read them, you would need to read them each two or three times to fully understand them. And even then it's unlikely that would understand exactly how such a contract would be treated in a court of law, unless you've been through law school---and maybe not even then.

In practice, the law doesn't require that everyone be a lawyer. The world simply couldn't work that way. And a moral code that amounted to the same thing wouldn't work, either.

BB:

Consider the following:

- Most EULA's are full of similar language (boilerplate) and are usually pretty self-explanatory. Reading the entire EULA is, more often than not, not necessary. Time required: often none, sometimes a little, never a lot.

- I read the important parts of insurance policies (what's covered and what's not, limits, etc.). Time required: not that much.

- Credit cards are, again, full of a lot of boilerplate. I read the important things, like consequences for late payments, etc. (even though I've never missed a payment or been late on any of my credit cards)... the consequences that are unique to one credit card or another. Time required: not that much.

- Reading and interpreting what you read is a basic skill. Many job contracts are not worded like EULA's or otherwise consist of words exclusive to the legal lexicon. I never even went to a 4-year college or university and I can understand every sentence of every job contract I've ever signed. This guy, being a presumably highly-educated and presumably highly-skilled professional should surely be able to read and interpret at least as well as I can.

And I'll tell you something else...

If there was something in a contract or agreement that I signed that I was ignorant of and I was being held accountable... I wouldn't blame that ignorance on the wording or anything of that nature. It would be entirely my fault for not reading it.

Mark: You're assuming that all the boilerplate is the same, and that it says what you would expect it to say. I don't assume that, because it's often my job to actually read boilerplate, which is typically completely unrelated to what either party actually does or intends to do.

"Reading and interpreting what you read is a basic skill."

And to think that I wasted three years in law school to learn a basic skill!

Seriously, Mark, you're just assuming away the stuff you don't know. The question is much harder than whether you know what every word in the document means. It's even harder than knowing the legal questions that specific sentences touch upon. You also need to know various points of law that don't appear in the contract but may apply to it, like questions about the enforceability of a noncompete.

You also need to think of the questions that the document doesn't answer. This is where home-drafted legal documents usually cause problems.

For example, suppose that the will says: "I leave everything to my four children equally." Then a home-drafted codicil (amendment) to the will says: "I leave my house to Son A."

No fancy legal words in there. You can read each sentence and understand exactly what each one of them says. So where's the problem?

No fair peeking ahead! If this is a mere 'basic skill,' then you don't need any help to know how that will and codicil could cause a lawsuit.

Let's suppose that the testator (the person who wrote the will) died with an estate of a million dollars, $200k of which was the house. The four kids all get together to figure out who gets what.

Son A thinks that the will and codicil are quite clear. He gets the $200k house, and then the four kids split the rest for $200k each.

Daughter B disagrees. She thinks that the documents mean that each child gets a quarter of the whole estate, or $250k each. The codicil merely means that Son A's share includes the $200k house.

Which interpretation is correct? The kids can go ask the judge to find out what these 'clear' legal documents mean.

Mark, it's human nature to think that anything you don't know how to do is easy. But when it comes to non-lawyers reading legal documents, that assumption is usually wrong.

BB: Don't worry about spending all that time and money on law school... it's an unfortunate fact that we'll always need lawyers.

The basic issue that I'm addressing is that if you sign something, you're bound to it.... maybe not always legally... but ethically. It is not the responsibility of one party in a contract to ensure that the other understands what's in the contract. Ignorance is no excuse.. end of story.

No amount of legal muddying-of-the-waters is going to convince me otherwise.

I don't deny the moral point, Mark. You can commit to whatever morality you want. My point is epistemological. Law school teaches that words don't have clear meanings like people think they do. It's easy to say that you're committed to whatever was in the document that you signed. It's quite another to say that you know exactly what those words mean.

The principle is the same in non-legal contexts. Lots of people commit themselves morally to what the Bible says. But what does it say, exactly? How should we apply it in different situations? Well, those are rather complicated questions, aren't they? Certainly not something on which you would want to venture an opinion without study. It's enough to note that determining exactly what the Bible means, or what the Koran means, or what your credit card agreement means, is a very difficult task best done by those who have spent a lot of time reading those kinds of documents and studying the issues surrounding them.

BB: Verbatim, here's a section of one of my credit card agreements:

"We may consider your Account to be in default at any time if you fail to pay us any amount when it is due, or if you breach any other promise or obligation under this Agreement. Subject to applicable law, we may also consider your Account to be in default at any time if any statement made by you to us in connection with this Account or any other credit program was false or misleading; if you breach any promise or obligation under any other agreement that you may have with us or any of our affiliates; if we receive information indicating that you are bankrupt, intend to file bankruptcy, or are unable to pay your debts as they become due; or we receive information leading us to conclude that you are otherwise not creditworthy. In evaluating your creditworthiness, you agree that we may rely on information contained in consumer reports, and in our discretion we may consider the amount of debt you are carrying compared to your resources or any other of your credit characteristics, regardless of your performance on this Account. We may also consider your Account in default in the event of your death."

Seems to me that most, if not all, credit card agreements contain either identical or very similar language... and all of it is neither shocking nor anything I didn't expect.

Basically, I look for things that say: "You agree to..." or "You are obligated to...".

Do you realize, reading this, that they can basically declare you to be in default under that agreement at any time, for any reason? Given that, what does the agreement say that they can do to you in the event of a default?

Also note that this is subject to applicable law. I guess you need to figure out what the applicable law is to know what your moral obligations are.

BB: Yes I do realize that. I also realize that this is more the rule among credit card agreements than the exception.

The next paragraph indicates what happens in a default scenario. Basically it says they can require payment for any portion or all of the outstanding balance, cancel or suspend the account and any of its features, and hold you liable for any costs associated with any collection procedures that may be required.

All of this I already expected or didn't come as a shock to me. Credit cards are a dangerous thing to get too tangled up in... which is why I only have two and keep the balance on them low.

Part of the key to all this is to carefully decide who you're going to make an agreement with. Are they likely to want to screw you? Because if they want to, they probably can. No matter what a contract says, the other person can take you to court and make you miserable if they want to.

MW: That's very true.

The question is much harder than whether you know what every word in the document means. It's even harder than knowing the legal questions that specific sentences touch upon. You also need to know pen various points of law that don't appear in the contract but may apply to it, like questions about the enforceability of a noncompete.