Silicon Valley Innovation is Built Around Employee Mobility
In my last blog, I wrote about HP’s disturbing pattern of suing non-California employees under ‘non compete’ clauses, often imposed years after employment began. Apparently it’s relatively recently that HP decided to abandon its Silicon Valley roots and tie up its non-California employees in legal knots. HP is in fact the only large Silicon Valley-based company to have two classes of employees and try to impose mobility restrictions on those who live outside California. HP’s efforts have gone so far as to sue an employee who took a buyout after having his salary cut, and one who didn’t even work in an area related to HP’s products that compete with Cisco’s.
Two recent actions since that blog posting are stunning. First, HP renewed legal action in Texas, where one of the employees used to live, trying to get a judge there to schedule a court date on a day’s notice and to apply Texas law even though the California judge in the case is going to hold a hearing, as is certainly appropriate, to verify that the employee has in fact moved to California. (Yes, he came to work for Cisco after he arrived in California, rented an apartment, got a drivers license, etc.) Once again the Texas court refused to intervene, and in fact effectively “stayed” HP’s legal actions indefinitely. HP also tried in Texas to raise another bar to employee freedom, claiming that the employee would ‘inevitably’ use HP’s trade secrets to do his job at Cisco, and therefore should be barred from continuing his new job. Just as California law bars enforcement of non-compete clauses, California courts won’t recognize this doctrine either, seeing it for what it is — an effort to impose de facto non competition clauses.
More amazingly, however, and significant as a sign of HP’s desperation, HP proposed to “settle” the matter with the employee working at Cisco on terms that required action by Cisco which we viewed as outrageous and possibly illegal. HP marked the proposal “confidential” even though Cisco has no confidentiality agreement with HP. When we made clear we planned to let the world know what HP was proposing, they objected strenuously and even threatened to try to get a court order barring us from talking about what they’d asked for. (We agree that settlement proposals can’t be admissible in court to prove the other side’s motivations and goals, but we don’t agree with unilateral imposition of more general confidentiality requirements.) Rather than spend more money in the courts, we figured we would let others, or law enforcement officials who might be concerned with what HP proposed, demand that HP let the world know what they try to do to their own employees. Their resistance to making their proposal public makes their proposal all the more interesting. For the record, the employee involved has told HP that the counter proposal we made is not confidential; unlike HP, we have nothing to be ashamed of.
Some questions do come to mind:
1) Why is HP the only large Silicon Valley based tech company to try to impose non-competes on its non California employees, creating two classes of employees within its company? Why are good people so eager to leave that company?
2) Why would anyone go to work at HP knowing they might never be able to take a job elsewhere without sitting on the bench for a year? (Clauses like that are why HP was able to get away with lowering salaries 20% across the board in Texas a couple of years ago.)
3) Why aren’t enterprising lawyers already attacking HP’s and other companies’ stealth non-competes, buried in stock options agreements, and helping to strike down these anti-employee policies?
Although it’s sad to see a once iconic symbol of American engineering and manufacturing greatness brought low by its own indifference to the people who made it great, far be it for me to shed crocodile tears over a competitor’s self-destruction. My interest is clear and twofold: First, I am a competitor. I want HP employees who are good networking and server engineers available so that we can hire them to work on Cisco projects. We give our employees the opportunity to build a better future for themselves and for the world through products that will make a difference in connecting billions of people. And as I promised before, we will never impose a non-compete on them because they work in a state other than California. When we don’t create good career opportunities, our people are free to leave. And if HP’s leadership isn’t willing to announce that they won’t enforce these clauses further, I’m happy to have the world know how frightened they are that so many of their employees don’t really want to be there.
Second, for the sake of our country’s competitiveness, I hope we can move beyond non-compete agreements with employees as a policy matter. The start-up culture and innovation of Silicon Valley is built around employee mobility. Read Walter Isaacson’s magnificent biography of Steve Jobs to get a first hand view of the process by which those willing to invest their capital can bring together teams of experienced people to change the world. To be sure, most of our non-California competitors with employee non-compete clauses usually only want reasonable assurances that their trade secrets will be protected (the general counsel of one such competitor and I have cooperatively worked out three such deals in the last two years, without any broad agreements not to hire or solicit, but with protections of legitimate intellectual property interests). But as a national competitiveness matter, a closer look should be taken at whether such non-competition clauses are an unfair business practice or an illicit restraint of trade.