OT: NDA's and Non-Compete Agreements

Off topic post, but I suspect some of you guys will have some answers and opinions to my situation.

Back in August of 2015 I took a position with new startup company as their CIO. This was supposed to be a full time position with a base salary and profit sharing program.

Fast forward to March, after numerous delays from the subcontractors the attraction goes live. Due to various other issues, each of the additional facilities that was planned to open has not yet opened. I started doing other work in the same industry for a friend of mine to make ends meet.

At some point along the lines I signed an NDA (which I do not have a copy of. Yet). Additionally, back in November they paid for a 3 day training at Automation Direct as our needs required industrial PLC's, where I at the time had very limited experience with ladder logic. All of my background was in theme-park type show controllers using timeline based programming versus ladder logic.

Now, they want to bring me on full time again with a contract. The new facilities are near completion of the structures so we can go in and do our thing. In the new contract (which is not yet written) they want me to sign a non-compete in essence barring me from using "PLC's" in the industry that we're involved in. It would basically stop me from ever working in an industry that I helped create in the US (these are a new type of attraction).

What they are claiming is that the NDA that I signed back when is a blanket coverage and that I'm violating that right now by working for a friend's company using any type of controller, because they paid for a 3 day training seminar. Mind you, this was supposed to be a full time career path, which it ended up not being. They want me to sign a new non-compete to "help me" in the future by not barring me from doing ANY automation work in ANY industry, they want to narrow it to this specific industry (their words, not mine).

I'm not an attorney, but I read through the NDA before I signed it and the only thing I can remember was disclosing company designs and other "trade secrets". According to their attorney, the usage of any type of automation controller is a "trade secret" to them.

The catch is I do enjoy working with them when I do work with them. But I certainly don't want to sign my life away and bar myself from future employment if things don't work out.

Thoughts?

First, separate out the issue of the training course the company paid for you to attend. They could have written a separate agreement that requires you to pay them back for that course if you leave the company within an agreed-upon period of time, but unless that course was specifically designated as part of the consideration you received for the agreement you signed, they can't retroactively make it so.

Pennsylvania courts do uphold "covenant not to compete" agreements. These are typically different than "non-disclosure agreements", though they are sometimes part of the same employment agreement or contract.

But a non-compete agreement must not only protect a legitimate business interest, it must also be reasonable in geographic scope and in time. A court can "blue line" such an agreement to make it reasonable without invalidating the whole thing.

In my opinion, trade secrets about their designs or a covenant not to compete would be reasonable things to negotiate with a "CIO" level employee.

But a claim that the general practice of using PLC controllers to automate industrial equipment is a "trade secret" would not hold up in court.

For their attorney to assert that you're bound by such a limitation while also not providing you with a copy of the contract that binds you is a flaming red flag that he's bluffing.

You really do need an employment attorney to look over the existing agreement and the proposed one.

If they won't give you a copy (one that clearly shows YOUR signature to prove it's genuine) of the existing agreement, that's where I would strongly recommend to dig in your heels and refuse to work for them or sign anything.

Agree with Ken. When I first started working for a Systems Integrator I didn't know any better and singed the "Non-Compete" which basically said I couldn't work for any other company doing control system work for the food/bev/dairy industry in North America. for 2 years. Which basically said I couldn't work anywhere, which is a joke. You have to be able to earn a living.

Became friends with an older engineer there, when I decided to leave the company I told him my concerns with it. He pretty much laughed and told me he didn't sign it and how ridiculous the demands were and not to worry. When I was interviewing I told the companies about it. One company said they didn't want to deal with it (small integrator), the company I eventually went to work for basically said "The legal team reviewed it and it's of no concern." Never heard a word from my former company.

They went after an engineer who went to work for a competitor, which I can understand (of course the company pecked engineers from competitors too), however this engineer was just a kid. Came out of school worked at the company for 1 year before realizing the town/area were not for him. He was not a threat but yet the company felt the need to send a message. Far as I know nothing more than a "threat" letter was sent.

Attending a 3 day training course is hardly grounds for saying that you can't work on any "PLC" system, certainly can't claim an NDA violation either. Seems very over-bearing and if they won't change the wording and it becomes "non-negotiable" then you'll have to decide what to do. Sign it, worry if/when you have to or don't sign it and find work elsewhere. Catch is, if they re-word it, and now it becomes something a court might actually hold up maybe that could bite you down the road. If you leave it "as-is", overbearing/unreasonable if you were to leave the company in the future it could be simply dismissed altogether. Or the legal team at your new company could have a good laugh.

I guess it depends on the state but my understanding is that non competes have to be very precise in the locations and whatnot that you cant work in. They cant just say you cant work anywhere in the country. I would ask for a copy of the non compete and bring it by a lawyer. If they didnt dot the i's and cross the t's it is probably a waste of paper.

my guess is they talked to a lawyer and he is advising them how to lock you up. I would tell them to go fly a kite.

I work for myself now, but if I end up back for someone else at some point and they ask for a non compete, I am going to counter with if I sign the non compete then you have to agree to pay x years of salary if I get terminated or quit.

You need to contact an attorney. There are ones that specialize in NDAs and non-competes because so many of them are full of this kind of unenforceable ********.

It won't take a good attorney long to bring these guys to heel. The biggest problem with most of these agreements (and I have done dozens of them over the years) is that the try to be to broad. Ken has nailed it - you can't keep a person from making a living exercising their professional skill or from employing knowledge generally known in their trade.

And if they can't or won't provide you with copies bearing your signature they are really in deep doo doo.

Thanks for the info guys.

I'm in a weird spot with these guys. I was the first employee of the company, outside of the two founders. I helped build the company. I want to see the company succeed and I want to be part of it, but I don't like being bullied into a corner.

I've gotten by in life with what I've been doing and I'm sure I can continue to do so. I have other options right now if I want to take them, but the carrot in front of me with these other guys is hard to turn down. I could take another job that I was offered in the same industry and do OK in life. I'll never be wealthy doing it, but I'll do OK. With this guys, I could very well do $250k within a year. Maybe. Right now they're offering an laughable salary of $750\week + 2.5% of net profit + yearly performance review bonus, with a salary increase for every new location that opens.

It's a just a **** situation I suppose. We started out as great friends, enjoying building the company. Now the one partner has his attorney brother involved with it and I feel like I'm being ganged up on. It's definitely not what I signed on for initially.

As far as the PLC knowledge goes, obviously I need to talk to an attorney, but I'm not sure that any of it is enforceable. The long and the short of it is they say they "own" my knowledge of PLC's. What they're referring specifically is industrial PLC's using ladder logic. My background is show controllers that by definition are logic controllers that you program, just via timeline instead of ladder logic. So (saying it was enforceable), does that mean I can use a PLC using ST? Or an Arduino using C? I only learned ladder logic in the class..

And what if I go to work for another company in the ER industry that has not previously used PLC's, but has now started using them? I'm hired to do audio, but someone else installs the PLC. What's to stop them from saying that I installed the PLC and start a bunch of litigation that would make me go broke (which he said he would do if it came down to it).

It sounds like the founders don't share your opinion on your contributions to the company. It also sounds like you may be close to having passed a point beyond which there is no longer any mutual trust between you and the founders. Especially in light of their threat to litigate you into bankruptcy.

And what if I go to work for another company in the ER industry that has not previously used PLC's, but has now started using them? I'm hired to do audio, but someone else installs the PLC. What's to stop them from saying that I installed the PLC and start a bunch of litigation that would make me go broke?

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During the interview process with any new company, make them aware of the agreement you have signed, and get them (in writing) to agree to defend you against any litigation arising out of it.

They say they "own" my knowledge of PLC's. What they're referring specifically is industrial PLC's using ladder logic.

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That argument is largely self-defeating; if a skill is taught in a 3-day vendor class, it's clearly broadly applicable and therefore not a trade secret.

It's a weak argument to say "using a general purpose control system in this specific application" is a trade secret. The code itself might be their property, and certain algorithms or techniques might even be their property or even patentable. But not the use of a general purpose controller.

If an employer could prevent employees from using skills they learn on the job in other employment, it would be against the public interest, and that's one reason that courts limit the scope, duration, and business interests of the covenants not to compete that they do enforce.

If part of the company's ethical landscape now is that their general counsel is threatening to use strategic litigation (i.e. sue you so that the legal costs bankrupt you) against a potential equity partner... that's a company I would walk away from.

If you do continue to negotiate with this company, your first step should be to insist on a genuine copy of the agreement that you signed during your former employment. It's unethical in the general sense to negotiate with somebody over facts that are in dispute while with-holding documentation of those facts.

Ken Roach said:

First, separate out the issue of the training course the company paid for you to attend. They could have written a separate agreement that requires you to pay them back for that course if you leave the company within an agreed-upon period of time, but unless that course was specifically designated as part of the consideration you received for the agreement you signed, they can't retroactively make it so.

Pennsylvania courts do uphold "covenant not to compete" agreements. These are typically different than "non-disclosure agreements", though they are sometimes part of the same employment agreement or contract.

But a non-compete agreement must not only protect a legitimate business interest, it must also be reasonable in geographic scope and in time. A court can "blue line" such an agreement to make it reasonable without invalidating the whole thing.

In my opinion, trade secrets about their designs or a covenant not to compete would be reasonable things to negotiate with a "CIO" level employee.

But a claim that the general practice of using PLC controllers to automate industrial equipment is a "trade secret" would not hold up in court.

For their attorney to assert that you're bound by such a limitation while also not providing you with a copy of the contract that binds you is a flaming red flag that he's bluffing.

You really do need an employment attorney to look over the existing agreement and the proposed one.

If they won't give you a copy (one that clearly shows YOUR signature to prove it's genuine) of the existing agreement, that's where I would strongly recommend to dig in your heels and refuse to work for them or sign anything.

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Ken's right: In Pennsylvania, non-compete agreements are not enforceable. That doesn't mean they are not actionable. However, if any employer in PA wants to get rid of an employee, they can do that, on the spot, for no reason. PA is not a Right To Work state, and, unless you have an employment agreement of some specificity, you are considered an Employee At Will, and the de-facto agreement of both parties can be severed at any time, for any reason.

The whole situation sounds like a red flag to me.

Originally posted by Ken Roach:

If part of the company's ethical landscape now is that their general counsel is threatening to use strategic litigation (i.e. sue you so that the legal costs bankrupt you)...

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This is the single biggest hammer (and the biggest issue) with non-competes for those of us on the sharp end of the stick; those of us who actually DO as opposed to just speak and hope. Much of our value is in our general level of knowledge and our general capability, not something that is specific to the industry we are in. Therefore, it can't be taken away from us or limited in any meaningful way. However, you would be required to present evidence of that fact, which requires legal resources. So it is fairly easy for a company with any amount of liquid capital to make an example of a specific individual. In a funny way, it makes more sense for them to go after the guy who matters the least. If they show they are willing to go after that individual it shows they are willing to go after anyone. As a fear tactic, that would be the most valuable.

Keith

I won't sign them, have turned down many jobs because of them. same with the intellectual property agreements, what I write is mine, I allow them to use it free for the fee of writing it, but they do not own my creativity, that is mine alone and I will not be crippled by their greed.
as far as "no compete" a good employer does not have to worry about losing employees to competition.

My first job out of school was for a company that turned out to be horrible. They absolutely bled engineers, so about 9 months in they required everyone to sign a (completely unenforceable) non-compete. When I left after another 9 months, I never heard a peep from them again.

As to NDAs, I've signed those at two subsequent jobs that did include access to proprietary knowledge, and I had no issues with that, as I had no intent to steal/sell their product designs.

I will agree to anything that is currently theirs as far as their process and product, but I write control programs for machinery, I will not sign anything that tells me when I leave I cannot use routines I brought to the company after I leave the company, once had one company give me one to sign that stated any past, current or future patents, Idea or intellectual property, LOL yea I'm going to sign that.