Say no to non-competes and other legal irritations for startups

Posted by Andy Singleton on Wed, Jul 15, 2009 @ 10:22 AM

Xconomy has been running a discussion about banning non-compete agreements here in Massachusetts. I have always thought they were unfair, even when I used them in my last VC funded company. You can read the arguments for yourself at these links:

http://www.xconomy.com/boston/2007/12/03/spark-capitals-bijan-sabet-cross-out-those-non-compete-clauses-an-xconomy-interview/

http://www.xconomy.com/boston/2009/07/09/brad-felds-colorado-vc-firm-joins-massachusetts-crusade-against-non-compete-agreements/

If you live in California, this discussion doesn't apply to you, because most non-compete agreements are invalid in California. Many people think that is an important reason why California has so many successful startups.

Back here in Massachusetts, Tim Rowe says he wants to ban non-competes, but he uses them anyway. That is a whimpy position.

Assembla doesn't ask our developers, or any of our employees and contractors, to sign noncompetes. This is sometimes a difficult position for us to take because we sometimes have clients that have lawyers that are stuck on non-competes. However, we believe that this position gives us access to the best talent and delivers the best result for clients. It would be impractical to ask a great prospect to take a short contract job, and then lock them out of other opportunities for a year or more.

We do insist that every person working on an Assembla product agree in writing to an IP assignment. This allows us to deliver a clear copyright for all code, to clients and investors, who usually want to see this documentation before any new funding. We have a streamlined system to document this IP assignment, so that future fundraising will go smoothly.

Here are some other legal irritations:

* The NDA that comes with an noncompete and IP assignment. I get these with suprising frequency from junior entrepreneurs. Before they will discuss their project with me, they want a nondisclosure agreement. I say "OK, if it you really need that to make you happy." Then, they send over an employment agreement, which includes an NDA, but also includes a non-compete, and an assignment of intellectual property. So, in addition to asking for free advice, they are asking the signer to agree to not compete in an UNKOWN line of business, and sign over IP rights for no compensation. No matter what your lawyer says, don't send out this type of agreement. It makes you look like an idot.

* The software license agreement or NDA that includes a clause that the recipient has to destroy "all copies" of the material when the license or discussion is done. In today's world, data gets backed up a zillion ways, imaged, archived. How will you track it down? There are legal requirements to hold email. So, the same lawyers that tell you that you have to save your email (and do it themselves) are telling you that you have to destroy it. Are they idiots, or fiendishly clever?

So, what's your favorite legal irritant?

Tags: software business, staffing

COMMENTS

Great post, thanks! Can you say more about how forgoing non-competes "gives us access to the best talent and delivers the best result for clients"?

I research the use of non-competes and am interested in stories like yours, as most companies seem to maintain the opposite stance.

posted @ Wednesday, July 15, 2009 1:14 PM by Matt Marx

There area lot of things that corporates or "other companies" do that don't make sense. It seems these days a lot of us accept them at face value, without thinking through the ramifications. Or saying "well if so and so do it like that, they are big and successful, therefore it must be the right way".

Cutting out a lot of this sort of crap is what makes "startups" and smaller organisations so agile and effective.. and kudos to Andy for making a point of it!

I also don't believe in non-competes. They set the wrong tone with your staff up front, are extremely difficult to enforce and from a social perspective: how can you justify preventing someone from earning a livelihood in the area of their expertise?

posted @ Wednesday, July 15, 2009 6:56 PM by Gareth Oakes

Interesting post. I got into just that argument with a client which happens to be a law firm. :-) I asked them how the heck are we supposed to control what copies get made, and countered that if they agreed to provide a lockable space with free access for us, in their offices, that we'd keep our copies of the documents in there. They took it out.

Also, an insurance company wanted us to guarantee that no copy of any document would be ever taken out of their physical premises in Japan. They looked at me like a doe in the headlights when I told them their server was in the US in a 3rd party datacenter.

posted @ Thursday, September 17, 2009 9:19 AM by Rick Cogley

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