Does an arbitration trump the illegality of non-compete requirement?

May 7, 2014 6:42 PM

I was offered a job with a crazy non-compete condition in the agreement, but as you may know such requirements are illegal in the State of California. HOWEVER, there is an 'Employment Condition' that requires all disputes to be settled via arbitration. If an arbitrator decides to enforce a non-compete clause in California, does that somehow override the illegality of it, since generally, arbitrators have 'final say' and courts 'cant overturn' decisions made via arbitration?

Specifically, I am concerned about some potential overlap in things Ive created in the past and work on in my own time. Additionally, the market is focused on specific technologies that may make it unreasonable for this company to expect me not to work for a similar or competing company 'until after 18 months of termination'.

I also find annoying a requirement to update them for 3 years of my address to contact me about my obligations under the agreement.

Blah -- this thing is crap! Your feedback is appreciated.

posted by nodebunny to Law & Government (10 answers total)

Tell them that the agreement is unacceptable and that you'll be happy to accept the job, provided you don't sign it.

It's either a shitty piece of boilerplate or they're total dicks. Either way, pass.
posted by Ruthless Bunny at 6:45 PM on May 7, 2014

Think about it another way--if you entered into a contract to sell drugs and it stipulated that all conflicts had to be resolved in arbitration, would that make it legal to sell drugs? Now, I don't know the California non-compete law at all, not a lawyer, etc, so I have no idea what specific vagaries are there, but there are definitely things that arbitration cannot magically render legal. This is a good place to talk to an employment lawyer who will know for sure. But I do think it's not a terrible idea to ask them why that clause is there and whether they'd be willing to remove it or just render it something you'd be comfortable signing.
posted by Sequence at 6:52 PM on May 7, 2014 [1 favorite]

I agree with the basic logic that a corporation can't nullify employment law by putting in an illegal requirement but mandating arbitration.

I'd walk it past an employment lawyer. I'd also sign it without fussing. Later, if you're working for another company < 18 months later and violating their non-compete condition, and they fuss, they can compel arbitration. But either you'll get an ethical arbiter who'll rule in your favor, or you'll get an unethical one but then can appeal to a judicial court on the grounds the clause violated employment law. Either way you get the result you want.

If it didn't work that way, corps could force illegal contracts like "no bathroom breaks, ever" by requiring arbitration.

Again, I'd sign the contract as it now is. I'd also have an employment lawyer read it over to make sure there's no stuff in it which is legal but nasty.
posted by sebastienbailard at 7:28 PM on May 7, 2014 [1 favorite]

Huh. Do you really want to work for somebody who thinks this sort of contract is a good idea? Because it sounds like the first stop on the train to crazytown. Or at the very least, a corporate culture of magical thinking - "oh, that's just employment law, we'll write this paragraph in and it won't apply to us."
posted by Mary Ellen Carter at 8:25 PM on May 7, 2014 [2 favorites]

OP,

I don't know if this will help you, but I have negotiated on my own as a freelancer to have those clauses removed or modified and at this point, I would do the same if I went back to being an employee.

Things that I have told people (after gushing enthusiasm for the project, the team, whatever) is things such as, "This would impact my livelihood" or "I need to think about this, can I see a list of your competitors?" Both those phrases have frequently worked to get them off.

The ones that have refused have let me for modify them. I have either had the time changed (to immediately after each party separates) or made the work clause very very specific (You won't make windows during these times...but leave everything else off it).
posted by Wolfster at 8:40 PM on May 7, 2014 [2 favorites]

Talk to a lawyer, but you could frame it by telling the company, "Since non-compete clauses are invalid in California, there's no point in even mentioning it in my contract, so I'm crossing out that part of the contract."
posted by ShooBoo at 9:36 PM on May 7, 2014

If the clause is invalid, rather than using up drama points pointlessly getting it off the contract, I would save them for some other aspect of the contract negotiations or not use them at all.

The company doesn't need to know that you know the non-compete clause is invalid. And you do not need the minor stress and drama talking about it with them. Keep that card face-down.
posted by sebastienbailard at 10:16 PM on May 7, 2014 [2 favorites]

I am not a lawyer, however I do not believe non-compete clauses are illegal in California. I believe they are generally unenforceable. More specifically, I would think it would need to be very specific to be enforceable, assuming you are still in California when the time comes (ie, you can't work for THIS competitor for 6 months after your employment).

I would recommend trying ShooBoo's approach. In the past this has occasionally worked for people negotiating even with very large companies.
posted by Phredward at 10:44 AM on May 8, 2014

I recently requested the wording be changed before I would sign. The agreement in question is normally used in another state, and I pointed out that they weren't valid here and that I could sign it knowing it wasn't executable but I would rather we just reword. So we did.
posted by Lyn Never at 12:53 PM on May 8, 2014

Best answer: You may be confusing two separate but related issues. An arbitration clause generally dictates the forum in which any dispute about the contract will be resolved. It is separate and apart from the question of what law will be applied. Generally, a contract should also have a provision that says something like, "this contract shall be construed and interpreted in accordance with the laws of _____________." If is says the laws of California, then the arbitrator would interpret the contract in a manner consistent with California law. If it says some other state, then the arbitrator would apply the law of that state to the contract. If it is silent on this question, but you and your employer are both in California, then the arbitrator would most likely conclude that California law applies.

Having said all of that, IANYL and it would probably be money well spent to consult with a California employment lawyer if you are concerned about being constrained by the non-compete.
posted by Alexdan4 at 8:55 AM on May 9, 2014