Proving once again that corporate greed knows no limits, real estate firm Cushman Wakefield recently sued a former janitor, Sonia Mercado, for violating a non-compete agreement. The Washington Post broke the story. Immediately thereafter, following public outcry and a rash of negative publicity, Cushman caved and agreed to drop the lawsuit. Although that is a victory for Ms. Mercado, the situation sheds light on America’s non-compete crisis, which appears to have reached peak insanity.
American capitalism was once synonymous with robust competition. Those days are gone. We could get into monopoly and monopsony, but that’s a separate problem within the competition universe. Let’s focus solely on the employee non-compete issue. Several decades ago, non-compete agreements were rare and only enforced in exceptional circumstances. Today, they are ubiquitous. Corporate actors and their corporate law firms have driven the normalization of non-compete agreements. That’s what happened. They did not do this to prevent unfair competition or to protect any legitimate business interests. They did this purely out of greed.
Employee Non-Compete Agreements = BIGLAW Revenue Strategy
Non-compete litigation is big business for management-side law firms. Lawyers often counsel their corporate clients toward aggressive use of non-compete agreements. Take a wild guess why: Money. The more they push clients to use company-wide non-compete agreements the more likely someone breaches one of those agreements. There are literally thousands of big firm lawyers throughout the country who have never seen a non-compete agreement they wouldn’t gladly enforce. The Cushman Wakefield janitor case is a good example. Clearly, janitors should not have non-compete agreements. That’s just absurd. But there are literally thousands of corporate lawyers throughout the country who would love to get that case and get in the door with a multi-billion-dollar company like Cushman. These management-side corporate lawyers are practically drooling at the prospect of becoming Cushman’s go-to non-compete enforcer, even if that means suing janitors.
I’ll put it directly: Management-side lawyers created the current non-compete crisis. Twenty-five years ago, corporate lawyers – primarily at big law firms – began pushing the widespread use and normalization of non-compete agreements. They did this as a revenue generation strategy. Yes, eventually the companies themselves became complicit. But the companies themselves did not start this trend. Corporate lawyers did. Big firm lawyers convinced their clients that non-compete agreements were absolutely necessary to protect themselves. They pitched non-compete agreements as a standard piece of risk management. And over time, that logic caught on. Now non-compete agreements are a standard part of hiring paperwork at many big companies. See, e.g., WeWork. Those big companies have bought into this framework. And as a result, management-side non-compete lawyers have created this endless gravy train of non-compete work.
Non-Compete Agreements & Judicial Confusion / Judicial Activism
The foregoing is the foundation of the current system and crisis. But it required one more element to reach the current breaking point: The judiciary. That problem is two-fold. First, many judges simply do not understand this area of law. Many judges do not understand that the actual legal framework here is antitrust law. Instead, they think of non-compete cases purely as matters of contract law. That is legally incorrect. And that approach to these cases results in making bad law. Second, and far more problematically, some judges simply ignore the law and rule based on their own personal biases. That is judicial activism. A word about that: Judicial activism does exist in our justice system and it is a problem. As lawyers, we are not supposed to talk about that. That’s one of the reasons why nobody wants to confront the issue of non-compete abuse head on.
And that is how we arrived here— To a world where it is business as usual for everyone, including janitors, to have non-compete agreements.
Ending Employee Non-Compete Abuse
America’s epidemic of non-compete abuse has only been in the national spotlight for the past few years. In October 2014, we saw the first national press on Jimmy Johns’ absurd sandwich artist non-compete agreements. In July 2016, I appeared on a PBS News Hour segment that highlighted non-compete abuse. In May 2017, the New York Times ran a feature story on non-compete abuse. National media coverage increases public pressure and, in some instances, even triggers interest by various regulators (particularly state attorneys general). This has resulted in a number of noteworthy victories over the past few years (e.g. WeWork, Jimmy Johns, the Cushman Wakefield janitor case). But it’s not enough. As we can see with the latest janitor case, big companies will continue to abuse non-compete agreements – and management-side lawyers will continue to push lucrative non-compete litigation – unless we create punitive consequences for that behavior.
- More states must pass non-compete reform. Where states are not willing to ban employment non-compete agreements outright, they should strongly curtail their usage. In states where there is an actual non-compete statute, any legislative reform should reign in pro-non-compete judicial activism and judicially created loopholes that courts use to enforce non-compete agreements.
- We need more aggressive action by state attorneys general. States AG’s should aggressively police corporate non-compete abuse. We are starting to see this in places like New York. That’s good and can have national ramifications (e.g. NY AG pursues a company based in NY and gets that company to drop bogus non-competes nationwide). But we need action in states where courts have a history misapplying non-compete law and rubber-stamping injunctions. (I won an appeal in the 11th Circuit that basically says the trial court rubber stamped an injunction order written by opposing counsel. These are facts.). Beyond that, state AGs need to get creative and sue major offenders for antitrust, unfair trade practices, etc. They need to pursue claims/cases that have serious possible damages. They need to seek injunctions and consent decrees that have staunch penalties.
- We need more publicity. For the past several years, I have been on a mission to expose non-compete abuse, raise public awareness around the issue and change the law. When our firm gets involved in a truly egregious non-compete case, we always make it public. In numerous instances, in response to this publicity, opposing counsel has gone into court and thrown a temper tantrum, essentially arguing for a gag order. In fact, Adecco/Special Counsel did that. They were so deathly afraid of any media or press involvement that they sought a gag order and a sealed record. Companies that abuse non-compete agreements are terrified of negative publicity. And negative publicity can get these cases resolved. See, e.g., the Cushman janitor case. Negative publicity can also trigger further legislative reform and more action by state AGs. The more media coverage of non-compete abuse the better.
- We need to educate the public not only about the companies that abuse non-compete agreements, but also about the lawyers who do their dirty work. We need to bring pressure to bear on all of the actors who have facilitated the current crisis. We also need to identify the judges that uphold unreasonable and unlawful non-compete agreements. At the state court level, if those judges are elected, we need to insist that they become educated on non-compete law and apply the law correctly and impartially, or, vote them off the bench.
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. He is widely regarded as an authority on non-compete law. He has appeared in or on the New York Times, Wall Street Journal, Bloomberg, FundFire, Inc. Magazine, PBS News Hour and more. His office can be reached at 954-332-2380.