Tactics put the spotlight on noncompete clauses
When data storage giant EMC Corp. poached Mark Lewis, a promising young executive from Hewlett-Packard, in 2002, it seemed like just another volley in the ongoing talent wars between two tech titans.
Then in 2009 HP struck back, recruiting David Donatelli, president of EMC’s storage division, to run a similar department.
Rather than letting it slide, EMC promptly sued. The difference? Donatelli was based in Massachusetts and had signed a noncompete agreement to not work for a rival for one year after leaving EMC. Lewis, though, was based in California, where noncompete agreements are barred by law, insulating EMC from legal recourse by HP for that earlier poaching.
EMC is well-schooled at using the different rules in the two states to its advantage. In Massachusetts, it fiercely guards its workforce against competitors and has emerged as one of the most prominent members of the technology community to oppose Governor Deval Patrick’s new effort to ban noncompete agreements in employment contracts. But in California, where EMC is hiring at 13 locations, recruiters said the company is as good as any at snatching talent from its rivals.
“Ironically, EMC has a large California presence where it takes advantage of California law to hire employees not bound by noncompete restrictions,” said Brian Kindsvater, a Folsom, Calif., lawyer who specializes in noncompete contract litigation. “It’s total hypocrisy.”
An EMC spokesman said the company would not discuss its hiring strategy and declined to comment for this story.
But in a 2012 interview with Dice News, a website that covers technology jobs, EMC chief talent cfficer Tom Murray said the company’s hiring strategy is to “go after the experienced talent.”
“We’re professionally aggressive and very competitive,” Murray added. “We want to win. EMC is laser-focused on the competition.”
Recruiting wars have long raged in the technology industry, not just in California and Massachusetts. But hiring specialists in the Golden State acknowledge that poaching from competitors is pretty much standard operating procedure.
“When we’re talking to a client about a job opening, one of the first questions we ask is, ‘Who are your largest three competitors that you would like us to go pull people from?’” said Dan Pollock, a senior vice president who oversees head-hunting in California for Modis, a recruiting firm for the information technology sector that has previously worked for EMC. “That’s a conversation that occurs on every search we do.”
Patrick and other opponents of noncompete agreements argue that they stifle innovation by hindering ambitious workers who want to launch startups or join promising new companies. Instead, Patrick wants Massachusetts to adopt a business law enforced in most states that prevents workers from taking companies’ intellectual property when they join other businesses.
But companies that use noncompetes say they are necessary, because otherwise rivals would invariably gain competitive information from their former employees. Moreover, they point out the Massachusetts tech sector has flourished under the status quo.
“The legitimate business interests of companies in Massachusetts are well served by the longstanding case law that allows covenants not to compete,” EMC general counsel Paul Dacier said in April after Patrick proposed eliminating the agreements.
In 2012 and 2013, when similar efforts to eliminate noncompetes surfaced on Beacon Hill, EMC spent a total of $85,500 lobbying against them.
EMC is hardly alone in lobbying against the elimination of noncompete agreements in Massachusetts while enjoying the freedom to poach talent for its outlets in California. Boston Scientific, Abiomed, and Covidien oppose Patrick’s legislation, as does the Massachusetts Medical Device Industry Council, whose 330 members include some companies with California offices.
“We value the noncompete agreement as a way to preserve our proprietary information, rather than using the lack of a noncompete in other states as a gateway to gain employees from competitors,” said Aimee Genzler, a spokeswoman for Abiomed. “We would actually prefer that California also have a noncompete agreement intact so we could continue to preserve our intellectual knowledge.”
Like other companies, EMC has used the courts when employees have jumped ship — suing dozens of ex-employees, either for simply joining a competitor or for allegedly taking trade secrets with them.
In one fell swoop last year, EMC sued six workers who left for a California startup called Pure Storage. EMC contends that the ex-employees provided Pure Storage sensitive information about products, marketing strategies, and customers.
Pure Storage and the former EMC employees have denied wrongdoing. The startup also made a counterclaim that EMC stole its intellectual property. The case is pending.
The allegations in the Pure Storage case are about much more than violations of simple noncompete agreements. In his legislation, Patrick makes a distinction between those circumstances and others involving allegations of theft; his law would prevent a company from suing a former worker for merely joining another firm but would preserve its right to sue for misappropriating trade secrets.
In California, judges have consistently ruled that workers who move there cannot be held to noncompete contracts signed in other states.
Yet tech employees who move there from Massachusetts and other states where noncompete agreements are in force still can face lawsuits from their ex-employers back in their former states, said Kindsvater, the attorney who has represented workers in such cases.
He and Pollock said that in their experiences, the former employer often is not looking for a legal victory, but rather an informal agreement in which the California company agrees not to poach even more of its employees.
But such side agreements can be problematic. Last month, Apple, Google, Intel, and Adobe Systems agreed to settle a class action lawsuit for a reported $324 million that was brought by about 64,000 Silicon Valley workers. They accused the tech giants of backroom deals in which they pledged not to raid one another’s staffs, in an effort to hold down salaries.
Correction: Because of a reporting error, an earlier version of this story misstated the number of former EMC Corp. workers the company had sued when they moved to a rival, Pure Storage. EMC took legal action against six former employees.