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Category: California Employment Law
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Experience:  I have 30 years of experience in the practice of law, including employment law and discrimination law.
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Affect of non-competition agreement

Customer Question

What is the affect of a non-competition agreement on converting a contractor to an employee?


I am applying for a position with a company under a Contract agreement with a third-party recruiting firm (an LLC in New Jersey). I will be paid via W-2 from the recruiting firm and not by the employer (aka "Client"). The company (client) says their ultimate goal is to convert me to a staff position as soon as a separate req is approved - it's a completely separate position (different title) from the contract position.


The contract from the recruiting firm includes a non-competition agreement clause stating I cannot compete against their interests for 18 months.


Does this preclude the company (client) from converting me for 18 months to staff once the other req is approved?


Exact text from the Consultant Acknowledgment (Exhibit B):


Non-Competition. As to any person or entity, including but not limited to Artech’s Client, to whom I have been introduced to as a result of contact with Artech or Contractor, while this agreement is in effect and for a period of eighteen months (18) months after the termination of the assignment, I will not, directly or indirectly, through any person or entity, solicit, provide or attempt to provide (or advise others of the opportunity to provide), any services to any Client to which I have been introduced to, or about which I have received information about, through ARTECH or through any Client for which I have performed services or to which I was introduced under this Agreement.

Submitted: 1 year ago.
Category: California Employment Law
Expert:  LawTalk replied 1 year ago.

Good morning,

I'm Doug, and I'm sorry to hear of the confusion. My goal is to provide you with excellent service today. In order to give you a clear and concise answer, I will need some additional information about the circumstances, please.

1. Will you be physically working in California?

Doug

Customer: replied 1 year ago.


Yes. I am a resident of California and the Company (client) is located in California. The company (client) is VMware (http://www.vmware.com/) , which has its headquarters in Palo Alto, CA.

Expert:  LawTalk replied 1 year ago.

Good morning Katherine,

Thank you for the additional information.

We have an unusual situation here, in that CA has a law which strictly prohibits non-compete agreements with rare exception. And you, as an employee do not fall into an exception. The law is codified in California Business & Professions Code section 16600:

"Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

Other states do not have such protections for employees and NJ is one of those states. Here is where it gets interesting---and a bit confusing. When you, a resident of the state of CA with a non-compete agreement from an employer outside the state take a job in California for a California employer, while the CA courts will not enforce the agreement if you are sued in CA by the employer for an alleged breach of the agreement, there is the possibility that if you were sued in NJ for the same action that is legal for you to take in CA, that the NJ court might find that you breached the contract.

Now if you are a CA resident, and the job is in CA, and the only tie there is to NJ is that the employer is there---unless the contract you are being asked to sign specifically holds that any suit arising out of this contract will be subject to the laws of NJ, then you are probably in the clear and safe from a suit in NJ.

So, while it is unlikely that you could be personally sued for violating the non-compete agreement in CA, there is that possibility that you could be drawn into a suit in NJ---and that is just something that is an unknown at this point.

Here is an excellent article on just this dilemma that is faces by CA employers and employees when dealing with out of state employment contracts which include non-compete agreements:

http://www.cooley.com/showalert.aspx?Show=57476



As for the issue of whether you can become a full time employee for VMware, the contract between your employer in NJ and VMware almost certainly provides that VMware may buy you out from the employer by making a payment for you to be released from your contract with the employer. This is pretty standard in the industry.

However, there is also likely a clause in the contract between your employer and VMware that prohibits VMware from attempting to hire you without paying the release charges----and while this is essentially a similar non-compete agreement---between your employer and VMware not to hire you, because it is a contract between businesses, and does not involve any prohibition against what you may do---CA will enforce that agreement between the employer and VMware.

You can presume that the agreement with VMware contains preclusion from them hiring you for at least the 18 months that they are seeking to prevent you from seeking an independent hire with VMware. And so yes, that agreement, if it is as I suspect, would prevent VMware from hiring you during that 18 month period after you ceased working for them as a leased employee from the company in NJ.

I suspect that VMware is fully aware of their obligations when they contract with the NJ employer, as to what they must do, and pay, to be able to bring you in as their employee, and that if they say their intent is to move you into a staff position as soon as possible, that they are prepared to work an agreement out with your employer to release you. That is how these things work between the recruiter/employer and the companies who lease your services from the recruiter companies.

You may reply back to me using the Continue the Conversation or Reply to Expert link and I will be happy to continue to assist you until I am able to address your concerns, to your satisfaction.

Please remember to rate my service to you when our communication is completed.

I wish you the best in 2013,

Doug

 

LawTalk, Attorney
Satisfied Customers: 28001
Experience: I have 30 years of experience in the practice of law, including employment law and discrimination law.
LawTalk and other California Employment Law Specialists are ready to help you
Customer: replied 1 year ago.


You answered my question excellently.

I just called the third-party recruiter and said I was not comfortable signing the employment contract with the non-competition clause in it. They have agreed to take it out. Good news there.

However, based on your legal analysis and the fact that the only part of the contract I've received or been asked to sign is titled "Exhibit B" that there is probably an agreement in place between Artech and VMware pertaining to converting my contract to staff and buying out my contract with Artech.

Any agreement between Artech and VMware is beyond my control. I will have to trust that VMware has dealt with this situation before and is willing to take the necessary steps to convert me -- assuming they are pleased with my performance under the initial contract.

Thank you for your quick response. I will definitely rate your analysis highly in the website feedback area.

Expert:  LawTalk replied 1 year ago.

 

Hi Katherine,

You wrote: I just called the third-party recruiter and said I was not comfortable signing the employment contract with the non-competition clause in it. They have agreed to take it out. Good news there. That is great news!

And yes, if there is a similar agreement in the contract with VMware, it will be up to VMware to deal with it. However, once the clause is taken out of your contract---you are free to go to work for VMware and if VMware is sued by the recruiter---that is VMware's problem and presumably would not effect you.

Just a suggestion: If you are eventually offered a staff position with them, if possible, do negotiate an employment contract so that you are not an employee at will. That would give you the best job protection if they try to break their contract with VMware and they end up being sued.

I wish you the best in your new position!

You may reply back to me again, using the Reply to Expert link, if you have additional questions.

I wish you the best in your future,

Doug

Expert:  LawTalk replied 1 year ago.

Thank you for your positive rating of my service, Katherine . It has been my pleasure to assist you and I hope than you will ask for me on JustAnswer should a future need ever arise.

Please feel free to bookmark the following link so you can request me to answer any future legal questions you may have:
http://www.justanswer.com/law/expert-lawtalk/

Thanks again.

Doug

When you receive your Customer Satisfaction Survey from JustAnswer, please do rate me highly (9-10) there as well. It would be tremendously appreciated.

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