Last September, Kai-Fu Lee finally went to work, two months after Google hired him to set up a research-and-development office in China. The holdup? Lee had signed a noncompete agreement with Microsoft, his previous employer, and Microsoft had sued Google to restrain his employment. A Washington State judge subsequently ruled that Lee could start working at Google, as long as he didn’t get involved with products or services that he focused on at Microsoft — including search technology — or perform certain tasks associated with Google’s China operations.
Like Microsoft, many employers use noncompete agreements to prevent their researchers and top salespeople from working for competitors for a period, typically no longer than two years, after leaving the company. Increasingly, noncompetes are popping up in finance executives’ employment contracts as well. “I think they are becoming more and more common,” says David Tehle, CFO of Dollar General Corp., a discount retailer based in Goodlettsville, Tennessee, with $7.7 billion in sales. Tehle signed a noncompete upon joining Dollar General last year and had a similar agreement with his previous employer. All of the top officers at Dollar General, including the controller, have noncompete contracts.
“I see noncompetes fairly often among CFOs,” says Mark D. Pomfret, a partner at Kirkpatrick & Lockhart Nicholson Graham LLP in Boston. “CFOs have knowledge of very important company interests, such as confidential financial and personnel information, and noncompetes are one of the most important tools that an employer can use to protect those interests.”
Says Kim Drapkin, CFO at drug developer Predix Pharmaceuticals, an early-stage company in Lexington, Massachusetts: “I’d be hard-pressed to believe that in our industry, a CFO would be offered a job without being asked to sign a noncompete.”
Employment experts advise CFOs not to treat such provisions lightly. Linda M. Doyle, a partner with law firm McDermott, Will & Emery in Chicago, says executives frequently spend more time thinking about other parts of their employment contracts (such as compensation provisions) than about the noncompete clauses. “All too often they don’t appreciate the [noncompete] in terms of its enforceability,” she says.
Pomfret says he has seen an increase in the number of companies trying to enforce noncompetes. “While only a small percentage [of noncompete cases] may go to outright litigation, they can be very expensive and time-consuming actions when they do,” he says.
The best time to challenge a noncompete provision is before accepting the job. “If there’s a condition that seems overly restrictive, you want to negotiate that up front and clarify any vague or broad terms so that you know what you’re getting yourself into,” says Pomfret. Doyle says she has seen executives walk away from job offers because they’ve rejected the terms of a noncompete.
Tehle, for one, didn’t hesitate to sign his agreement upon joining Dollar General. “At the CFO level, I think having a noncompete is a recognition of the importance of the job and an acknowledgment that you really are a strategic business partner within the company,” he says.