Soda Pop Libertarian Challenge #2

[Antilogic]

Building off of JollyRoger's first thread, let's take a look at everyone's favorite dudes, the small-business entrepreneurs, and some of the challenges they might face leaving a company and starting one of their own.

There are three cases where entrepreneurs try to start a new company: (1) when they finish their education and before they enter the workforce, (2) while unemployed/between jobs, or (3) while on the job at a parent company. While in all three cases entrepreneurs must collect the necessary capital, expertise, and overcome other barriers to enter the market, the person in the 3rd case is at a unique disadvantage. When a prospective employee accepts a job offer from a company, he or she may be asked to sign any number of employment contracts. The purpose of these contracts is to provide a legal framework for preventing the employee from stealing trade secrets or otherwise acting against the interests of the company while and after being employed. Some common clauses in employment contracts are listed below:

1. No-moonlighting clause: An employee is not allowed to engage in business activities not related to his job with his employer, even in off-hours. From the company's perspective, this is a loyalty thing--if I'm paying your salary, you shouldn't be killing my business in your free time.
2. Non-competition agreement: An employee, after being discharged from the company, is not allowed to work in a similar business for a specified period. There are three components here: a time period, which specifies how long and could last for years; a geographic specification, which means they may not be allowed to compete where their employer's business operates, and a function, which means the employee may not compete in the employer's primary area but could go work in an unrelated industry.
3. Non-disclosure agreements: An employee may not take information from his employ in the company that is protected as a trade secret and use it to set up a competing venture. Since trade secrets are not protected by patent law, companies use NDAs to try and prevent their secrets from becoming common knowledge in the industry.
4. Invention assignment agreement: An employer may require the rights to all patentable material, inventions, and knowledge gained by an employee while working for the company to be assigned to the employer. The argument here is that the company purchased the equipment and provided the environment to develop the invention, therefore they should receive the benefits of the invention.

This is already a long OP, so instead of putting my take out there, I'll just ask the question. Libertarians and statists, anarchists and commies, and everybody else, where do you stand? Does the freedom to engage in restrictive employment contracts reign, or should entrepreneurs be able to freely form new companies and compete on the market even if they were employed elsewhere? How do employment contracts square with individual liberties if it prevents employees from competing with their former employers?

 

[galdre]

the no-moonlighting clause should not be allowed - what a person does with their free time is up to them

I can understand a non-competition agreement during the time a person is employed with a company but that should end when the person leaves.

don't see anything wrong with the non-disclosure agreement - of course I don't know how broadly it is applied in practice

I've got conflicting feelings about inventions; yes a company provides the resources to enable a person to come up with an invention, but does that mean the person should have no rights to its patent? Seems to me it should be shared. As for knowledge gained that is the property of the one who gains the knowledge

 

[JollyRoger]

I would like to add another concept - the change of the work "contract" in a right-to-work state such as Texas. Let's say that the employer was not clever enough to force a non-compete agreement on you at employment or had you sign one, but without ideal-for-the-employer clauses. Let's take a forced arbitration clause. With such a clause, the employee cannot sue the employer in a court of law, but must take his claims to an arbitration board.

Let's say that the employer has a form for the employee to sign to acknbowledge this change, but for an employee that does not sign the form, he will be deemed to have accepted the change by showing up for work on the day the new clause is to take place. What if the employee sends a communication to the employer saying he rejects the clause and method of acceptance of the clause, shows up for work, and the employer does not fire him. Is it fair for him to get kicked out of court in a later lawsuit by the court claiming he had accepted the arbitration clause?

 

[ParkCungHee]

[*]Invention assignment agreement: An employer may require the rights to all patentable material, inventions, and knowledge gained by an employee while working for the company to be assigned to the employer. The argument here is that the company purchased the equipment and provided the environment to develop the invention, therefore they should receive the benefits of the invention.
[/LIST]

What's the copyright equivalent to this called?

 

[Cutlass]

I think this is really just another indication of the unbalanced power relationship between labor and employers. If employees had more power, they wouldn't accept these terms. But because of the power relationship, employers can impose whatever terms suit them.

 

[JollyRoger]

Some additional thoughts on the opening post - these clauses are generally placed in a contract because the default rule enforced by courts is the opposite.

Is it ok for the state to be a bit heavy-handed and make it more difficult to contract around the default? For example, should some clauses be required to be in bold and underlined and separately initialed for them to be effective? Would it be wrong for a state to make such a rule? Is it more justified to impose such a rule on comapanies taking advantage of state charters (corporations and limited liability companies rather than sole proprietrships or general partnerships)? Is it fair for a state to enforce limitations on the scope of such clause (enforcing a local non-compete but not a national one)? Is is fair for the state, when it encounters a clause that is too broad in scope to blueline it to the reasonable standard? What about penalize the drafter by not enforcing the clause at all rather than reducing it to its legal scope?

Should contracting around default rules be more difficult in power-imbalance situations (employer-employee, retailer-consumer) than between those that have relatively equal sophistication and negotiation power (big businesses contracting with each other and both lawyering up for the drafting and negotiaion process)?

 

[warpus]

No-moonlighting clause: An employee is not allowed to engage in business activities not related to his job with his employer, even in off-hours. From the company's perspective, this is a loyalty thing--if I'm paying your salary, you shouldn't be killing my business in your free time.

Unless you're an unlicensed prostitute, this should just not be allowed..

Invention assignment agreement: An employer may require the rights to all patentable material, inventions, and knowledge gained by an employee while working for the company to be assigned to the employer. The argument here is that the company purchased the equipment and provided the environment to develop the invention, therefore they should receive the benefits of the invention.

I actually have experience with this in my line of work (as a web developer and creator of web-based software)

My position is this: Whatever I create on company-time belongs to the company. During this time I am being paid for my services - so whatever I create belongs to the person paying me. Once I am off the clock and no longer being paid, whatever I create belongs to me.

The exception would be if I stole something that was patented or copyrighted by my employer and put that in my software without permission.

My employer is very lax.. I can take something that I've built at work, copy the code, "re-build it" on an outside server, and sell it to third parties. The only thing my employer doesn't allow me to do in this situation is to sell it to an entity within the scope of my employer.. So.. for example.. if I wanted to sell some scheduling software that I built at work to another department at the same organization. The reason for this is that it creates a conflict of interest, since my employer has a competition clause when it comes to the purchase of products and services from outside sources. I can't be both an employee and an outside third party in a contract, since I could then theoretically unfairly skew the selection process in my favour from the inside.

This is the only limit @ my work, but I would totally not be against them tightening the rules a bit and not allowing me to copy code at all.. If I re-build something piece by piece by building it from scratch again though - that should be allowed, as long as I don't do it to any patented or copyrighted pieces.

 

[GoodGame]

This is already a long OP, so instead of putting my take out there, I'll just ask the question. Libertarians and statists, anarchists and commies, and everybody else, where do you stand? Does the freedom to engage in restrictive employment contracts reign, or should entrepreneurs be able to freely form new companies and compete on the market even if they were employed elsewhere? How do employment contracts square with individual liberties if it prevents employees from competing with their former employers?

Well obviously all of the above falls under individual rights, and currently one is fully free to follow any of the above paths. One has the right to refuse to sign one at the start of employment. One has the right to put aside a small nest egg and try consulting. One has the right to seek alternative ways of gaining experience such as non-profit or governmental positions. Another alternative is to network through academic connections (e.g. fellow students and professors) and try to get in on an incubator business associated with a school or government-subsidized park; just having bought Zork from GOG.com and reviewing the history of Infocom, I'd say they fit that mold.

The bigger material problem is the cost of becoming a qualified employee in a high tech sector, in which there is more room for entrepreneurial spirit, is rather high. That alone tends to force people to accept such contracts to pay back the cost of attaining the education needed to be an entry-level employee.

The reality is reality isn't free. Not even the production of ideas.

 

[ParkCungHee]

Unless you're an unlicensed prostitute, this should just not be allowed.

Depends on the job. It's fairly standard and unobjectionable in the comics industry, for example.

 

[Antilogic]

I would like to add another concept - the change of the work "contract" in a right-to-work state such as Texas. Let's say that the employer was not clever enough to force a non-compete agreement on you at employment or had you sign one, but without ideal-for-the-employer clauses. Let's take a forced arbitration clause. With such a clause, the employee cannot sue the employer in a court of law, but must take his claims to an arbitration board.

Let's say that the employer has a form for the employee to sign to acknbowledge this change, but for an employee that does not sign the form, he will be deemed to have accepted the change by showing up for work on the day the new clause is to take place. What if the employee sends a communication to the employer saying he rejects the clause and method of acceptance of the clause, shows up for work, and the employer does not fire him. Is it fair for him to get kicked out of court in a later lawsuit by the court claiming he had accepted the arbitration clause?

I think another question that was brought up offline was whether or not this could be considered cause for firing the employee, and if this was a just reason to do so. If the employee was hired under one contract but then the employer tries to pull a "bait and switch" of sorts, what recourse does the employee have?

What's the copyright equivalent to this called?

I don't know off the top of my head, but I suspect the language for an employment contract is similar. I'd hazard a guess that copyrights are easier to implement over patents because the copyright gives the holder a right to produce copies the work, as opposed to patents which give the holder the right to prevent anyone else from using the work.

Where the copyright distinction gets interesting is in the computer software business, which generally falls under copyright protection rather than patent protection (the analog would be a set of written instructions published in a book, for example).

I actually have experience with this in my line of work (as a web developer and creator of web-based software)

My position is this: Whatever I create on company-time belongs to the company. During this time I am being paid for my services - so whatever I create belongs to the person paying me. Once I am off the clock and no longer being paid, whatever I create belongs to me.

The exception would be if I stole something that was patented or copyrighted by my employer and put that in my software without permission.

I'll assume we are talking about more mainstream occupations than prostitution.

A question: say you leave a company because you've been working on code in your free time, and you want to commercialize it. How do you prove that you did not think about your own code on company time? How can you prove that the code was exclusively developed using your own resources?

Well obviously all of the above falls under individual rights, and currently one is fully free to follow any of the above paths. One has the right to refuse to sign one at the start of employment. One has the right to put aside a small nest egg and try consulting. One has the right to seek alternative ways of gaining experience such as non-profit or governmental positions. Another alternative is to network through academic connections (e.g. fellow students and professors) and try to get in on an incubator business associated with a school or government-subsidized park; just having bought Zork from GOG.com and reviewing the history of Infocom, I'd say they fit that mold.

The bigger material problem is the cost of becoming a qualified employee in a high tech sector, in which there is more room for entrepreneurial spirit, is rather high. That alone tends to force people to accept such contracts to pay back the cost of attaining the education needed to be an entry-level employee.

The reality is reality isn't free. Not even the production of ideas.

Academia has versions of these employment contracts as well. Most universities require the patent rights to any invention developed by the individual to be handed over to the university unless they can prove the invention was developed using exclusively personal resources. This places a massive burden of proof on the individual and none on the institution, which basically claims the individual's IP by default.

While high-ups in companies (like CEO/CTO/CFO level) have some leverage to negotiate terms of their employment, the lower down the totem pole you go the less ability you have to negotiate because there is simply not any leverage the applicant can bring to the table. Employers have every right not to hire you if you do not sign the contract, and since these clauses are designed to protect the employer they are not likely to waive them lightly.

Consulting is interesting for another reason--if I am hiring you as a consultant, I'm essentially paying you to provide me with insider information to get a leg up on the competition (i.e. I'm paying you for a trade secret). The consultant, while prohibited from disclosing details on other companies at the risk of violating NDAs, still draws on specific expertise that is acquired through experience with the prior companies they worked with.



Globalization has caused shifts in these sorts of agreements, especially with regards to non-compete agreements. Geographic restrictions were usually in a national or regional market, but it is not uncommon to find a global restriction clause, i.e. you cannot work anywhere in the world in this industry. On the plus side, since technology is rapidly changing in high-tech fields, the length of time the contract is in effect is generally decreasing. 3 to 5 year non-competes used to be far more common than they are today, some are as short as a few months to a year.

 

[Yeekim]

[*]No-moonlighting clause: An employee is not allowed to engage in business activities not related to his job with his employer, even in off-hours. From the company's perspective, this is a loyalty thing--if I'm paying your salary, you shouldn't be killing my business in your free time.

I think this is a contractual freedom issue entirely.

[*]Non-competition agreement: An employee, after being discharged from the company, is not allowed to work in a similar business for a specified period. There are three components here: a time period, which specifies how long and could last for years; a geographic specification, which means they may not be allowed to compete where their employer's business operates, and a function, which means the employee may not compete in the employer's primary area but could go work in an unrelated industry.

With regards to certain industries and positions, a company that doesn't insist on such clause is downright suicidal.

[*]Non-disclosure agreements: An employee may not take information from his employ in the company that is protected as a trade secret and use it to set up a competing venture. Since trade secrets are not protected by patent law, companies use NDAs to try and prevent their secrets from becoming common knowledge in the industry.

Same as previous.

[*]Invention assignment agreement: An employer may require the rights to all patentable material, inventions, and knowledge gained by an employee while working for the company to be assigned to the employer. The argument here is that the company purchased the equipment and provided the environment to develop the invention, therefore they should receive the benefits of the invention.

Not fair, imho. Actual inventor should be guaranteed a share of the benefits (half?), and I would go as far as legislating any contract to the contrary as unenforceable.

 

[really]

No-moonlighting clause: An employee is not allowed to engage in business activities not related to his job with his employer, even in off-hours. From the company's perspective, this is a loyalty thing--if I'm paying your salary, you shouldn't be killing my business in your free time.

I have no particular problem with this - my employer pays me to work for him and expects me to give my undivided attention to the work.

If I am tired in work because I was working late on a second job then my employer would be right to be annoyed.

Equally if it were a hobby, volunteer work or whatever that was interfering with my work he would be entitled to be annoyed.

Separately here in Europe this clause can be used to be sure the employee isn't breaching working time laws. (working too long can be bad for health, safety etc)

[please ignore the fact that I am posting this from work]

 

[GhostWriter16]

the no-moonlighting clause should not be allowed - what a person does with their free time is up to them

I can understand a non-competition agreement during the time a person is employed with a company but that should end when the person leaves.

don't see anything wrong with the non-disclosure agreement - of course I don't know how broadly it is applied in practice

I've got conflicting feelings about inventions; yes a company provides the resources to enable a person to come up with an invention, but does that mean the person should have no rights to its patent? Seems to me it should be shared. As for knowledge gained that is the property of the one who gains the knowledge

I'm a bit more iffy on it but I tend to agree with you on 1-3. (total agreement on 2 and 3, partial agreement on #1) but I've got no problem with an employer keeping the benefits of things invented on company time.

 

[downtown]

These are fairly common in both of my industries.

Without non-competes, I'm not sure how any staffing agency could function. Every recruiter is going to develop relationships with his clients, and no firm could compete with guys walking out and undercutting every time they set up a hire. Every firm I've ever worked for has prohibited me from working with any of my clients for at least a year, and I think that is more than fair.

Media companies have all sorts of employment restrictions as well. My current employer is pretty lax, but I am required to let them know every time I publish for anybody else, and I can't write about my primary subject matter for any other publication. I've turned down employment opportunities because overly restrictive non-compete/non-moonlight clauses. In the new age of internet publishing, you really can't promise all of your work to one company unless they pay you a LOT, but lots of folks, like Bleacher Report or the Huffington Post, certainly try.

I think all of those should be allowed though. A worker is free to not sign them.

 

[mangxema]

What does this have to do with soda pop?

These all sort of relate to each other. I think it's reasonable for the employer to want to protect itself and its critical knowledge against defectors. I do think that if an employer pays you to think and make stuff, and you come up with an idea that they could use, they should have first dibs on it. However, if they don't act on it, you should be able to, and what happens outside their market is really none of their concern. I can understand not wanting employees to siphon work away from the company, but if someone has a side business making websites or furniture or whatever, I don't see why the company should care at all.

I think all of those should be allowed though. A worker is free to not sign them.

The thing is, if everyone does it, then workers just have to take it. Granted, this is not as onerous as long shifts in a dangerous factory, but still...

 

[illram]

If you are a real free market Libertarian, you have to be OK with all of these agreements. Freedom to contract is paramount to big L Libertarianism.

Ron Paul:

Today the lack of understanding and respect for voluntary contracts
has totally confused the issue that in a free society an individual can own and
control property and run his or her business as he or she chooses. (p. 17)

In my communist hellhole of California, non-competes are illegal as an unlawful restraint of trade. That sentence would probably make Rothbard's head explode.

 

[GhostWriter16]

I can really see both sides on some of these, but I think I tend to agree they should be allowed.

 

[JollyRoger]

I can really see both sides on some of these, but I think I tend to agree they should be allowed.

I agree they should be allowed, but that it should be harder and more risky for an employer to contract around the default (of these things not being in place) or change it unilaterally (where the only way to not agree with a change is to quit).

 

[warpus]

Depends on the job. It's fairly standard and unobjectionable in the comics industry, for example.

Really? I suppose I'd have to educate myself on the details, but it does not sound like something I'd support.

So say someone pays me to draw a weekly cartoon strip for them about a character named Fred who eats tacos.. the standard in the industry then is that I couldn't go home and draw a comic about Mary & her pig and their adventures, and sell that to somebody else?

question: say you leave a company because you've been working on code in your free time, and you want to commercialize it. How do you prove that you did not think about your own code on company time? How can you prove that the code was exclusively developed using your own resources?

Nobody owns my thoughts by me, to answer your first question. As for the resources, the onus would be on whoever was suing me (presumably my ex-employer) to show that I specifically used their resources to work on the project.

 

[GhostWriter16]

Nobody owns my thoughts by me, to answer your first question. As for the resources, the onus would be on whoever was suing me (presumably my ex-employer) to show that I specifically used their resources to work on the project.

I agree with you, actually.