As Geekwire reported last week, a federal judge in Seattle has pretty much rejected Amazon’s recent attempt to restrict what a former Amazon Web Services sales exec might do in his new job at Google.
Amazon had been asking the judge to enforce the full scope of the noncompete covenants that the exec, Daniel Powers, had agreed to when he joined Amazon in 2010.
Instead, Judge Richard Jones ruled narrowly, ordering only that Powers not solicit Amazon customers for the next three and a half months.
Ironically, the way Google crafted a custom offer letter for Powers may have protected him from a more extended Amazonian reach.
That’s an inference one might draw from the fact that the duration of the restriction imposed by Judge Jones just so happens to coincide with the length of one of Google’s own, contractually imposed restrictions on Powers.
Here’s that Google-imposed restriction, as quoted from Judge Johnson’s order:
“[D]uring the first six months of your employment with Google, your activities will not entail participation in development of, or influencing, strategies related to product development in the areas of cloud compute, storage, database or content delivery networks products or services, other than to provide those involved in such matters with publicly available market research or customer feedback regarding Google’s existing products generated after you commence work at Google.”
We’re told Powers began work with Google on September 24, so six months from that date would take you into mid-March, 2013. To align the court’s restriction on Powers with that of Google’s, Judge Jones sliced — in half — the 18-month restriction that Powers had agreed to in his Confidentiality, Noncompetition and Invention Assignment Agreement with Amazon. Judge Jones then measured the nine-month quotient, not from Powers’ official AWS termination in July 2012, but from an earlier, June date at which Powers ceased to be exposed to nonpublic Amazon information.
By tying the scope of the injunction to what Powers agreed to contractually with Google, Judge Jones was, in effect, ratifying the reasonableness of Google’s approach. (I’ll bet customized offer letters like Google’s will catch on.)
Along the way, Judge Jones took note of Amazon’s failure to justify an 18 month restricted period:
“Amazon has not explained why it selected an 18-month period, nor has it disputed Mr. Powers’ suggestion that the Agreement he signed is a ‘form’ agreement that Amazon requires virtually every employee to sign. Because Amazon makes no effort to tailor the duration of its competitive restrictions to individual employees, the court is not inclined to defer to its one-size-fits-all contractual choices.”
I see four “takeaways” from Judge Jones’s ruling, one each for: companies looking to tie down employees; companies hiring employees dragging noncompete restrictions in tow; individuals contemplating signing such things; and companies based in Washington state looking for a bit of leverage on California-based competitors.
(1) Takeaway for companies looking to restrict what their employees may do in future for others
Take the trouble to customize noncompete clauses. Vary the duration of restrictions, if not case-by-case, then at least by some kind of employee classification.
And be selective about which employees you ask to wear handcuffs.
Attorney William Carleton, author of this post, is a member of McNaul Ebel Nawrot & Helgren PLLC, a Seattle law firm. He works with startups and emerging tech companies, their founders and investors. He posts regularly about tech-related legal issues on his blog.
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(2) Takeaway for companies on-boarding new employees who bring noncompete baggage with them
Google was shrewd to ask Powers to sign an employment offer letter that expressly forbade him to do certain things it foresaw Amazon would be sensitive about. Google set up what might be called an “inbound noncompete,” a special, transitional protocol at the outset of employment, designed to mitigate trouble from Amazon.
Typical industry practice today includes asking new hires to confirm they are not bringing, into the new job situation, any materials proprietary to a former employer. But Google went further than that and thought through the implications of Powers’ agreement with Amazon. More companies should do this at the on-boarding process. Don’t be satisfied with a boilerplate rep from the prospective hire, but ask her also to produce copies of agreements with prior employers. Then work through how any restrictive covenants are worded, and consider whether an “inbound noncompete” might be useful.
(3) Takeaway for individuals, pen in hand, confronting a dreaded noncompete clause
This advice applies — primarily but not exclusively — to individuals who reside in Washington and other jurisdictions where noncompetes are enforceable: be careful what you sign; if the contract contains restrictive covenants, those clauses may be a drag on the value you represent to a future potential employer. Don’t necessarily count on a judge throwing the noncompete out later; she is more likely to red-pencil the restrictions (edit them to make them less onerous) then void them altogether. Keep in mind, too, that not all potential future employers will have Google’s savvy and stomach for a fight.
I say “primarily but not exclusively” because, as the Powers case illustrates, courts in some circumstances may find that Washington law applies even to California residents. (True, the Powers case involves unique circumstances.)
(4) Takeaway for Washington-based employers, whose talent roster may be attractive to California-based employers
Even though Amazon seems to have fumbled in the Powers case, the next case may be different.
It’s not difficult to imagine what Amazon might have done to have the benefit of a more enforceable noncompete covenant from Powers. As noted above, Amazon could have tailored the duration of the restriction to better fit Powers’ role at AWS.
While Judge Jones is obviously no fan of noncompetes, he allowed that at least one of Amazon’s restrictive covenants “passes muster” under Washington law.
If Amazon follows the lessons implicit in Judge Jones’s order, and if his choice of law analysis holds weight with other courts, Amazon could impede the flow, at least marginally, of executives transferring from Amazon in Seattle to Google or other competitors in California. Google has no such opportunity to wield noncompetes to impede its employees from leaving Mountain View for Seattle.
The same reasoning would apply for any other Washington-based employer.
Further reading:
- Judge Jones’s order
- A key exhibit in the case
- Amazon’s original complaint (in state court; the case was later removed to federal court)
