Why Amazon’s Non-Compete Agreement Is Ridiculous [e170]

March 30, 2015

Nasir and Matt get together in San Diego and talk about outrageous non-compete agreement that Amazon had temporary employees sign.

Full Podcast Transcript

NASIR: All right. Welcome to Legally Sound Smart Business. My name’s Nasir Pasha. This is our podcast where we cover business in the news and add our legal twist. As you know, my intro is all messed up – because it’s usually perfect – only because Matt and I are recording in the same room in sunny San Diego on top of the Symphony Towers at the University Club.

MATT: Yes, and a longer table than before.

NASIR: Yeah, a nice and long boardroom. I’m looking out towards the east, towards Balboa Park area, kind of.

MATT: I’m just looking at the wall for whatever reason.

NASIR: Well, yeah, well, you’re in San Diego so you get to have the views all the time. I need to let it sink in a little bit.

MATT: That’s true.

NASIR: It’s been a while.

MATT: I can see Petco Park, a plane, Coronado Bridge, businesses.

NASIR: Legally sound smart businesses? By the way, what did you think about pashalaw.pizza?

MATT: You said that to me. I didn’t think it was a real thing.

NASIR: It’s real.

MATT: Hold on.

NASIR: I thought you were just joking as if you didn’t think it was real. No, it’s real.

MATT: Uh, man, this is actually pretty funny.

NASIR: It’s a good time to talk about. All these top-level domain names are still coming out. I love it. Pretty much pick a noun and it’s available or it’s going to be available soon.

MATT: Ah, and this just links to all the podcasts that we’ve had that have mentioned, have a tag of pizza?

NASIR: Yeah, pretty much.

MATT: Actually way less than I expected.

NASIR: I was going to do a link that just searches “pizza” but then that would have been way too many because, for example, this one, just by saying “pizza,” now is on that list because of our transcript.

MATT: Oh, okay. I was going to say that makes sense because I know it’s definitely been…

NASIR: Actually, we’ll change that.

MATT: The four that are on here are all titled with “pizza” in the title so I guess that’s why.

NASIR: Yeah. In fact, actually, I’m going to just change it now as we’re talking.

MATT: This photo is so funny. This pizza looks pretty good, too.

NASIR: It’s the Pasha Law brand. By the way, it does search all pizza anyway.

MATT: Does it?

NASIR: Yeah.

MATT: Okay.

NASIR: All right. Everyone enjoy that. And that’s our show!

MATT: I really thought you were joking this whole time. Can’t even go on, but we’re going to have to go on because we have a pretty interesting topic for today. We’ve talked about… Actually, I think Amazon was maybe one of the first companies we’ve…

NASIR: Oh, someone’s breaking in. Someone almost broke into our podcast, probably a fan.

MATT: Yeah.

NASIR: I appreciate you guys listening in but, you know, you have to give us space to record.

MATT: Take the unruly fans outside – same unruliness that former employees of Amazon are going through with this non-compete that they’ve had to sign off on some of them to get severance pay. Also, that’s temporary workers, nonetheless. So, basically, you know the deal with Amazon, they sell anything and everything online, they have people that work for them in the warehouse and take the products and put them in boxes and, you know, make sure they go to the right people. A lot of these are seasonal jobs – around Christmas time’s big, that’s probably the most seasonal one. But they’re having some of these employees – maybe even all of them – sign this 18-month non-compete agreement which, all right, that’s ridiculous right off the bat.

NASIR: Yeah.

MATT: What’s it preventing them from doing? Amazon bars their former employees from working for companies with products or services that compete with Amazon’s. So, that’s pretty much as broad as you can get. Just looking at the words, it’s broad, but knowing what Amazon does, it’s so overly broad. I can’t imagine any court upholding this sort of – not even in California, just in general. It has to be within reason.

NASIR: Well, the thing is that these warehouses are usually in remote areas where there’s not many employment options anyway. By the way, another thing is these aren’t like high-paying positions. I guess this article says maybe around $12.00 per hour. It’s hard to tell exactly how much this is. And this is a leak, by the way. I don’t think this is meant to be viewed by us, the public.

MATT: Oh, yeah, it’s supposed to be a secret.

NASIR: We’ve talked about non-competes in general in the past. But take the law side for a second, from a conceptual perspective, it seems very tough to have to ask an employee, a low-level employee that, “Okay, if you leave, you’re no longer going to be able to work with any of our competitors for the next 18 months.” That sounds bad but, if you’re in the middle of nowhere and working for Amazon and you lose your job there, then how likely is it that you’re going to go to a competitor and who would the competitor be?

MATT: Well, that’s the thing. The way this was worded. I mean, any companies that sell products or services that compete with Amazon’s.

NASIR: Yeah.

MATT: The services part is a little weird because I don’t think there’s… it’s pretty product-based.

NASIR: They sell – well, the big thing I think Amazon does, the web server – AWS, whatever it’s called, Amazon Web Server – that’s pretty popular amongst all the startup companies nowadays.

MATT: Yeah, so they talked about one person, this one woman who was really concerned about this, and she’s been asking permission before seeking a job with someone like Walmart or Sam’s Club. I mean, I don’t see anything in here that’s seeing Amazon trying to enforce these. Like, there’s no way they could just enforce it.

NASIR: There is this last part of the sentence which is a little subtle. It says, “Employee 18 months can’t work for competitors for certain products or services, et cetera, that the employee worked on or supported or about which employee obtained or received confidential information,” and this is the caveat to this entire non-compete is that they do narrow it down to employees that are receiving confidential information that they don’t want to go directly to a competitor. From my perspective, from just a public policy perspective – and I didn’t make this up – this is also the stance of California and many other states is that, okay, non-competes, we’re not going to tolerate. However, if it is in connection with the keeping confidential information secret, then it’s tolerable. Now, I’m not saying this is going to be eligible in California. I’m just saying there is a connection to that non-confidential information.

MATT: Yeah. I mean, I guess that is what they’re concerned about that, as they call it, the back-end operations of Amazon. But, I mean, what their products are coming down a conveyor belt and people are taking them and putting them into a box, I guess there’s obviously some method to the madness but it’s not like they’re… Actually, one of my best friends works for, has worked for Amazon, the past two winters for seasonal jobs. I should ask him.

NASIR: He probably couldn’t tell you. It’s probably confidential but the disconnect I think we have is, if it’s a low-level employee. Now, here’s the question. Maybe, just to give Amazon the benefit of the doubt, maybe this is just part of a standard clause from a policy perspective, company policy perspective. They don’t really consider enforcing it unless the particular employee actually does have some secret confidential information and then goes to a competitor and it’s kind of just a probe – you know, something to discourage employees from doing that.

MATT: Yeah, that’s definitely possible.

NASIR: From Amazon’s perspective, it’s very easy. I mean, obviously, this is a great way to exit. But, from the employee’s perspective, they’ll say, “We can do that through just a non-disclosure agreement.”

MATT: I look at it this way from the employee’s perspective. A lot of them are temporary workers so, obviously, people that are really hurting to find a job. I think they sign this and couldn’t care less about it and they’re not going to think twice. Also, all right, let’s say someone does that, let’s say one of these people gets a job with Target and, you know, overlaps with the non-compete, Amazon’s not going to know. They’re not going to spend time going after these people and finding out.

NASIR: No.

MATT: The non-competes are supposed to be for people basically anyone with high-end knowledge or, for smaller companies, people that really know things or high-level execs, stuff like that – not these temporary workers.

NASIR: The thing is, I don’t even think this would apply, like, if this was somebody that just worked in the warehouse and just was – I don’t know what they do – package or whatever and then they quit or was terminated somehow and they worked for Walmart that it would violate this non-compete necessarily. But, if you look at this particular article, they interviewed one woman who works out at one of Amazon’s warehouses during the holiday season and took this agreement pretty seriously, saying that she would ask permission before seeking a job with a retailer like Walmart or Sam’s Club, and I’m quoting from a Consumerist article. And so, from an employee perspective, if they understand this agreement to be that way, it’s doing its job, right? Already, your employees are concerned. “Hey, if I leave, now I can’t even go to Walmart. I have to ask my previous boss’ permission.”

MATT: Oh, whoever wrote this article could have asked around and had a bunch of misses because the people that really, I mean, the person that said this for this article is not going to care because she has abided by the non-compete. It’s all the people that are skirting it that probably don’t want to say, “Yeah, I’ve…” you know.

NASIR: It’s a little surprising. I’m surprised to see that from Amazon.

MATT: 18 months, I mean, that’s a long time as well.

NASIR: Again, it sounds like a non-compete designed for an executive, not a low-level employee.

MATT: Yeah, that’s what I was really getting to and that’s where the importance is. I can’t see, assuming these are the people that are in the warehouse, I can’t see them taking any sensitive knowledge that’s really going to affect Amazon. I mean, their market share in this has to be massive anyways. It’s not going to do anything.

NASIR: What do you think about this contract even getting public? I mean, most of these contracts have a confidentiality clause in itself making the terms of the agreement confidential. So, releasing it to the public is a violation in itself.

MATT: You can’t prevent robots from letting contracts seep out into the public.

NASIR: You think this is a robot?

MATT: Yeah, probably.

NASIR: It’s probably a robot employee.

MATT: It was the conveyor belt.

NASIR: Does that change your mind? If a robot signs a non-compete, do you think that should enforceable? That’s the real question here.

MATT: Probably, yeah.

NASIR: I think so.

MATT: Yeah.

NASIR: You know, I think if another competitor started using the robot, that would be theft. That’s my opinion. I mean, I’m not a robot legal specialist.

MATT: Most people aren’t.

NASIR: Most people aren’t. That’s true.

MATT: I’m trying to think of some nuts and bolts joke. I didn’t know if you would put it together of robots, like, nuts and bolts.

NASIR: I usually just laugh and pretend I know what you’re talking about, honestly, and hopefully you’re making a joke.

MATT: I’m doing the robot.

NASIR: Actually, Matt is doing the robot right now in the boardroom. Okay. So, bottom-line is another non-compete going overboard. Non-competes are important, again, when you’re working with high-level employees. In Texas, we come across this all the time where, you know, we may have a non-compete either the client’s hiring somebody that may have one or vice versa, someone that’s leaving. And, if it’s a low-level employee, even if it’s an enforceable thing, it’s like, “Do you really want to go through the trouble of enforcing one?” but there are some advantages, especially if you’re in a state that is enforceable, just to have it in there to have that option because what you don’t want is somebody literally going across the street and marketing to the same exact clients that they were before or taking some of your trade secrets and setting it off. So, there are reasons to do that but, when it comes to actually enforcing, that’s a separate issue.

MATT: Also, one thing about this too, it didn’t limit it to geographically limit.

NASIR: No, it didn’t. Some states requires that it should be narrowly construed or reasonably construed both in geographic terms by time and also the subject matter that’s actually prohibited but it’s not. It’s a very loose standard because it depends upon the situation. So, in theory, it is possible to have enforceable non-compete that has no geographical restriction. However, it depends upon the exact circumstance. So, here Amazon would argue, well, since Amazon is all over the world, it’s not about them working for a company across the street. It’s about anywhere would be a threat to the confidential information they’re trying to protect.

MATT: Bingo.

NASIR: Bingo! B-I-G. And then, O, right?

MATT: You didn’t say N.

NASIR: Did I not? Oh, yeah, B-I-G, B-I-N-G-O.

MATT: B-I-G-G-O.

NASIR: B-I-G-G-O. Well, I’m looking at this big red boat.

MATT: Yeah, I noticed that.

NASIR: It’s a little distracting because the Coronado Bridge is high enough so that these big boats can go underneath.

MATT: It looks like a pretty big ship.

NASIR: I can’t remember, there’s something unique about it. I don’t think there’s a lot of bridges like that. it doesn’t open up or anything like that. But we met with Will today, he said the bridge is sinking.

MATT: No, I said that.

NASIR: Oh, you said that? Oh, okay. I think Will was in denial that it was.

MATT: Well, I don’t know, either it’s sinking or it’s just not structurally sound.

NASIR: Actually, I do remember when I was living here, my mom said not to drive over that bridge because she read some article about it. All right. Well, thanks for joining us for our Monday episode and I’m in San Diego recording for another two episodes so this is, as you know, it just gets crazy when we’re doing it live together so tune in this week.

MATT: All right. Keep it sound and keep it smart.

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Legally Sound Smart Business

A business podcast with a legal twist

Legally Sound Smart Business is a podcast by Pasha Law PC covering different topics in business advice and news with a legal twist with attorneys Nasir Pasha and Matt Staub.
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