Employees Sue Over Rights as More Firms Require Noncompete Contracts

As a sales representative for Aetna US Healthcare in Los Angeles, Joyce Walker, 57, never thought she had a particularly “sensitive” job. To the contrary, as a member of the team that sold the company’s HMO to senior citizens, she thought she was simply putting a human face behind the company’s publicly available literature.

“We would meet with seniors in their homes or do presentations in restaurants, senior centers, doctors’ offices and retirement homes. We just basically told them how the plan worked and what the benefits would be. There was nothing you couldn’t get in a brochure,” she said.

But last spring, after she had been at Aetna for four years, her boss told her her work was indeed sensitive, that she had access to “proprietary information,” and that to keep her job she would have to sign a noncompete contract. Aetna said that should she leave the company, she would have to pledge not to work for any Aetna competitor in California for two years or any Aetna competitor elsewhere for six months. Aetna gave her 30 days to sign, and when she refused, she was fired.

Now Walker and 12 of her former co-workers are suing Aetna for wrongful termination and age discrimination. Walker says she didn’t have access to proprietary information. She also contends it was illegal to make her continued employment contingent upon signing, regardless of what she knew. She and the 12 others say the company sought to make them sign not because of their access, but because it wanted to force them out and replace them with younger and cheaper employees.

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Aetna won’t comment about the case specifically because it is in litigation, but it said it stands by its decision to make Walker and others sign noncompetes, calling them “a critical component” of the company’s ability to stay competitive.

Spokeswoman Joyce Oberdorf said the noncompete agreements went out to 2,000 employees nationwide and that all but 100 signed. “We used to be the No. 3 company in our field, but the merger [of Aetna with US Healthcare last year] made us No. 1, and we had to reconsider some of our strategies,” she says. Moreover, “we had seen some raiding on the part of our competitors in some geographic areas.”

At a time when U.S. unemployment is at its lowest level in 24 years, moving from job to job ought to be the easiest it has been in a generation. Ironically, however, more American workers are finding they have less freedom to move, because companies are increasingly making every employee but the janitor sign away the right to leave for a better offer, either as a condition of keeping their jobs or of getting them in the first place.

Patricia Hill, a Florida attorney who represents employers, says she now drafts one noncompete agreement a week, compared with one or two a month seven years ago. And whereas she used to draft them just for top executives of large companies, now companies of all sizes are coming to her.

“It’s across the board,” Hill said, “companies as small as 35 employees. I see it for lots of high-tech companies. I even got a call from one of those tire repair places. The owner said he was getting sick and tired of his guys moonlighting and picking up his clients.”

Denver attorney John Culver, who usually represents employees, says companies have become particularly protective of their sales staffs. “Three years ago, it was just people who sold technical, highly specialized products. Now they can sell anything and they have to sign.”

He has also seen a wave of noncompete agreements for veterinarians. Another attorney says that even once-stodgy electric utilities, now facing the vicissitudes of competition, have begun to use the agreements.

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Noncompetes are hardly new. Historians say the first one dates to 1879 and involved a dental practice. And they have long been demanded of high-level executives, especially in information-driven industries such as high technology. They are also a staple for radio and TV anchors, since on-air personalities can take viewers and all-important ratings if they jump ship. But these people usually get something in return for signing, such as a bonus. Also, many contracts stipulate that the employee will be paid even if fired.

But labor lawyers say employers aren’t being nearly as generous with the rank and file. These employees are now often presented with a contract to sign as a condition of employment or continued employment, with nothing offered in return.

Lawyers say employers figure that these workers’ need for a steady paycheck will keep them from dickering over what many would call onerous terms. Indeed, even if they wanted to, most employees lack the leverage to make any set of demands stick, and few can afford decent legal representation.

Connecticut labor lawyer Judy Rintoul says this is usually where trouble starts. “Most of the people being asked to sign them are not wealthy people who can sit around and do nothing for two years [without pay]. And most people don’t think about the fact that after they sign these noncompetes, they could be fired.”

The result is that employees sign because they need the job, without regard for the constraints they put on themselves. The result increasingly seems to be labor disputes that end up in court.

Donna Kephart, a Florida toupee stylist, was one of the lucky ones. Earlier this year, she successfully defended herself against a lawsuit by her former employer, the owner of the Fort Lauderdale Hair Club. He sued her for stealing clients, even though he had fired her. The court found that Kephart hadn’t solicited clients.

After nearly a decade of record layoffs in corporate America for the sake of efficiency, it may seem strange that any company would take steps to keep employees from leaving. But lawyers say the thinking is quite straightforward: In a booming, increasingly global economy where skilled workers are becoming harder to find, part of staying competitive means keeping talent out of competitors’ hands and not wasting time filling jobs. This has become particularly important in so-called information industries such as software, where the assets of a corporation are the brains and knowledge of its people.

One attorney said companies are increasingly viewing their skilled workers the way they used to look at formulas for paint and steel--as secret, non-poachable assets. David Versfelt, a corporate attorney in New York, goes even further. He says it’s the result of all the cutbacks during the last decade--”the breakdown of employer/employee loyalty that’s going on everywhere in the workplace.”

His theory is that workers and management are now so mistrustful of each other that they’ve resorted to legal agreements to protect their interests.

Whether any of the current crop of noncompete agreements holds up in court remains to be seen. At the moment, noncompetes in the rank and file are so new that there are few precedents. California courts, for example, have been notoriously unfriendly to employers challenging noncompete agreements for executives.

Besides the disputed legality of noncompetes themselves, there also is little agreement over whether companies can force employees to sign them in order to keep their jobs. Florida employment lawyer David Rogero, who represents employers, says “absolutely” they can.

“No way,” says Scott Freedman, Walker’s counsel. He says the whole point is that few employees have the leverage to refuse signing and risk losing their jobs. Employers counter that they can’t risk employing people who don’t sign.

The question everyone may want to ask is, how healthy is the economy, really, if employers must resort to binding their workers to their jobs?