I’m curious about a plot line from season 3 of Mad Men.
After the partners sell their firm to a British conglomerate they want to leave and start another firm, but they all have non-compete clauses in their contracts. The clauses, however, become void if they are fired so they convince their local British boss to fire them all. When the boss is then himself fired he joins them as a partner in their new firm.
This seemed too slick to be true so I wonder: Would anything like this be plausible in the business world of the early '60s? Would there be legal and/or practical reasons it could not happen?
Imagine a person who knows a trade - could be advertising, could be welding, whatever. If they get fired from their company, and their contract said they couldn’t compete after firing, how are they going to work to earn a living? An advertiser who can’t advertise and a welder who can’t weld? Sounds like serious hardship to enforce a non-compete clause on someone after you’ve fired them and denied them a living.
I’m not sure how any court could morally/ethically enforce such a position, even if it were legally in a contract.
Well, remember, Don Draper got out of such a mess by not having a contract at all. I could see that one coming and it was one of the slickest plot jinks in a series full of them.
I can’t find a similar case, but more than likely the employer’s recourse would be against the firer, rather than the former employees.
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Imagine a person who knows a trade - could be advertising, could be welding, whatever. If they get fired from their company, and their contract said they couldn’t compete after firing, how are they going to work to earn a living? An advertiser who can’t advertise and a welder who can’t weld? Sounds like serious hardship to enforce a non-compete clause on someone after you’ve fired them and denied them a living.
I’m not sure how any court could morally/ethically enforce such a position, even if it were legally in a contract.
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Non-compete agreements are frequently enforced, but must be narrowly written. Most states legislated a presumption that they are void unless they meet a narrow set of exceptions. They have to be limited in duration, area of effect, and the scope of the business the employee is restricted from competing in. Nobody makes a welder sign a non-compete agreement; they are for professionals and key employees whose intimate knowledge of the former employee’s business would enable them to gain an advantage at a competitor.
Non-compete clauses have evolved a lot since the mid-1960s, but in general, if your employer fired you, it couldn’t also enforce a non-compete clause unless that was specifically part of a severence package.
So if the British employer wanted to enforce the non-compete for X months, it would have had to pay the employees X months of severence.
This plotline also figured into a Seinfeld episode; George could only work for the Mets, another baseball team, if he was fired by the Yankees, not if he quit, so he attempted to be the worst employee possible and get fired. All it takes is one real-world example of a non-compete clause that is voided by a firing for this to be plausible. The other issue is more an agency law question, but I’d imagine a firm would be hard-pressed to argue that an employment decision by an authorized executive of the company shouldn’t “count” just because it was done in bad faith. They might have a cause of action against Mr. Pryce for abrogating his responsibilities to the corporation in order to advance a scheme that was intended to benefit himself financially, but the court isn’t going to order him to “un-fire” the employees.
As for them actually taking the file cabinet out the door during and after the firing, that’s definitely a legal problem, but we don’t see (on-screen) what if anything was done about it. I think the TV show in-universe logic is something like “this huge international firm doesn’t want to look like it’s so concerned about what a tiny startup operating out of a hotel suite is doing to its business; they have more to lose by suing them than they have to gain.”
Non compete clauses as well as clauses of non disclousure are fairly standard. Ditto clauses against attempting to woo away clients. All of these can be enforced if they are reasonable in scope and nature.
Every place I’ve worked has enumerated the non-compete with specific clauses. For example, you may not work for our chief competitors (Acme, WidgetsUnlimited, etc), but implicitly may work for lessor rivals. You may not, however, serve as a C-level executive in any competitor for 2 years. Or some such drivel.
It’s generally not enforced in my industry, because consultants being mercenaries/whores is kind of part of the culture, and is expected.
This is what got me. I could by their way around the clause because that was the way the writers set it up, but I couldn’t see them get away with this without massive legal bills if at all. Would it be possible for the company to get an order for them to return the records, or at least to give them up to a neutral party? I think this was the biggest plot hole so far.
As partners they’d have a fiduciary duty to the original firm- so if they hatched this plot while they still had an ownership interest they’d be on the hook for breaching that.
Would it be likely for Pryce to have the single-handed authority to fire Draper et al. without, say, a signature from someone higher up in the firm?
Also, when Pryce’s own boss screams, “You’re fired,” at him, would those two word have been enough to sever Pryce’s own contractual restrictions?
About the file cabinets: Matt Weiner stated in the commentaries that the files would have been the property of the clients, not of the firm, and thus taking them was “OK”. Still, it seems to me that taking the cabinets themselves would have been theft.
That’s nonsense. A legal client’s file is his property (and a law firm still retains rights to make and retain copies of it before returning the originals a client on demand). There is no “advertiser-client privilege” or special code of conduct for ad men; the products of the ad agency’s work belong to the ad agency. Chalk this one up to “it’s just a show, so just relax.”
Non-compete clauses are an issue in the defense industry as well. They often ask you to sign a non-compete if you are laid off as a condition of getting severance, and when you leave for another job, but I have never heard of one being enforced. After all, if they are laying you off, you are going to get a job wherever you can, and it makes logical sense that a direct competitor to your old company would be the most interested in your resume since you know their customer/program already and how they operate. Likewise, if you are leaving, you are free to NOT sign the paperwork because what are they going to do? Fire you?
Of course, everything I’m talking about is specific to California. I have no idea how it works elsewhere. I have signed plenty of non-compete clauses before, and through no fault of my own, have been working at other companies where I was asked to pursue some of the old employer’s work. The only really forbidden thing to do in the industry from what I’ve seen is being both a product manufacturer and service provider where you are in a position to recommend your product. That is a major Organizational Conflict of Interest (OCI), and even then, I see companies skirt that law all the time.