Tuesday, March 06, 2007

TJX vs. Pier 1: That Old Non-Compete Agreement

 

A few weeks back now, a Boston Globe article by Jenn Abelson reported that TJX is rattling its discount saber in the direction of Pier 1 Imports, and Alex Smith, a TJX executive who just joined Pier 1, over Smith's moving over to a company that TJX apparently views as a competitor.

Days after resigning, Smith received a letter at his Newton home from TJX threatening to sue him for allegedly violating a non compete clause. TJX also informed the 54-year-old that it would not pay him millions of dollars owed in incentive and retirement plans for taking the job.

Pier 1 on Tuesday got a restraining order against TJX to prevent the company from suing Smith.

What's unusual here is not that TJX is going after Smith/Pier 1. This is not all that uncommon. Companies have been going through these motions for years when a senior executive jumps one ship for another.

No, what's unusual is the back-atcha that Pier 1 is doing to try to make TJX cease and desist.

I don't see these two as being direct competitors, but that may be because I'm not that familiar with TJX's HomeGoods stores, which Smith ran. At TJX's discount department stores (TJ Maxx and Marshalls) there tend to be small sections devoted to odd-lot Villeroy and Boch china to the type of decorative junk that wouldn't seem out of place at a Pier 1, but I don't think they offer home furnishings - and furniture - to the extent that Pier 1 does.

Maybe TJX is just miffed (make that royally miffed) at a senior exec's departure. Maybe they're trying to deflect some attention from their recent credit card number hacker episode, as a result of which, according to Abelson's article "consumers and banks have filed class-action lawsuits against TJX." Maybe, as Abelson suggests, they don't want to pay Smith the money they owe him, or maybe they just want to make a pre-emptive move against any other senior level employees who might be inclined to follow Smith to Pier 1.

I've always found the notion of non-competes pretty interesting.

Like just about everyone else who's held a professional job in high-tech, I've signed my share of these agreements over the year. Assured that they're not worth the paper they're written on, I blithely signed away even though every time I signed one I thought to myself, no fair-sies. Especially when they had some clause that stated that, even if you were laid off, you couldn't go work for the competition. Where else, I'd ask myself, are you most likely to find a job comparable to the one you have? Where else can you provide as much value right out of the gate.

Of course I understand why companies would want non-competes, since they do make someone think twice before going over to a competitor where - even if they don't know/don't tell anything about your company strategy or confidential information - they likely know enough about your tactics and weaknesses to do you some harm.

Not that it's been much of an issue for me personally, since I have never stepped directly from one competitor to another. It did come into play at one company I worked for.

By our humdrum standards, the episode was quite dramatic. For a while, the senior architect on one of our software products was "working from home", but never reachable. We knew he was angry over the lack of funding for his product. It was nothing personal: we really didn't have money to fund a real market effort for any of our products. We were just able to us our limited sales and marketing resources scrimp and scratch up enough customers to just barely keep our doors open. We knew that eventually we'd either run out of steam or a miracle would occur and some investor would put some money into us - a substantial unlikelihood given the company's long history of sucking in investment without actually using it to develop and bring products to market. We'd gotten clean, sober, and focused, but we were pretty much on our own.

While we were speculating about just what our senior architect was up to, handful of people in his group walked out the door one day carrying a server with them. The next day they returned the server - and handed in their resignations.

The whole bunch of them were supposedly going to be working on a "consulting project", but a few months later the "consulting project" turned into a company with a product that competed directly with ours.

Within the management group, we kicked around the idea of going after them. Whatever they did or didn't do with the server they spirited temporarily away, it was clearly harmful to our company that the folks who had built our product on a shoe-string were now in a company that was venture-funded. This meant that they would have the "luxury" of building a product that was better than ours because they had both the money to hire more engineers and do more marketing, and because, with their brand new product, they could learn from the mistakes we'd made, plus use more current technology as the basis for their development. Double, triple, quadruple whammy for us.

In any case, we ended up doing nothing. Our president at the time had no appetite for a lawsuit, and we had no money for one, either.

Meanwhile, several more people went out the door and over to our new competitor - including one of my closest friends. There was a bit of talk about my going over there, as well, but for a number of reasons I wasn't really interested. (And the number one reason I wasn't interested was that darned non-compete I'd signed. I actually took it seriously and, since I knew a lot about our technology and product strategy, I just wasn't comfortable moving over to the enemy. I could, however, excuse my close friend who went, as she was in a position in which she did not have my product or technical knowledge.)

Time went on. The new competitor brought their product to market and started eating our lunch. Everything about their product was slicker and better, plus they knew what all the products were with ours.

Meanwhile, we had a new president and he was, apparently, a bit more litigious than his predecessor.

One weekend when I was at work, I was at the fax machine and started sorting through the incoming faxes. One was from a law firm. Apparently we were going to be suing our competitor, after all. Not only that, but we were personally suing all of the individuals who'd left our company for violating our non-compete.

Needless to say, I was conflicted. I had originally been one of those in favor of suing the bastard organization - but never the individual bastards. And the fact that my friend's name was on the list of those we were going after really bothered me, since she had really not taken much if any "insider info" with her when she left.

It was actually pretty good timing on our part. The competitor was planning for an IPO and they wanted us out of their hair. We settled for a small sum - less than a million dollars - but it was enough to give us the foundation that enabled us to stay alive for a few more years until we found someone to buy us and put us out of our misery.

Oh, and my friend never spoke to me again. I tried to reach out to her a few times but was snubbed. She died of breast cancer. I still miss her.

Nothing can compete with a good friendship, and it's a real downer to lose one - especially when it turns out it's gone for good.

2 comments:

Cahill said...

In Massachusetts, non-competes are generally unenforceable, according to my legal team crack, uh, crack legal team (when I last consulted them on this type of issue a few years ago).

To pass muster, they must be limited in time (no more than 1.5 years, I think) and limited in geographic scope, which I recall to be something like 200 miles.

I guess the court prefers we have the opportunity to work. Perhaps TJX can get a draft choice from Pier1, like in football.

Charles H. Green said...

What a tale.

And poetically just, IMHO. I think non-competes basically stink. They are the result of thinking that is based on either paranoid, dog-in-the-manger, or just plain vindictive motives. The existence of non-competes gives rise to precisely the kind of behavior they were designed to prevent, as your tale beautifully illustrates. Think your employees are out to screw you? Thinking that way virtually ensures they will. You empower what you fear.

I worked for two consulting firms. One refused to do non-competes, and never had a lawsuit, nor saw fit to initiate one, in 25 years. The other used them, and about twice a year ended up suing its alumni.

Imagine a university suing its graduates, instead of cultivating them for the donations and connections they could provide. Dumb, selfish, and short-term focused are adjectives that come to mind.

Not that I have a point of view on the matter.