Whether An Employee Can Plan Rival Startup While On Job To Be Tested In Apple’s Lawsuit

A court case involving a former Apple Inc executive is trying to establish whether it is justified for an employee to plan a competing venture or a startup even while he or she is on the payroll of a company.

This case was filed by Apple against a former chip executive of the company who now runs a rival company. Analysts say that the outcome of this case will have large implications for all those employees in California who are planning on developing a startup which has now become a culture that is driving the tech industry.

Compared to some other states in the United States that allow strong non-compete agreements, the long-held public policy favours employee mobility in California. This stance of the state aided in the formation of dozens of companies by the “traitorous eight” who left their jobs at Shockley Semiconductor Laboratory and joined a rival in the late 1950s. The list of companies thus created includes Intel Corp.

Gerard Williams III quit his job at Apple last year after more than nine years as chief architect for the custom processors that power iPhones and iPads. He later start Nuvia Inc, which is designing chips for servers. Apple has filed the lawsuit against Williams in Santa Clara County Superior Court.

A tentative ruling allowing the case to proceed was issued by Judge Mark H. Pierce last week. The ruling however prevented Apple from demanding any punitive damages.

Alleging that Williams had violated an intellectual property agreement and a duty of loyalty to the company, Apple filed the case in August last year. Apple alleged that Williams breached that above rules by opening up a new startup even while he was on the company pay roll at Apple and had spent hours on the phone with colleagues who later on joined his startup.

No comments on the case were available from Apple and Williams.

The case of Apple is not against the startup Nuvia itself or any of the co-founders of the company apart from Williams. Apple also did not place any allegation of intellectual property or trade secret theft.

The contract that Williams had with Apple required that Williams “will not plan or engage in any other employment” that can rival with Apple or is directly related to the company, said a copy of Williams’ agreement with Apple which was attached to the company’s complaint.

It was not possible to enforce Apple’s contract because employees are allowed to make some preparations to compete while still in their current job according to California laws, Williams argued in a filing in November.

Cliff Palefsky, a prominent San Francisco-based employment attorney said that there are limits even in California. While the laws permits employees to draw up plans for a new competing startup on their own time, but it “gets a little dicey” when one tries to recruit fellow employees on company time.

“An employee is not permitted to plan and prepare to create a competitive enterprise prior to termination if the employee does so on their employer’s time and with the employer’s resources”, Pierce wrote in his tentative ruling.

(Adapted from Reuters.com)

Categories: Creativity, Economy & Finance, Regulations & Legal, Strategy, Sustainability, Uncategorized

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