Shabbat Parashat Bereishit 5773

P'ninat Mishpat: Friendly Buy-Out? – part II

Case:  The plaintiff (=pl) worked successfully for an Israeli hi-tech company (=IHTC). The owners of ITHC (=def), along with pl, started a similar company in America (=SCA), managed by pl, which did not work out well, for reasons that are disputed. Def told pl to return to Israel, replaced him with a different manager, and offered $68,000 to buy pl out. The parties argued about whether pl must commit to not compete with IHTC, and therefore the agreement was not carried out. Pl demands that the deal be carried through, as he already agreed to not compete. Def claim that the agreement never reached a stage of finalization and that they were not aware of the bad state of SCA until they assumed control of it. As a result, they also countersue for $68,000 for the irresponsible way pl ran the company.

Ruling: [Last time we saw that pl cannot make def carry out the proposed agreement. This time we will discuss whether pl is allowed to compete with IHTC. Pl was familiar with the operation of IHTC from his work as an advisor for them before starting SCA.]

There are two possible grounds to forbid a former worker to compete with a former employer. One is based on an agreement between the sides to that effect. The Chatam Sofer (II:9) discusses someone who trained a shochet under the condition that the student would not work in the same region as his teacher. The Chatam Sofer says that competing would be in violation of the prohibition to withhold a worker’s pay. (We point out that the Chatam Sofer referred to a case where the teacher was the sole shochet in his area, so that competition would have had a strong, direct impact on his livelihood.) Rav Z.N. Goldberg (Techumin XVIII) points out that in the framework of a worker’s compensation, one can even obligate himself to not do something. [Ed. note- the dayanim apparently meant to extrapolate that similarly pl could obligate himself to not compete as part of his obligations in return for his salary.]  However, in our case, there was no stipulation that pl not compete with IHTC.

However, there may also be an idea of not competing even without an agreement. Shevet Halevi (IV:220) says that workers who see secret practices or equipment which the employer used cannot copy them for use at a new employer or in his own work, and doing so is in the category of actual theft. This does not mean that one cannot compete with his former employers, just that he cannot use secret information obtained from them in competing.

This idea does not apply to using skills and information that the worker developed on the job at his former employers, as long as they are things that are generally available in the market, even if not everyone is privy to them. In our case, pl worked at IHTC years ago, and there are no indications that he possesses secret information from that time to get unfair advantage in competition with them now. In general, in Israel, the interpretation of the law is that only under extreme circumstances can even an explicit condition prevent one from the basic right to freedom of employment.

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