Amazon has filed a lawsuit in a Seattle court on Friday, alleging that a former AWS employee’s move to Google is in violation of his non-compete contract. Zoltan Szabadi, who previously led Amazon’s Strategic Alliances Emerging Partners unit, accepted a position with Google in May.
The complaint details the competitive nature of the cloud computing business between Amazon and Google, naming itself a “a pioneer in this burgeoning industry.” The document goes on to state that, “Szabadi was directly and integrally involved with the marketing of Amazon’s cloud computing business to its partners and resellers and played a significant role in developing Amazon’s business strategy and direction in this area.”
Amazon said it shared highly confidential information with him as part of his employment and lists 15 critical elements of its strategy critical to the enforcement of the non-compete agreement. “His knowledge is too extensive to be fully captured in this complaint.” In addition to the claim of breach of noncompetition agreement, Amazon cites breach of common law duties of confidentiality and loyalty and misappropriation of trade secrets.
Szabadi began working for Amazon in July 2008. He worked in business development as part of the AWS group, working with partners that utilize the AWS cloud. At the time of his employment, he signed a non-compete contract that stated for a period of 18 months after leaving Amazon he would “not accept or solicit business from any retail market sector, segment or group that [Amazon] has solicited, targeted or accepted business from prior to the Termination Date.”
In May, Szabadi accepted a position from Google. Although Amazon informed him of his obligations under the non-compete contract, Google’s attorneys argued that he would not be in breach since they had agreed to limit the use of Amazon information and on his contacts with its partners. His employment agreement with Google also restricted for 6 months any contact with customers and strategic partners of Amazon as well as his participation in marketing and business development activities.
With such a high-profile case between two of the industry giants the eventual ruling could have implications over-reaching just the standard employment contract with Amazon. As tech companies increasingly put non-compete agreements in place, the outcome of this decision could impact the way tech employees engage in the marketplace.
In a similar 2012 case, Amazon attempted to enforce a noncompete agreement it had with AWS vice president Daniel Powers when he moved to Google. A federal court judge in Seattle enforced the basic provisions of the agreement but denied to enforce the more far reaching aspects of the contract.
US District Judge Richard A. Jones said in his ruling, “Amazon has failed to articulate how a worldwide ban on cloud computing competition is necessary to protect its business. Its ban on working with former customers serves to protect the goodwill it has built up with specific businesses. A general ban on Mr. Powers’ competing against Amazon for other cloud computing customers is not a ban on unfair competition, it is a ban on competition generally. Amazon cannot eliminate skilled employees from future competition by the simple expedient of hiring them. To rule otherwise would give Amazon far greater power than necessary to protect its legitimate business interest.”
According to Lawyers.com, there are several aspects of a non-compete contract that determine whether it is enforceable. The employer must give something of value in exchange for the agreement not to work for a competitor. In some states the offer is enough, in other an additional offer of money is the standard. The agreement can’t last too long, how long is considered reasonable varies by state. Additionally, the agreement can’t force a person to be unemployed.
Relevant to smaller tech companies may be the geographic restriction standard in deciding whether a non-compete agreement is valid. Since tech companies tend to be global this aspect of the law is a bit tricky. The purpose of a non-compete agreement is to keep an employee from competing with a former employer. In cases of smaller companies, this restriction may only apply to employment within the same state or within the US.
However, because Google, Amazon and other tech companies do business around the world, a decision about whether the non-compete agreement applies based on the geographic standard is more difficult to decide.
Geekwire said, “Non-compete clauses have repeatedly been found invalid in California, where Google is based. However, they have been generally allowed in Washington state if the terms are deemed reasonable.”
The Amazon complaint specifically addresses the jurisdiction and geographic location of the agreement. The contract was completed in the state of Washington, Szabadi is a resident of King County and business he did for Amazon was primarily transacted there.
Findlaw.com discusses the challenges of enforcing geographic non-compete standards in a digital world, “According to an American Bar Association panel report, courts have been known to uphold global geographic restrictions in non-compete agreements when: the employee worked worldwide, the employee was high-ranked and had highly sensitive information and the agreement restricted employee only from particular clients, products, or services.”
Amazon opposes Szabadi’s employment with Google and requested that the non-compete contract be enforced on the grounds that his new position will necessarily involve contact with Amazon partners and that the 6 month limitation is far short of his contractual agreement with Amazon. They are also seeking damages in an amount to be determined at trial.