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Amazon Sues Former Exec Claiming He Violated Non-Compete Agreement

Jun 12, 2017

Amazon Web Services has sued a former executive who left to join Smartsheet, a Seattle-area business software company.

AWS alleges that Gene Farrell violated a non-compete agreement he had with Amazon when he joined Smartsheet as its senior vice president of product on June 1, 2017, according to tech news site Geekwire, which links to the court documents.

Typically, a non-compete agreement—which many job candidates in tech have to sign as a condition of employment—prohibits them from working on rival products for a set period of time (in this case, for 18 months) after leaving their current employer.

Amazon said Farrell, who joined Amazon five years ago and rose to vice president of enterprise applications, "cannot possibly forget everything he knows about AWS’s products and plans while he is working to develop products for its competitor.”

Smartsheet sells group collaboration software that teams can use to plan projects and share information. Parts of Smartsheet's software actually run on AWS infrastructure.

Related: Non-Competes Are Bad for the Little Guy and Maybe for the Economy as a Whole

"I'm not sure of the motivation, but Amazon is a highly competitive operation. And my interpretation is this sends a message to other startups and growth companies that they might want to tread carefully in looking at Amazon employees," Smartsheet CEO Mark Mader tells Fortune.

Smartsheet did its homework before hiring Farrell, Mader says, working with lawyers to make sure everything was on the up-and-up. Fortune contacted Amazon for comment and will update this story as required.

Related: How to Stop Rivals From Raiding Your Talent

AWS launched 11 years ago, renting out basic computing, networking, and storage data center resources to many customers. But it's been adding higher-level software that broadens its competitive front. Two years ago, for example, it launched WorkMail email and more recently Chime conference calling software. In those areas, AWS is starting to compete with business software from Microsoft, Google, and other players.

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Mader says he sees Smartsheet as more a partner than a rival to other workplace software products like Google (goog) G Suite, Microsoft (msft) Office 365, and AWS's own Workdocs, a file sharing application similar to Box (box) and Dropbox.

Smartsheet's goal is to work well with other software that business people use to store, communicate, and create content. "We view Amazon as a partner opportunity," Mader says.

Non-compete agreements are hotly debated in the tech industry. Critics say companies wield these contracts to keep talented employees from going to rivals or starting their own companies. They say this is bad not only for the individual because it prevents personal advancement, but could also hurt the overall economy. Some critics in Massachusetts, for example, have said one reason top graduates from area universities move to California is because that state does not enforce non-competes and thus offers more opportunities for advancement.

Supporters of non-competes contend that companies that spend time and money training engineers and executives, should be able to reap the benefits of that investment. The state of Washington, like Massachusetts, still recognizes non-competes, despite recent legislative efforts in both states to limit their scope.

What distinguishes the Smartsheet case is that many tech execs have moved between Amazon (amzn) and cloud rival Microsoft for years. It's not clear why Farrell was pursued and other execs were not.

Related: This High-Tech State May Make It Harder to Use Non-Compete Agreements

And given the breadth of Amazon's business—which spans retail and e-commerce; film and entertainment production; consumer electronic devices; and cloud computing services—its non-competes could, theoretically, bar departing employees from working in many fields.

AWS parent company Amazon last year launched a similar lawsuit against Arthur Valdez, a supply chain expert, who left to join Target (tgt) as executive vice president. The status of that case is unclear.

Up until a few years ago, even warehouse workers were subject to the Amazon's non-compete agreements. But, according to tech news site The Verge, they have since been exempted.

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