EMC is known for its data storage know-how, for it’s long-serving chairman Joe Tucci, and for its use of non-compete agreements to keep employees from working for rivals. Now, venture capitalists and entrepreneurs in Massachusetts, where EMC is based, hope that Dell (which is buying EMC for $67 billion) might temper that litigious fervor. Michael Dell, on completion of the deal, will be chairman of the combined companies.
EMC’s embrace of non-competes has been blamed for dampening the local entrepreneurial scene. After all, talented engineers and executives often leave big, established firms to start their own companies. Or perhaps they simply take a better job elsewhere. Critics say if they are shackled by legalities, innovation suffers.
In 2009 when David Donatelli, formerly EMC’s storage chief, left for Hewlett-Packard, EMC (EMC) sued to enforce his non-compete agreement. Donatelli ended up staying at HP (HPQ) but was precluded from working on that company’s storage business for a year even though California, HP’s home state, generally does not recognize non-compete agreements.
And therein lies the problem, according to Bay State venture capitalists who have been pushing to scrap the laws. The fact that companies can pursue non-competes in-state means that talented people—the sort of people who may want to start a company—often decamp to California where they see fewer restrictions on hiring and a start-up friendly climate.
A former Dell executive told Fortune that the company’s contracts do include a non-compete clause tied to the employee’s compensation. “Basically, by accepting the compensation you are agreeing to the non-compete so there is a potential for claw back. On the other hand, when it comes to engineers, Dell doesn’t seem to do aggressive enforcement,” the former Dell exec said.
That may not be true in sales if Richard Shea’s Dell experience is the norm. Shea was an EqualLogic sales executive when Dell bought that storage company in 2007. When Shea tried to leave for LeftHand Networks, an EqualLogic competitor, in 2009, Dell sought (and was granted) an injunction to prevent that move.
Given that precedent, people hoping for Dell to leash the hounds had better not count on it. Fortune contacted Dell for comment and will update the story as needed.
“When it comes to enforcing non-competes in enforceable states, the big enterprise hardware makers are pretty much the same. When a departure is very public and maybe embarrassing, companies get very aggressive and go on offense,” said Patrick Moorhead, president and principal analyst of Moor Strategy & Insights, an Austin, Texas-based research firm.
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