Municipality Playing Hardball with Nursery School Teachers

Recently, a friend of mine asked me about a 3-year non-compete clause his nursery teacher wife was asked by the city of Jerusalem to sign.

Last year, the Knesset passed a new law providing for free nursery school education for 3 and 4 year olds (see article here.)  In order to immediately implement this law, the city asked local nursery teachers who already had private classes in their apartments if they wanted to fill the positions available for the city nurseries. Many of these women already had established reputations in their neighborhoods. Now, they could go to work for the city and bring their clientele with them.

My friend's wife had been running her own nursery program for a few years and applied for a position and was accepted. She recruited children for the class but had not yet signed a contract with the city. When she received the contract, she was surprised to see that it had a 3-year non-compete clause that looked something like this:

I agree that, during the period of my employment with the Municipality Nursery and for a period of thirty-six (36) months thereafter, I will not, directly or indirectly, engage in any employment or business activity, or hold an interest in any business, which is competitive with the business of the Municipality Nursery.

She didn't want to sign the contract and wanted to know what her legal options were. If she didn't sign the contract could she be compensated for the work she did in recruiting the students for the school? Could she be compensated for the lost wages from not opening her own class?

I did some quick internet research and found a number of articles all saying the same thing. In Israeli courts, the employer has the burden of justifying the reasonableness of the non-compete clause. A non-compete clause is at odds with the Basic Law: Freedom of Occupation, which states that "every Israel national or resident has the right to engage in any occupation, profession or trade." A court will uphold such a clause if it is reasonable in respect to time and geographic scope and the employer can show that he has a legitimate interest in restricting the employee's future work opportunities. For instance, if the employer trained the employee and the employee acquired specialized knowledge through her employment the courts might be more likely to uphold the non-compete provision. Furthermore, if the agreement was duly negotiated between the parties and if the employee was compensated in exchange for signing the non-compete over and above her base salary, like the former CEO of Bank Leumi, the court might uphold the non-compete clause.

According to one article:

The basic presumption under the Israel jurisdiction is that a covenant not to compete is not binding, even if it is clearly expressed in a written agreement signed by the parties, unless:

- the employee is using trade secrets of his former employer.

-  the employee is not acting in good faith.

-  The employee received remuneration in return for their promise not to compete.

In general, non-competition covenants can be justified and enforced only when the former employer has a legitimate, proven and recognized interest (recognized as such) in preventing his former employee from working with his competitor.

See also here, as well as the article by Edo Royker entitled Another Parallel With Silicon Valley: NonCompete Clauses under Israeli Law.

My friend wanted to negotiate the non-compete clause with the city and either shorten it or get some extra compensation for his wife. I told him that his wife should just ignore it and sign it anyway. It was not worth upsetting the hiring manager by bringing this to their attention and it definitely was not worth walking away from the job over this. First of all, maybe she will like her job and never leave, or maybe she'll leave to another city. And even if she did leave and then compete it is unlikely the city would come after her. And even if they did, the non-compete clause would not hold up in court because:

• three years is a long time, even in the high tech field;
• there was no geographic limitation to where she was not entitled to compete;
• they weren't paying her extra for not competing;
• she already had experience so its not like they were training her;
• they weren't revealing any trade secrets to her; and
• the social benefits of having more teachers and her right to an occupation greatly outweigh any interest the city might have in limiting competition.

He did end up going to meet with the city and they refused to budge on the non-compete clause and said they had never heard of someone getting extra compensation for signing such a clause. She signed it anyway.

For an article on the Jewish Law view of non-compete agreements, see here.