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Amazon’s Lawsuit and Non-compete Agreements for Executives

On March 21, 2016, Amazon filed a suit in Washington state court seeking enforcement of a non-compete agreement signed by a recently departed executive.1 Arthur Valdez had been serving as vice president of operations for Amazon and oversaw the companies’ supply chain and logistics operations but recently left to become the chief supply chain and logistics officer for Target.2 If fully enforced, the non-compete agreement signed by Valdez would exclude him from working for a competitor for 18 months from the time he terminated his employment with Amazon.3

As Amazon’s complaint points out, Target sells online and ships to the homes of customers, putting it in direct competition with Amazon.4 Target’s chief operating officer stated that its “growth hinges on our ability to enhance the fundamental aspects of our business starting with our supply chain.”5) Which explains why the company would want to bring on someone like Valdez.

An improvement in its supply chain management could make Target more of a threat to Amazon, but what seems to be more concerning to the company is the knowledge that Valdez can pass on to Target. Amazon’s complaint explains that “Mr. Valdez knows, created and implemented Amazon’s most confidential strategies and metrics, including competitive analysis of Target and other similar competitors, in Amazon’s supply chain and logistics operations.”6 The Complaint further explained that Valdez “developed intimate knowledge of the proprietary metrics and analytics” used by Amazon in its supply chain operations.7

States differ in the extent to which they will enforce non-compete agreements. California does not enforce non-compete agreements, and it has been argued that this approach fueled the growth of Silicon Valley.8 However, most jurisdictions in the U.S. will enforce non-compete agreements if they are found to be reasonable.9

In Washington, a three factor test is used to determine if a non-compete agreement is reasonable. The courts look to “(1) whether restraint is necessary for the protection of the business or good will of the employer, (2) whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the business of the employer or the good will thereof, and (3) whether the degree of injury to the public is such loss of the service and skill of the employee to warrant nonenforcement of the covenant.”10

Washington state is a technology hub, and is home to the Headquarters of Amazon and Microsoft. This however has not lead to the state’s courts hearing a large number of non-compete cases like the one filed by Amazon. “[B]etween the years 2005 and 2014, employers filed a total of 32 non-compete enforcement cases against departing employees in Washington courts.”11 Only eleven of those cases where brought by employers in the technology industry.12

Interestingly, “Microsoft and brought only one case each [between 2005 and 2014], both in response to an employee departing to work for rival Google. Both of these cases settled within a year, allowing the departing employee to work at Google.”13 If the suit filed by Amazon was to be fully adjudicated it could provide illuminating insights into the enforceability of non-compete agreements of high level executives. Particularly in regards to the length of time for which a company can restrict a departing executive from working for a competitor.

  1. Complaint for Injunctive and Other Relief, v. Valdez, (D. Wash. Mar. 21, 2016). 

  2. Chris Isidore, Amazon sues exec who jumped to target, CNN Money (Mar. 23, 2016, 11:32 AM), 

  3. Complaint for Injunctive and Other Relief, supra note 1, at 9. 

  4. Complaint for Injunctive and Other Relief, supra note 1, at 5. 

  5. Chris Isidore, Amazon sues exec who jumped to target, CNN Money (Mar. 23, 2016, 11:32 AM. 

  6. Complaint for Injunctive and Other Relief, supra note 1, at 13. 

  7. Id. at 14. 

  8. Robert W. Gomulkiewicz, Leaky Covenants-Not-to-Compete as the legal Infrastructure for Innovation, 49 U.C. Davis L. Rev. 251, 265-67 (2015). 

  9. Id. at 261. 

  10. Id. at 274-75. (quoting Alexander & Alexander v. Wohlman, 578 P. 2d 530, 539 (Wash. App. 1978 

  11. Id. at 277-78. 

  12. Id. at 278. 

  13. Id.