Business

N.C. textile worker learns about noncompete clauses the hard way: ‘I’m ruined.’

Keith Bollinger, a factory manager, at his home in Conover. Bollinger was caught in an agonizing legal battle with his former employer over a noncompete agreement for over three years. “I tried to get a better life for my wife and my son, and it backfired,” Bollinger said.
Keith Bollinger, a factory manager, at his home in Conover. Bollinger was caught in an agonizing legal battle with his former employer over a noncompete agreement for over three years. “I tried to get a better life for my wife and my son, and it backfired,” Bollinger said. NYT

Keith Bollinger’s paycheck as a factory manager had shriveled after the 2008 financial crisis, but then he got a chance to pull himself out of recession’s hole. A rival textile company offered him a better job – and a big raise.

When he said yes, it set off a three-year legal battle that concluded last week but wiped out his savings along the way.

“I tried to get a better life for my wife and my son, and it backfired,” said Bollinger, 53, of Conover, 45 miles northwest of Charlotte. “Now I’m in my mid-50s, and I’m ruined.”

Bollinger had signed a noncompete agreement, designed to prevent him from leaving his previous employer for a competitor. These contracts have long been routine among senior executives. But they are rapidly spreading to employees like Bollinger, who do the kind of blue-collar work that President Donald Trump has promised to create more of.

The growth of noncompete agreements is part of a broad shift in which companies assert ownership over work experience as well as work. A recent survey by economists including Evan Starr, a management professor at the University of Maryland, showed that about one in five employees was bound by a noncompete clause in 2014.

Employment lawyers say their use has exploded. Russell Beck, a partner at the Boston law firm Beck Reed Riden who does an annual survey of noncompete litigation, said the most recent data showed that noncompete and trade-secret lawsuits had roughly tripled since 2000.

Employment lawyers know this, but workers are often astonished to learn that they’ve signed away their right to leave for a competitor. Timothy Gonzalez, an hourly laborer who shoveled dirt for a fast-food-level wage, was sued after leaving one environmental drilling company for another. Phillip Barone, a midlevel salesman and Air Force veteran, was let go from his job after his old company sent a cease-and-desist letter saying he had signed a noncompete.

Then there is Bollinger, whose long-running legal battle is full of twists and turns that include clandestine photography, a private investigator, a mysterious phone call and courthouse victories later undone by losses in appeals court.

“This is the strangest noncompete case I have ever been involved with, or even heard of,” said Michael P. Thomas, Bollinger’s lawyer and a partner at Patrick, Harper & Dixon in Hickory, North Carolina.

Is system ‘rigged’?

Alan B. Krueger, a Princeton economics professor who was chairman of President Barack Obama’s Council of Economic Advisers, recently described noncompetes and other restrictive employment contracts – along with outright collusion – as part of a “rigged” labor market in which employers “act to prevent the forces of competition.”

Noncompetes are but one factor atop a great mountain of challenges making it harder for employees to get ahead. Globalization and automation have put American workers in competition with overseas labor and machines. The rise of contract employment has made it harder to find a steady job. The decline of unions has made it tougher to negotiate.

But the move to tie workers down with noncompete agreements falls in line with the decades-long trend in which their mobility and bargaining power has steadily declined, and with it their share of company earnings.

When a noncompete agreement is litigated to the letter, a worker can be barred or ousted from a new job by court order. Even if that never happens, the threat alone can create a chilling effect that reduces wages throughout the workforce.

“People can’t negotiate when their company knows they won’t leave,” said Sandra E. Black, an economics professor at the University of Texas at Austin.

The Right to Walk Away

In 2011, Timothy Gonzalez started working as a labor hand for a company called Singley Construction. He was 18 years old and already a father, and the extent of his education was a high school equivalency test. In other words, he needed money and did not have many options.

Gonzalez started at a little over $10 an hour in a job he described as “pretty much shoveling dirt.” Nevertheless, he signed an employment contract that included a noncompete clause, enforceable for three years within 350 miles of Singley’s base in Columbia, Mississippi.

“All I heard – at that age and the situation I was in – was just, ‘If you want a paycheck, sign here,' and so I signed there and went to work,” said Gonzalez, 24, who lives in Milton, Florida.

Gonzalez was later promoted to a job where he operated an environmental drilling rig. After leaving the company two years ago, and subsequently taking a better-paying position with a competitor, Gonzalez was sued for violating his agreement not to compete. His new boss, Gary Hill, owner of Walker-Hill Environmental, an environmental drilling company, said he ignored the suit for two weeks because he didn’t believe it was real.

“I said, ‘There’s no way this will happen,' but I'll be danged if I didn’t have to attorney-up and fight the thing,” said Hill, who settled the case out of court. “It’s ridiculous – it’s slavery in the modern-day form.”

Companies say the restrictions are a natural reaction in an economy that is more about knowledge and less about sweat. Data makes up a larger share of many companies’ assets, and the more people work around the clock, and remotely, often switching between company-owned and personal devices, the more difficult it becomes to guard it.

The problem is that it can be hard to distinguish true intellectual secrets from the accumulated skills that make workers more valuable. And since few companies want to lose good workers or give out huge raises, these agreements are making their way down the economic ladder to people like hairstylists and sandwich makers, far removed from what is thought of as the knowledge economy.

Noncompete enforcement varies from state to state, and economists have used that disparity to study how they affect businesses and the economy. The results are almost universally negative: Wages, employment and entrepreneurship are all diminished when workers have little leverage to bargain with their employer or leave a job for a better opportunity.

Some workers end up idle, collecting unemployment and using programs like Medicaid. Many others take jobs well below their means, robbing the nation of their skills.

‘My Heart Was Broken'

Bollinger, the factory worker near Charlotte, started working when he was 14, and by his senior year of high school, he was the assistant manager of a local shoe store. In 1982, shortly after graduating, he took a job in the textile industry.

He began in a position that entailed pulling the fabric off cardboard rolls, and worked his way up from there, one job to the next, hourly wages to a salaried position, until eventually he was the quality control manager for two plants owned by a company called TSG Finishing.

TSG is a 115-year-old, family-owned company that works with textile manufacturers and others. It doesn’t make fabrics but is an intermediary, treating them with chemicals and laminates, giving them special finishes and properties that make them fire resistant and water-repellent.

Bollinger, as quality control manager, worked with customers to make sure they got what they wanted. Still, he said, the job was about learning a general process, not absorbing any specialized knowledge.

“I don’t know how to make the goop, I just know how to apply the goop,” he said.

TSG would disagree. The company declined to comment beyond an emailed statement, but its lawsuit described Bollinger as instrumental to the company, and said he knew important details about things like pricing, proprietary processing methods and customer preferences.

In 2007, in exchange for a $3,500 bonus and a $1,300 annual raise that brought his salary to a little over $70,000, Bollinger had signed an employment agreement that included a confidentiality clause and noncompete agreement. The list of prohibited territories began with a list of states and ended with “North America.”

Then the financial crisis struck, leading to bankruptcies and layoffs across the textile industry.

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His pay shriveled, and by 2013, after TSG had gone into and out of bankruptcy, he was on pace to make about $61,000, according to income statements he provided. Six miles away, however, the economic recovery was taking hold.

The assets of Premier Finishing, a TSG competitor that had also fallen into bankruptcy, were purchased by American Custom Finishing, which was owned by a chemist and entrepreneur named Gary Harris.

The two spoke, and eventually Harris offered Bollinger a job and a raise, to $75,000, a little above his pre-recession pay. Bollinger said American advised him to check his employment agreement, and a lawyer he hired said that the noncompete was probably unenforceable.

He assumed his defection wouldn’t go over well, so on the day he gave notice, while his boss considered the rival’s offer, he quietly packed up his office and loaded things like his family pictures and a framed B.B. King concert ticket into his car. A few hours later, he was escorted off the property.

Two months later, he was served papers at work: TSG had sued him for violating his confidentiality and noncompete agreements, and had asked a court to remove him from his job. The suit did not allege that Bollinger had stolen anything, but said he knew so much about TSG’s business that he would “inevitably” disclose trade secrets that the company wanted to protect.

Calvin E. Murphy, a superior court judge, did not grant TSG’s wish. In a written order, Murphy said, “Enforcement of the noncompete provision in the manner articulated” by TSG would effectively bar Bollinger “from seeking employment anywhere in North America in the only profession he has practiced since graduating high school.”

TSG appealed, however, and the North Carolina Court of Appeals reversed the decision. A little after that, Harris, American’s chief executive, called Bollinger at home and told him not to return to work.

“My heart was broken,” Bollinger said.

About a year after the Appeals Court decision, TSG filed an amended complaint against Bollinger and others, alleging that he had quietly continued working for American even while the injunction was in place, and asking the court to prohibit him from working there ever again.

The new complaint cited evidence, like photos of Bollinger’s wife’s car parked at American’s facility, and a phone call TSG had received from “a female who would not reveal her identity,” who said Bollinger had continued to work there. At one point, TSG hired a private investigator to look into it.

Perhaps more important, the whole ordeal had caused a “strain” between TSG and its customers. The complaint said that in 2015 one customer had said it planned to transfer its business to American; another had asked TSG to resolve the dispute in a way that allowed Bollinger to continue at his new job.

“When a competitor has the opportunity to poach that knowledge without making the investment in research and development, it gives them an unfair advantage, which a three-judge panel agreed happened in this case,” Jack Rosenstein, TSG’s chief executive, said in an emailed statement.

As with everything else in business, the case came down to money. This past week TSG accepted a $200,000 offer of judgment from American and the other defendants, freeing Bollinger from the lawsuit. The case had gone on so long that the noncompete has lapsed, and Bollinger has found another manufacturing job elsewhere.

But the financial scars remain: Bollinger and his wife, Sandie, drained their savings to pay the legal bill. They have borrowed from friends and relatives, and racked up $50,000 in credit card bills and other debt.

Bollinger said the saddest part to him is that such a small sum of money, the $14,000 raise from American, could have started the whole dispute in the first place.

During a recent interview, he talked about his last day at TSG and the emotions of walking away from a plant where he had worked for two decades. That job, and the advancement that came with it, had given him the means to raise a family, as well as middle-class luxuries like the musical instruments in his house and the framed concert tickets he hung on his office wall.

“If all they would have said is, ‘Keith, we want to keep you, and we are going to reinstate your pay,’” he said, “I would have taken all that stuff out of my car and hung it back up in my office.”

Doris Burke contributed research.

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