Hilchos Choshen Mishpat

Volume II : Number 24

Non-Competition Agreements

Question:

Reuven learned the skill of making Batim (leather housings) for Tefillin as an apprentice for a skilled Batim Macher (Yiddish for Batim maker). They agreed that while Reuven was learning the skill he would not have to pay tuition, nor would he be employed by anyone else, and after mastering the skill he would continue to work for his teacher for four years for a specific salary. They also agreed that during this time, Reuven would not be permitted to make Batim in his own home for personal sale, without express permission from the Batim Macher.

Unfortunately, one year into Reuven's employment, the Batim Macher and Reuven found that they could not work together, and Reuven was dismissed from the job. The Batim Macher is now claiming that Reuven should -

A. Pay tuition for the time that he spent teaching Reuven the trade, since he only agreed to teach Reuven for free on the assumption that Reuven would work for him for four years, which would have generated a profit that would have covered the cost of teaching Reuven. He is now unable to recoup this money.

B. Reuven should not be permitted to work for others in this trade or open his own shop until the completion of the four years, as they had originally agreed.

Reuven, on the other hand, is claiming that since he is willing to continue to be employed by the Batim Macher and is being dismissed involuntarily, the entire agreement should be null and void. He never would have agreed if he would have realized that for three years he would be unable to work in the trade that he had spent so much time learning!

Who is correct?

Answer:

1. A. Reuven must pay the full amount of tuition that a person would normally expect to pay to learn this trade. He has no other obligations to the Batim Macher. (1)

2. B. When determining the amount owed for tuition, we must take into consideration Reuven's talents and mental abilities to determine how much actual teaching effort was invested into him. Additionally, the quality of the work that he was taught, and the salary that he received during the year that he was working, are factors that should be considered.

3. C. After paying his teacher the full amount of what is owed, Reuven may work for others in the field, or open his own Batim making business. This is because Reuven was dismissed from his job involuntarily.

4. D. If Reuven would have quit working voluntarily, he would not be permitted to work for others or open his own business without permission from his teacher. If he were to do so, Bais Din would have to determine how much a person would pay not to have this additional competition to his business, and Reuven would be obligated to pay that amount to his teacher, in addition to the cost of his tuition.

5. E. These Halachos obviously apply to other such business or skilled worker agreements.

Sources:

(1) Although ordinarily there is no Halachic ramification if a person pledges to his friend not to do something, i.e. there is no breach of contract involved if he changes his mind and decides to do it (even according to the opinion that if someone says that he will give something to a person he must do so, see Choshen Mishpat 245:1), in our case, where the commitment was made to someone who taught him a skill, such a pledge is Halachically effective for the following two reasons:

A. His pledge not to compete is considered to be part of the tuition payment that he has obligated himself in, and not a mere verbal pledge not to do something. If not for this pledge, the teacher would have demanded a higher monetary payment for teaching the skill. (This is stated in the Teshuvos Chassam Sofer, Yoreh De'ah Siman 9).

B. The Teshuvos Maharik (Shoresh 181, Anaf 2) states that this commitment is similar to that of a guarantor on a loan (Arev), just as there is a similar arrangement between business partners. In other words, the student is agreeing that in exchange for the benefit that he will be receiving by learning a trade from this teacher, despite the fact that the teacher and student will not be able to work in a productive manner during this initial time period, he obligates himself to work only for the teacher for four years. This type of obligation is effective, just as a guarantor can obligate himself to protect a lender from any risk taken in a loan.

Therefore, if the student would voluntarily stop working for his teacher, he would be obligated to pay the full tuition that would ordinarily be paid for learning such a skill. Additionally, he would not be allowed to work for the competition or open his own business because of the commitment that he has made, and because of the prohibition to be a "Mechusar Amanah" - lacking integrity.

However, if the student was involuntarily dismissed, although he must pay the tuition for the training that he has benefitted, which in any case he would have had to pay someone else to learn this trade, he has no obligation to abide by the non-competition agreement. The teacher himself voided this agreement by not employing the student for four years.

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This week's class is based on a column by Rabbi Tzvi Shpitz, who is an Av Bais Din and Rosh Kollel in the Ramot neighborhood of Jerusalem. His Column originally appears in Hebrew in Toda'ah, a weekly publication in Jerusalem. It has been translated and reprinted here with his permission and approval.

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Please Note: The purpose of this column is to make people aware of Choshen Mishpat situations that can arise at any time, and the Halachic concepts that may be used to resolve them. Each individual situation must be resolved by an objective, competent Bais Din (or Rabbinic Arbitrator) in the presence of all parties involved!