UPDATE, Tuesday, July 30, 9:38 a.m.: In the dog-eat-dog world of residential brokerage, Compass appears to be playing defense.
Of nine real estate brokerages The Real Deal surveyed in New York City, only the $4.4 billion SoftBank-backed firm seems to take pains to clarify what agents cannot bring to the firm when they join.
Specifically, Compass requires all newly hired agents sign an agreement that defines what proprietary, confidential data belongs to its competitors. If that data or information isn’t left behind, the contract states that agents will face discipline, which could include getting fired.
The agreement, which has been in place for roughly three years, was shared with TRD with Compass’ knowledge by South Florida agent Amit Bhuta two weeks after Realogy slammed Compass with a wide-ranging lawsuit accusing the brokerage of using “illegal schemes” like “predatory poaching, data theft and encouraging agents to violate former employment contracts in order “to gain market share at all costs.”
The new-hire contract also offers a rare glimpse at the guiding philosophy behind Compass’ internal playbook — and how its executives and legal counsel may be planning to fight Realogy’s accusations.
Lawyers say such an agreement is a smart defensive move that Silicon Valley startups seeking venture money have used for decades. Brokers, meanwhile, look at Compass’ track record in court — Realogy’s suit marks the tenth time in five years that Compass’ competitors have gotten litigious over its alleged business tactics — and say it’s an obvious, albeit unusual, move.
Based on a survey of eight other brokerages, which was conducted through a mix of contacting firm heads and reviewing recent employment agreements and policy manuals that multiple agents shared with TRD on the condition on anonymity, no other New York City-based brokerage appears to have a comparable agreement in place.
Most brokerages’ agreements with agents include language intended to prevent agents from taking the company’s confidential data with them upon their exit, but only Compass has a dedicated document that outlines what agents can and can’t bring with them from their old firm.
Old hat
Compass says its practice of getting new agents to commit in writing not to bring other companies’ data with them is not new. According to a Compass representative, it began requiring new agents to sign the agreement in spring 2016.
“It is Compass policy not to permit the taking, storing or use of any information from your previous firm, in any form,” the document reads. “Compass requires that you honor all post-affiliation obligations to your previous firm and will not permit the disclosure or use of confidential or proprietary information.”
A chart on the document lists examples of confidential proprietary information and examples of “personal work product” that agents can bring. That includes client databases that agents sourced and developed personally. (Last summer, Compass’ chief evangelist and broker Leonard Steinberg wrote a blog post on LinkedIn saying that Compass views brokers’ client lists as their property, not the company’s, and CEO Robert Reffkin would be signing a document to affirm that stance. Keller Williams’ Mark Chin said in an email that his franchise also views agents’ data as their own.)
But, “when in doubt, leave it behind and we can officially request it from your previous firm after you join Compass,” the brokerage’s new agent agreement states.
A representative for the brokerage said in a statement that “we believe this document offers clarity and transparency for agents and speaks to the high standards we hold at Compass.”
The document was introduced after three lawsuits were filed against Compass in 2015 by competing New York firms accusing the tech brokerage of raiding, data theft and encouraging one agent to violate a non-compete agreement. The year before, tech entrepreneur Avi Dorfman sued Urban Compass (as it was then known) and Reffkin for building a business using his proprietary software.
Borrowing from Silicon Valley
Though Compass’ new agent agreement appears to be a rare business practice among real estate brokerages, it is commonplace for companies backed by VC money, according to intellectual property lawyers.
Jedediah Wakefield, a San Francisco-based litigator at Fenwick & West who specializes in disputes over trade secrets, described such language as “standard fare in technology companies for decades.”
The high-level purpose of such an agreement — which could be buried in any contract, policy or handbook workers are required to sign — designates what belongs to the company versus an employee. Sometimes known as Proprietary Information and Inventions Agreements, they are commonly used by tech companies in Silicon Valley to affirm that any technology created while employed at a company belongs to the firm, not the employee.
By having such agreements in place, the company has a defense against employees or competing companies they’ve recently hired from who claim ownership over the company’s technological inventions.
When the ownership of trade secrets are contested that can present a “huge problem” for companies seeking to raise funds through venture capital, according to a second lawyer who spoke on the condition of anonymity.
Wakefield said such agreements are “not required but they often appear,” and are a function of the “ecosystem in the VC community, ” in which board members and lawyers who’ve been around startups frequently enough to have seen first-hand “the advantage and disadvantage of certain practices.”
To date, Compass has raised about $1.2 billion in VC money to fuel its rapid expansion, which included hiring 6,000 new agents in 2018 under its plan to reach 20 percent market share in the top 20 U.S. markets by next year.
Speaking generally, Wakefield said an agreement akin to Compass’ would be a “helpful” tool for litigators to “show good faith by the employer.”
Mark Lemley, a partner at Durie Tangri LLP and professor at Stanford Law School who specializes in intellectual property, noted that such agreements are standard in the tech industry but “it’s good practice everywhere, though. Trade secrets suits are not confined to the tech industry.”
Clarification: The fourth paragraph was updated to clarify the timing of when TRD obtained a copy of the agreement and when Compass claims it began being signed by incoming agents.