Imperative or Impossible? The Future of Restrictive Employment Clauses

Part I of this series introduced noncompete clauses as a condition of employment and how management views them. Part II offers information on employees’ basic rights and strategies to keep in mind when presented with a noncompete or other type of restrictive employment agreement. This last installment asks whether noncompetes are still useful in a fast-changing world.

With the recent economic downswing and hard times for many high-tech businesses, you might think that companies are easing up on noncompetes and other restrictive employment clauses. Just the opposite seems to be happening, with new and more complicated cases coming to litigation each month. Corporations that once asked employees on an ad hoc basis to sign such agreements now have standard forms that must be signed by every new employee. And employees are fighting back in record numbers.

This is “great for lawyers,” says Stuart L. Adams, Jr., a Louisville, Kentucky, attorney, of the increasing numbers of suits over noncompetes. “There seems to be an endless supply of both employees calling to see if they can get out of one, as well as employers asking to have one drawn up or to improve on one they have recently had struck down in court.” But in an article in Louisville Computer News, Adams voiced his own distress over the standard noncompete agreement, calling it an “anachronism under siege” and a “brain drain.” The variability in terminology, enforcement, state-by-state nuances, and changing standards of practice signal a difficult course for the coherent development of such agreements in the future, he maintains.

On The Plus Side

Some states, such as California, have ruled that certain types of noncompete agreements are not legal. Other states are very unlikely to enforce such agreements–something that most employees have no way of knowing when they sign. Several resources are available for information on your state’s stance on noncompetes, including Covenants Not to Compete: A State-by-State Survey, by B.M. Malsberger, A.H. Pedowitz, and R. Sikkel (Washington, DC: Bureau of National Affairs, Inc.; 1999).

Courts tend to look favorably on employees who have behaved in good faith and harshly on companies that require agreements that restrict future employment unnecessarily. With capable representation and the facts on your side, your chances of coming out on top in such a situation are good.

On The Negative Side

Large corporations, associations, and other business entities have more time, money, and attorneys than you. They can afford to prolong the process of enforcement, spend money on frivolous suits, and tie you up in court. Avoiding such a confrontation, by being careful about what you sign and when, is your best bet.

And the alternatives…

If you can’t stand the idea of signing a noncompete or a restrictive agreement, try an employment situation that doesn’t require one. Most academic positions, from elementary school through universities, do not ask their employees to sign noncompetes. In most cases you only commit yourself for the duration of the academic year. If you teach chemistry at a public high school this year, you’re free to switch to a junior college the next.

The federal government has some restrictions on future consulting for its employees, but, for the most part, these are far less stringent than those applied in the private sector. The CEOs of some of the most successful scientific startups came directly from similar government work.

The future? Answer hazy. Ask again later.

It is highly unlikely that uniform standards will be developed for noncompetes and other restrictive employment clauses, but case law will continue to shape and direct the wording and enforcement of such agreements. As technology evolves, new types of clauses will no doubt be created to cover changing avenues of knowledge “leakage” and worker mobility. For employees, general advice about entering into such agreements will always be shaped by their own specific circumstances.

“First, we’ll call all the lawyers.”
–With apologies to Shakespeare

In devising answers to the opening scenarios, one common theme emerges. Legal advice is essential, whether you’re an employee presented with a noncompete or other restrictive agreement or a company contemplating either the implementation or enforcement of such agreements.

Remember Jane, who was concerned about why her company would ask her to sign a noncompete even though she is a current employee? Jane is right–her company is sending her a message, but it’s not the one she thinks they’re sending. By asking her to sign the noncompete in the middle of the project, the company is making it clear that she’s a valued employee whose skills and knowledge base are essential to continued success. The last thing the company wants is for Jane to leave. She is offered a substantial bonus for signing the document, a practice consistent with the legal necessity of offering something “of value” to employees who sign such agreements. Should she sign? If she plans to stay with the company and her own attorney looks over the agreement and finds that it is not unnecessarily restrictive, she can sign the agreement. If she’s feeling especially confident, she might even try to get the bonus increased or ask for changes in her benefits structure.

In the second example Bob, our sales applicant, was presented with a noncompete agreement on his first day at work that would restrict his subsequent employment elsewhere. Bob needs to think carefully about signing the agreement. Does he really plan to stay with this job long enough to make the restrictions worthwhile? Are the restrictions specific as to time, geographical area, and type of future employment? It’s in Bob’s best interest to ask an employment attorney about the reasonableness of the restrictions. If the restrictions are so out of bounds that the courts are unlikely to enforce them, then Bob can take a chance on signing and dealing with the consequences should he breach the terms of the agreement. Most legal experts advise against this. Bob needs to be direct with management about what kinds of restrictions he will accept. If the company proves unyielding, then he might be happier working in a situation in which such an agreement is not hanging over his head.

And then there’s Lydia, who was presented with a noncompete as she is preparing to start a new job, which the company says she must sign before recieving her promised severance pay and vested pension. Despite whatever hard-sell tactics management may use with Lydia, she is not obliged to sign any noncompete, nondisclosure, or other restrictive agreements when terminating her employment. She is entitled to whatever benefits her employer typically gives to departing workers as well as her legally vested pension and retirement benefits.

The company may use “extra” benefits, such as pay for accumulated sick leave, as incentives for signing. If Lydia feels she has nothing to lose, she might choose to ask for additional severance pay or other compensation for signing the agreement. Whether she signs or not, the provisions of the Uniform Trade Secrets Act or its state-level equivalents will still restrict her from sharing trade secrets with her new employer. But most legal experts agree that she is entirely within her rights to refuse to sign any agreements that restrict where, when, and with whom she can work in the future.

Noncompetes and Other Restrictive Post-Employment Agreements

Scenario one:
Jane is a Senior Research Chemist working for a multinational petrochemical corporation. As a part of a team developing a breakthrough “supermolecule” that may provide the answer to oil spill cleanups, she believes that she is a valued employee. She is dismayed when management asks her to sign an agreement stating that she will not work for another petrochemical corporation for at least 2 years after terminating her current employment. What does it mean? Is the company about to let her go? Should she sign?

Scenario two:
Bob just received his MSc in organic chemistry and has been offered a sales position at a company he has long admired. His scientific background will be valuable in working directly with a broad client base. When filling out his employment papers on his first day at work, however, his HR representative says that he is required to sign a noncompete and nondisclosure contract that restricts his employment elsewhere. Can he ask for time to think about it? What if the job doesn’t work out? Will he still be hired if he doesn’t sign?

Scenario three:
Lydia has worked as a clinical trials liaison for a pharmaceutical corporation for 11 years in positions of increasing responsibility. She has accepted a position with another pharmaceutical company. Although she previously signed no noncompete agreements, when she prepares to finalize her resignation, she is told that she must sign a noncompete before receiving her promised severance pay and vested pension. Does she have to sign? Is the company punishing her for leaving? Does she have other leverage?

Jane, Bob, and Lydia each have come face-to-face with one of the most troublesome and controversial aspects of employment in the 21st-century workplace. For many companies, especially in the sciences, knowledge and intellectual property have become the most valuable assets. “In the past few years, the life and death of companies has hinged much more on ideas,” says Shannon Miehe, an attorney and legal editor for, a legal resource Web site. “And protecting those ideas sometimes means placing specific restrictions on when, where, how, and with whom their employees work.”

The result has been a radical upswing in the numbers of employees asked to sign noncompetition and nondisclosure clauses as a condition of employment. A typical noncompete clause might ask that an employee promise that he or she will not work for a similar company in a specific geographic region during a finite amount of time after leaving a current position.

Many employees balk at what they see as signing away the possibility of better jobs. And the courts often agree with them, says Miehe, author of Noncompete Agreements: Retain Key Employees and Your Trade Secrets (Nolo Press; 2000) and How to Create a Noncompete Agreement (Nolo Press; Fall 2001). “Many courts look unfavorably on terms and conditions that restrict the employee’s right to earn a living.” Regulations, laws, enforcement, and standards vary widely by state, so that decisions about signing such agreements are difficult.

Although some experts believe these wide variations among states and industries will ultimately bring an end to such agreements, others point to recent court cases in which noncompetes were rigorously enforced. In June 2001, a former Avant! engineer was sentenced to a year in jail for funneling trade secrets between companies. In a few cases, courts have even indicated a willingness to support companies against departing employees and their new employers when no such agreements were signed at all.

Learn the language. How does the savvy employee approach a noncompete or other “restrictive covenant” when it’s presented by a new or even long-term employer? The key, as always, is to be armed with a working knowledge of the various implications of such an agreement, a range of potential strategies, and well-thought-out career goals.

“The word ‘noncompetes’ is often used as an umbrella term for restrictive clauses and agreements that are legally quite different,” says Miehe. The main types of restrictive clauses include:

Nondisclosure clauses: These are designed to maintain the confidentiality of private information, which can range from trade secrets to personal details from customer databases.
Nonsolicitation clauses: These are intended to prevent an employee from taking key customers or clients, either to another company or to start a new competitor.
Noncompetition clauses: These place specific restrictions on working for companies that make use of the same information or skills as the employee’s current company.
Nondisparagement clauses: These require that the employee say nothing negative about the company (whether it’s true or not) and often include wording that prohibits disclosure about internal politics, gossip, or other potentially embarrassing information.
Noninterference clauses: These bar the employee from encouraging other employees to leave the company. Both nondisparagement and noninterference clauses may also include wording by which the employee agrees not to sue the company.

The first two are much easier to enforce, says Miehe, because they deal with the transfer of specific and identifiable proprietary information. “Noncompetition agreements are sometimes seen as a safety net for nondisclosure and nonsolicitation agreements,” she says. “If the employee sticks to the restrictive terms of a noncompete, it’s a lot harder to be in a position to either give away important information or use the company’s client base.” Nondisparagement and noninterference clauses are often included when a company has specific fears about a bad relationship with an employee or about the possibility of a wholesale workforce exodus to a competitor.

Look beyond the legalese. Five kinds of densely worded legal restrictions on where and how you can work in the future are probably five more than you ever wanted to know a lot about. Especially if you’re about to start a new career, this may seem like one more set of dotted lines that require your quick attention before beginning a promising job. Legal experts advise you to step back and take the long view, asking the following questions:

Why does this company at this time want this type of restriction placed on your future employment? Is it reasonable?
How is this likely to affect or restrict your long-term goals? Given everything you know about yourself, this company, and the general field in which you work, does it seem likely that you can live with the terms of a noncompete or other restrictive agreement?

Answering these questions requires that you look at what you’re being asked to sign from two perspectives: the company’s and your own. Moreover, you’ll be better prepared to make a decision about signing if you know a little more about where experts believe such agreements may be headed in the future.

Protecting Workforce, Secrets, and Client Bases:
How Management Views Noncompetes

Noncompete clauses began to appear in the 1950s, with owners attempting to protect themselves from unfair competition. In the 1980s and 1990s, noncompete clauses became more common as a protection for medical practice groups that wanted to prevent physicians from leaving and taking their patients to a new practice. Most recently, the technical workforce shortage, especially in dot.coms and other high-tech endeavors, has led to a proliferation of noncompete and nondisclosure agreements and an escalation in enforcement and legal action.

For employees and potential employees, these agreements may seem unnecessarily restrictive. But for many companies, they represent a safeguard against theft of ideas and loss of workforce in a vital economy.

In general, companies use noncompete, nondisclosure, and other restrictive agreements to try to prevent:

The spread of trade secrets or confidential information: This is among the oldest restrictions on future employment and the one most honored by the courts. Apart from asking employees to sign an agreement that they will not divulge proprietary information, companies also are protected by the Uniform Trade Secrets Act. Employees and competitors can be held to the standards of the Act and its state-by-state equivalents whether or not they have signed specific agreements.
The flight of employees to competitors: In the recent tight labor market, this became especially important for many businesses. Even when the departing employees gave away no trade secrets, they left job openings that were costly to fill and affected the entire company’s productivity. Many of the legal actions that ensued were brought against the “raiding” companies. In 1997, Wal-Mart sued for hiring away 15 top information-technology specialists. The result for Wal-Mart employees was that the company began to ask that more of its higher-level workers sign noncompetes.
The loss of client and customer bases: When an employee has good working relationships with outside parties, such as suppliers or customers, the loss of that employee means an automatic setback in time and effort as a new employee rebuilds those relationships. Even more compelling is the need to make sure that the employee is not able to transfer these relationships to his or her new company.
Leaking information about the company’s inner workings: Sometimes information that is not strictly a trade secret can be even more valuable (or potentially damaging). A company that is undergoing an internal shakeup or turmoil or has longstanding management problems does not want competitors to know about potential weak spots. Companies look for ways to prevent ex-employees, especially those who left the company with bad feelings, from gossiping about everything from the personal habits of managers to the dollar amounts of annual bonuses.
Employees leaving to start a competing company: Every company has an interest in making sure that the skills and knowledge an employee acquires stay in-house. Losing valued employees is bad enough, but preventing them from forming competitive concerns is even more important to a company’s continued success. However, employees who want to start their own businesses are protected by a number of federal and state laws that support entrepreneurship. Even with a signed noncompete agreement, such employees must simply wait for the stipulated amount of time before beginning the new business. Smart companies often find a way to assist ambitious employees in beginning new concerns with the stipulation that the type of business or targeted client be slightly different, so that the two companies are not in direct competition.
Lawsuits by former employees: Many companies require that, at separation, employees sign away their right to sue the company. Sometimes this is because the company has reason to believe the employee is already contemplating legal action. Such signing is almost always accompanied with the offer of something of value (extra severance pay, extension of health benefits for a few months). Some state courts have held that even with a signed document and the receipt of compensation for signing, employees cannot be held to this agreement if the company has acted illegally toward them in the past.

Who should sign?

Not every employee will be required to sign a noncompete or other restrictive agreement. Every company has to decide which of its employees should be presented with such agreements. You are most likely to be asked to sign such an agreement if you are one of the following:

Employees who work in research and product development
Engineers, scientists, and others engaged in product design and invention;
Employees who do creative work such as branding, trade names, and advertising;
All sales and service employees who work directly with customers on the actual substance of what the company produces;
All clerical or processing staff who might encounter details of experimental, creative, or inventive work; and
Anyone with enough information to start a competitive company or similar business.

Who decides which restrictive agreements are needed?

If you work for a large corporation, in-house legal staff and a cadre of consulting attorneys take care of drafting, executing, and advising on enforcement of noncompetition clauses. “Most of our members have their own attorneys,” says Cynthia Bookout, spokesperson for the Consumer Specialty Products Association, with members that include a number of large chemical companies. “These become in-house decisions and really don’t come up as the subject of industry-wide conversation.” Each corporation has its own set of agreements, which may differ depending on the state in which the employee will work and the position he or she may hold. Consistency among similar employees, however, is important. If 17 scientists have the same job description and the same responsibilities, the company should make sure that any restrictive agreements they sign are similar. Charges of discrimination have been brought when employees could show that signing requirements were inequitably enforced.

Noncompete agreements are important for many smaller businesses. If you’re going to work for a small company, you may be surprised to see language that not only prevents you from sharing trade secrets but that restricts your ability to change jobs. For many smaller companies, the competitive edge may lie entirely on the shoulders of a few skilled employees. Losing these employees to a competitor could mean the end of the company. Many smaller companies look to print and Web sites to begin to structure restrictive agreements, turning to legal advisors to finalize the wording and structure plans for enforcement. You can see samples of the kinds of online advice your company may be consulting at sites such as Business Owner’s Toolkit .

Careful wording

One of the reasons that the wording of noncompetes and other restrictive agreements is becoming increasingly complicated is that more and more employees are consulting expert advice and hesitating before signing. A growing body of literature, including a do-it-yourself Web site,, assists employees in interpreting, negotiating, and sometimes circumventing the original intent of such agreements. One of the results is that most such agreements today are structured for “partial enforcement,” meaning that even if one part is found by the courts to be unreasonable, the employee can still be held to the terms of the rest of the agreement.

To enforce or not to enforce?

Especially for employees’ enjoying the warm welcome that usually accompanies signing on for a new job, it’s impossible to believe that this friendly company would ever enforce what seem like obscure legal formalities. Think again! Companies are pursuing former employees with increased vigor, even in states where the courts traditionally have been reluctant to enforce noncompetes.

Legal experts note that once a company decides to include restrictive clauses for employees, it should be ready to enforce them consistently. Miehe says, “If a company is selective about enforcing these clauses, then its chances will not be as good when the matter come before a judge.” The court might take such random enforcement as an indication that the company really did not take such agreements seriously (and therefore that they were not vital to the company’s success) or that the agreements were being used as retribution to go after a specific employee. Neil Caesar, an attorney who writes extensively on healthcare workplace issues, agrees, advising companies that: “Your ability to enforce a noncompete clause will directly relate to how consistently you enforce it…a noncompete provision should be only as restrictive as you are willing to enforce, and then should be enforced vigorously.”

The Standard of Reasonableness

From the perspective of employers, then, noncompetes and other restrictive agreements are means of guarding against a host of threatening events and business practices. Understanding this perspective can help you as an employee to identify what your company believes is really important about you and your work. Ultimately, though, you–like the courts-need to hold up these agreements to a standard of reasonableness. Is the company asking you to sign away more than you’re willing to give? Are you giving up rights that legally should be yours?

These and other questions, as well as tips for dealing with noncompetes, are included in Part 2 of this series. Part 3 looks at the future of restrictive employment clauses and revisits Jane, Bob, and Lydia to assess the potential impact of the agreements they’re asked to sign.

Good Things Come in Small Companies: Reconsidering Your Career Path

Graduate StudentsMany chemistry majors and graduate students envision themselves working for huge multinational corporations. These are the recruiters who come to campus, and these are the companies with the highest profiles. But “large” chemistry-oriented companies are in a distinct minority in the United States: only 2.3% of all U.S. chemical manufacturing and allied companies have more than 500 employees. More than half of the companies in this industry have fewer than 20 employees.

As recently as a decade ago, more than 70% of new chemistry graduates went to work for large companies and only 28% chose small companies (with fewer than 500 employees). Today, almost half of new chemistry graduates get their first job with small businesses. The trend has been strengthened by diversification in the industry, the growth of “boutique” biotech firms that need the support of staff chemists, and a competition for good workers that has given many chemists the opportunity to carefully evaluate what they want from the workplace.

But for many chemistry students and those who have entered the workforces of larger companies, the “small” company remains a mystery. What exactly constitutes “small”? How do the structures and rhythms of work differ from those in larger corporations? How do you learn enough about a small company to be sure you want to work there? And what goes on in there that seems to be attracting so many able scientists?

No One Size Fits All

The first and most important thing to know about small chemical companies is that no two are exactly alike. Using the definitions set up by the U.S. Small Business Administration, a small company can have anywhere from 1 to 499 employees. It can be family owned, employee owned, controlled by a larger company, traded on the stock market, or run as a research not-for-profit servicing the chemical industry. Although every company is required to follow national and local employment laws, the atmosphere and work ethic can vary widely, from come-as-you-are and work-the-way-you-need-to-work to fresh-lab coat-every-day and punch-the-clock.

Speaking broadly, however, the old adage is true: very good things can come in small packages. In general, smaller companies offer new employees certain advantages that they might not find working for larger corporations. Some of these advantages are quite tangible; others have to do with job satisfaction. Whether you’re a new graduate or someone thinking about switching employment, the small-company box may hold some pleasant surprises.

Sidebar: What Makes A Satisfied Employee?

What’s in the Box?

What’s in the small company box for you? Although every company is different, small business employees and owners report that a range of interesting opportunities awaits new employees.

Lots of hats: In a smaller company, you’re less likely to find yourself doing one narrowly defined job. Employees may be asked to perform in several areas of strength or to pitch in for group efforts. You may find yourself doing basic science in the morning and a sales rep briefing in the afternoon. The result is that you know more about the company and more about your own strengths and job preferences. You may find that a hat you never thought of trying on fits you perfectly.

A megaphone: Your voice is louder in a small company. One of the most common fears of recent graduates is that they will become silent cogs in a big-business operation. At a small company, each worker is much more likely to have the opportunity to speak up and be heard on topics from research and development to which kind of coffee to use in the break room. Your good ideas, for innovation of techniques or advancement of the company’s scientific mission, will have an easier time finding an audience with upper management. And if these ideas are adopted, you’re much more likely to find yourself a part of the team that sees them through to successful completion.

A smaller map: Smaller companies are usually more geographically circumscribed. The well-rounded workingman or woman of the 21st century who may have strong ties to family and community has (thankfully) supplanted the “Organization Man” of the 1950s. Many of today’s workers are reluctant to sign on with huge multinational corporations that may transfer them (or their entire units) as often as every 2 years. With a stable, smaller company you can be reasonably sure that your job will still be where you want it to be for the foreseeable future. And, if you’re looking to start a new job, small chemical businesses offer a diversity of geographic locations that allow you to choose your ideal community at the same time that you choose a new employer.

A piece of the pie: Many smaller companies offer their employees stock, shared profits, shared ownership, and other incentives to participate materially in the success of the business. These offerings are often more significant (and sometimes less risky) than the standard stock options offered by larger companies. Chemists at small biotech firms have found themselves suddenly wealthy in the new genomic revolution in medicine. Owning a piece of the business also may position employees to start up spin-off businesses with new technologies (and the blessing of the parent company). Most of all, having the opportunity to own a part of the company gives employees both a material investment and a sense of goal-directed teamwork that may be lacking in larger corporate settings.

A rubber band: The shape of employment in small businesses is as elastic as management wants it to be. Flexibility is high on the list of attributes all employees want in their jobs, and smaller companies most often have the latitude to structure your employment to fit your needs. Some newer companies take an entirely laissez faire attitude toward the scientific workplace: as long as you get the job done, it doesn’t matter how, when, or in what way you do it. Others allow as-needed deviations from routine-for doctors’ appointments, exercise, family matters-and require only notification of supervisors, without adjustments to pay or leave status. The flexibility of the small company also may allow you to try out different tasks, exploring new scientific areas, receiving additional training, and pursuing meaningful community activities, such as coaching Little League or doing volunteer work.

Secret compartments: Every really good package has some unexpected extras hidden at the bottom. In the case of small companies, these are the intangibles that everybody talks around but few employers address directly in their job advertisements or brochures. Smaller companies are more like families. You are more likely to be valued for who you are, form lasting relationships with co-workers and management, and make a real difference in the company’s mission and success. Sounds corny, right? But when asked what they most like about working for small companies, employees give these answers first. For recent graduates, the small company may provide the flexible and supportive atmosphere that can nurture a well-trained chemist into a great scientist.

Outside the Box

All of these benefits may come with a job in a small chemical business, but how do you find these employers? More important, once you’ve found them, how to you find out what which one offers the work environment and challenges that best suit you?

You can start looking for openings at small chemical companies right here on Professional journals and classifieds are another source of information on who is hiring where. But for the best jobs in smaller companies, the experts advise that you do some serious networking: tell your colleagues, professors, professional contacts, and others, exactly what sort of job you’d like to have. Ask if they know any smaller companies who are working in your areas of interest. Find out the names of the contacts at the companies, and do your research before calling or sending in a resume. Better yet, take advantage of the career assistance available at scientific meetings. The semi-annual meetings of the American Chemical Society offer career fairs at which prospective employees are matched up for a series of interviews with representatives of companies of all sizes.

You can get a good idea of the size, stability, and financial situation of a smaller company by a quick visit to the library or by checking on-line. Resources like the D&B Business Rankings from Dun & Bradstreet can tell you where the company stands, and a good reference librarian can point you to other resources that will tell you about the company’s history, work foci, growth, and organization.

Once you’ve identified several smaller companies in which you’re interested, how do you find out what working there is really like? The answer here is simple: arrange a visit. If you have an appointment for an interview, ask to see the facility. Do employees seem friendly, interested, and engaged in their work? Do they seem genuinely glad to see the manager or manager’s representative who’s taking you on the tour? Quite simply, does it look like a place you’d like to work? If possible, talk to one or two employees apart from your tour guide. Ask them to name the two best and two worst things about the workplace. Be direct with your interviewer in asking about profit sharing, flexible hours, employee participation in business decisions, and any other factors that are important to you in a job. Don’t worry about sounding pushy; the interviewer will see that you’ve given substantial thought to what kind of company you’d like to work for and that you’re looking for long-term, productive employment.

Think Small

When contemplating a career move or a first job in chemistry, keep small companies in mind. Finding the right one takes a little more effort, but the rewards may give you a career that is more satisfying and multidimensional than any you might have imagined.

Nan Knight is a freelance science writer and editor whose credits include Smithsonian exhibits, Discovery Channel Web sites, and a wide range of publications on radiation in medicine.

Related Reading

Chemical Employment in Small Companies from the ACS Department of Career Services discusses the process of identifying and applying for jobs in small companies.

Want to start your own business? Read Start Me Up: Is Small Business Entrepreneurship in Your Future? From the JobSpectrum Weekly archives.


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