This is a big deal. There are many niche industries (ex. Tire manufacturing) absolutely choked by non-compete agreements which force engineers to completely exit their field just to be able to advance their salary or career. This also was a huge barrier to new entrants because all the industry experts are locked up with non-competes. I've also seen these heavily used in the medical industry to lock up prevent medical professionals from moving to a competing hospital. people on work visas were especially hard hit because they can't just move to something outside their field of study.
Hopefully this leads to a more competitive landscape and gives some leverage back to the employee.
Non-competes should be a contract for a 'lengthy' severance pay period. It keeps the former employee out of the market, so the duration of the NC contract should be paid for at or above the normal rate of compensation + benefits. Depending on how it's booked for taxes / etc, E.G. if it's "You have to 'work' for us, and no one else, but on mandatory vacation, for X months, we'll pay you in full like that; and also do federal taxes etc."
Otherwise they clearly only provide damage to the employee and 'value' in extortion of that damage to the 'employer'.
No. What you're proposing only partially addresses one aspect of the issue: the financial fairness to the (no-longer-)employee. It actually doesn't even manage to do that very well -- because employees can't advance their careers, learn new skills, and get promotions/raises when they're unemployed. So they're still falling behind compared to someone who is employed.
Beyond that, it fails to account for all the other harms of non-competes -- such as the emotional toll it takes on that person (having no work to do is not something everyone considers a blessing at every point in their life), as well as the damage it inflicts on the rest of society as a whole.
If it’s really valuable IP that they protecting with a non-compete, then it would be worth it to pay someone a mandatory vacation upon leaving.
But how often are non-compete clauses really meant to protect IP? Most of the time it’s a tool to depress wages, they know it, we know it, they know we know it. No one is being fooled here that’s all it is.
If you put a price on non-competes, they will go away.
Paying someone not to work is a complete waste of resources. This isn't an area where people should be trying to come up with clever rules-lawyer contracts - someone able & willing to work sitting around not doing something is a huge waste for society, the person and whoever needs the work done.
It is probably going too far to ban the practice all-together, but no company should ever have the ability to stop someone from taking a job at a different company, today, if the pay is right. No union either for that matter, although that is a more controversial stance.
I think meaningful work is at least as important to the brain as Omega-3s. My father started experiencing memory issues after retiring, but then he took up some part-time engineering contract work and the memory issues went away.
My mother sank into deep depression after retiring... and not long after that, the dementia started setting in.
> because employees can't advance their careers, learn new skills, and get promotions/raises when they're unemployed
I think an employee could, just not in that industry. In software that's relatively easy, I switch between two different fields and industries every other job. I'd be curious about adjacent fields for engineers working on tires like in GPs example.
That is what they are. If a non compete contract has no monetary consideration, it is virtually unenforceable. Our business law professor in college told us very clearly to simply ignore any non compete and she was general counsel at several major firms. No one is going to waste their time on enforcement. It's all about making the employees scared witless.
"Not enforceable at trial" isn't the same thing as "they aren't going to send your new employer a nastygram that leads to getting fired after legal does a risk/reward analysis and decides to fill your role with the next available candidate"
Non-enforceability is not sufficient in this case, it needs to be prohibited under threat of harsh fines to add them to contracts in the first place.
Businesses know that the clauses are unenforceable, but since they are free to add them and they have some real impact - people not aware of their unenforceability may change their behaviour because of the existence of the clauses, and the threat of a lawsuit for any party involved is going to be a chilling factor in any case.
Time to make the cost of adding the clauses not free, to address the root cause.
I'm glad that's not the opinion the NLRB arrived at. It's an excuse to limit individual freedom. Plenty of other times excuses to limit individual freedom turned out to not be very good.
FYI, in all jurisdictions I know of, this is already the case.
I.e., a non-compete period in which you are not paid to a level commensurate to what you got before is not enforceable. If employers try to enforce them in court, they will lose.
Source: had a non-compete clause in employment contract that had no mention of any pay during period. Employer initially did not want to pay me anything during period. Hired some lawyers and they paid 100% of my salary during that period. All the lawyers did was write some letters, never had to go to court.
Correct. The problem, as with many things in the employee/employer relationship, is the power imbalance. Simply the threat puts fear into the employee because of the potential time and expense to fight.
Unless someone is a high level employee and/or leaves under bad terms, most companies just drop the issue if pushed.
This is what happens in banking. You get 3 months or so paid "gardening leave" if you go to work for a competitor to prevent you starting straight away at a rival institution.
No state enforces non competes that endanger someone's ability to work in their profession unless the company provides compensation during the unemployment period.
Incorrect, in a practical sense: If you would win after fully litigating the non-compete, but doing so would cost millions of dollars, whether or not the state is considered to be enforcing it is a distinction without a difference.
Not really. If you are not being paid, you can just take a new job during the non-compete period and if your previous employer sues you they will lose, and they know it.
They could still sue you just to make a point and make you spend money on a legal defense, but it's unlikely you'd spend millions of dollars.
In my case, employer didn't want to pay. Hired some lawyers to send a letter saying that either they paid me or the non-compete was invalid and ended up getting paid full salary for the duration.
I’m sure your anecdote will be comforting to all of the people who have worked for a certain Wisconsin EMR company and have tried to work for an even vaguely medically-related company within a few years of leaving.
“If your previous employer sues you they will lose” is not the counter you think it is. You were lucky they didn’t litigate and luckier still that they didn’t consider a non-compete of outsized importance like that Wisconsin company does: Some employers are extremely litigious, and will try to exhaust you in court because they believe they’re protecting internal secrets.
That sort of thing must not be discounted when considering what advice is appropriate in this kind of situation—and especially what the overall policy of a society should be: If the company I referred to above were a California company and you were an employee in California, “they will lose” and “you won’t spend millions” (or at least “you’d recover costs”) would actually be accurate.
You are right that this is state dependent, and I am certainly not a lawyer.
I have no direct knowledge about WI. My personal experience concerns NJ/NY.
Still, what I understood at the time is that, if the employer is not paying you at all during non-compete period, they will have a hard time enforcing it anywhere.
I am also surprised by the claim that it could cost millions to litigate about something like this, how confident are you of that number?
(And about CA, my understanding was that noncompetes are simply to allowed there, so it wouldn't even apply)
I’m fairly confident that at least certain employers who have deep pockets and are obsessed with non-competes (like that EMR) company would spend many, many times someone’s annual salary to ruin them for daring to try to work in an even tangentially similar industry (such as wearable health hardware) before their non-compete expires.
That specific company is delusional about where their profit comes from; they (specifically their founder/CEO and the surrounding execs) think it’s because of their awesome “ultra secret” technology and not a combination of regulatory and inertial lock-in. Like, they literally think their MUMPS codebase and the non-relational database backing it are what make them great, rather than something they’re successful in spite of. (And it does, to the degree that it encodes a huge amount of domain knowledge—derivative domain knowledge, based on the law, regulation, and insurance policies…)
But in that case, you're still limited in your choice of new employers, to ones that have both the ability and the will to spend significant sums of money challenging your former employer in court.
That's going to be a pretty harsh limitation in itself.
And what “certain pay out?” The company sues the former employee, if the employee wins they get to keep their job, effectively making that job cost millions. The employee would have to countersue, and that would carry quite a lot of risk of failure even if the employee wins the original suit.
You’re presuming the employee is suing to be released from a non-compete. Usually it’s the other way around, with a former employer suing to hold a former employee to a non-compete.
If you countersue a former employer that is suing you to enforce a non-compete agreement, that would probably be a significant element of the countersuit, yes.
Hope you have the funds to see that through to completion including all the appeals! It’s not like tortious interference is a crime the state would prosecute—just like violating a non-compete isn’t a crime where the state would prosecute. Civil actions are handled via lawsuits and they’re expensive.
Employer concentration has had a statistically significant negative impact on Wage Growth [0].
The fact that non-competes have spread beyond white collar roles into unskilled roles with nominal IP impact like janitorial work or sandwich making shows it has become an antiquated system.
I read somewhere that in countries like the Czech Republic, employers who deploy non-competes have to pay 100% of that employee's salary, which makes sense to me.
Put a reasonable financial burden on companies to prevent abuse. I'd happily sign that agreement.
Better than nothing but this is still a clear screw job for the employee. Ideally it would be 100% of their wage at a market rate - not the rate set by the previous company. Most people get a pay bump when changing jobs, so the previous rate is generally below market value. But also having to take 1-2 years off from work makes landing your next job a really pain in the butt. Would you want to hire someone and then wait around for a year before they start? Makes it harder to forecast and it means a project takes an extra year to ramp up? Good luck trying to join a start up.
An outright ban on anti-competitive/anti-labor policies is just much simpler for everyone involved.
I get the appeal of a “garden leave” where you make your salary but don’t work. It’s a nice break after hard work before your next thing… but can you “quit” and voluntarily leave early?
If you can quit the extended severance period, it would force employers to pay the market rate of their anti-competitiveness. If someone’s salary is X and they find a new job at 1.25X, then some would take X to do fully paid vacation for a few months after quitting, but surely some would force the old employer to pay up.
I thought one complication over garden leave is that the payout is set on base compensation where finance may be heavily skewed towards bonuses/equity.
The garden leave I’ve experienced was a negotiated payout. It was more than my salary but less than I’d potentially made if I hit all bonus targets. Importantly (in the US) it included health care.
Here (another EU country) non-compete clauses are only enforceable for management and above and can't be longer than six months, even when it's customary to write down that clause in pretty much all employment contracts.
Likewise, most tech sector companies also claim ownership to all IPR created by their employees, but by law that is only limited to actually patentable inventions.
> General Counsel Abruzzo explains that in some cases, noncompete agreements could be lawful if the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships. Moreover, there may be circumstances in which a narrowly tailored non-compete agreement’s infringement on employee rights may be justified by special circumstances.
They've already nuked confidentiality and non-disparagement provisions in severance agreements and now most non competes (with some arguably legitimate exceptions [1]). With time, one expects more progress. But they've done a lot in a relatively short amount of time already.
They can try to claim that you’re using material from them, and the terms flip the burden of proof, and other underhanded tactics. It’s not just what you think of when you hear NDA, even though it’s called an NDA. It’s a sort of Frankenstein NDA.
In case you're unclear, Silicon Valley is in California. Noncompetes have been legally unenforceable in California (in nearly all circumstances) for longer than there's been anything called "Silicon Valley".
People have been known to write them. In fact it got so bad that the California AG had to issue a press release a couple of years ago as a "reminder" that they weren't enforceable. But they have never had any effect other than to intimidate the stupid.
>...never had any effect other than to intimidate the stupid
I do not care for that characterization. Most people are not familiar with the intricacies of employment law. It is unfair to expect the average person to know that this magical spell in their employment contract is invalid, unlike the other magical spells in that thick document, because a magical spell at the state capital says otherwise.
Maybe all the contracts I saw there were unenforceable, even before the California Supreme Court case everyone talks about, but they were certainly common (I lived and worked in California in the late 1990s and early 2000s).
I took my first job in California, at a company in Silicon Valley (in the actual silicon industry), in 1985. Everybody knew noncompetes were unenforceable then, and in fact nobody asked for them.
The 1990s Web kids had a certain ideology that led them to believe that no law could possibly say what California law has said since 1872. But it has always said that.
We have apparently hit a reply depth limit, so I'm "replying to myself".
There's a recognized carveout for business sales, and I think a couple of other things that don't implicate the ability to ply your trade. You might be able to stretch some of those to some restrictions on employees in some rare case. And I think that at some points the intimidation got bad enough that even some lawyers had lost track of reality, so I wouldn't be surprised if some people had settled some cases they shouldn't have settled, or even gone to court and failed to raise arguments they should have raised.
But the basic thrust of the law is refreshingly clear, and it's statute, not just customary law.
... and now the depth limit seems to have disappeared. Maybe it's a time restriction.
I forgot to mention that people also get noncompete mixed up with nonsolicitation. You can't hire me as a framing carpenter in California and try to demand an agreement that I not work as a framing carpenter for another contractor, or even that I not start my own company. But you can require that I not use relationships I built with your customers when I was your employee to convert them into my customers. And obviously there can be grey areas there.
For "Valley" purposes, that usually only affected people in sales, though.
... and you can NDA me and say I can't use your secret hammer grip. You just can't completely stop me from competing with you if that meaningfully restricts my ability to do the kind of work I know how to do.
There were exemptions to the ban, right? Maybe all these noncompetes were done under the auspices of the trade secret exemption? I believe you, and I'm glad you called me out, but I also trust my own memory of this. There's a string of HN stories about it, as well.
Yes, though I feel like noncompetes were pretty standard for several years after that. Certainly in the years leading up to it they were; not only were noncompetes normal, but so too were IP contracts that assigned any side-project work you did in your off hours to your employer.
All I'm saying is that you get well past the Google IPO before it becomes broadly accepted that noncompetes are invalid in California, which certainly rebuts the idea that Silicon Valley succeeded due to a lack of noncompetes. (Noncompetes are mostly very bad.)
> the idea that Silicon Valley succeeded due to a lack of noncompetes
When people say "Silicon Valley succeeded," they're talking about Silicon Valley, the mythologized founding of the semiconductor industry in the 50's and 60's, beginning with the so-called Traitorous Eight. I think Apple's origins are also believed to have been enabled by the non-compete-less environment. It doesn't as much play into the success from the Dotcom era onwards.
Pretty standard in that they were included in what you sign when you start a job? Or standard that they were actually enforced? When I was in California in the mid 00s I worked at several jobs that gave me a noncompete to sign when I started, and I knew then that they were unenforceable.
Noncompetes are virtually unenforceable everywhere. Our business law professor told us to ignore them as long as you never accept payment for them. Or you can simply not sign them.
I have personal friends who lost jobs when their employers were threatened with interference lawsuits for hiring them while they were bound by a noncompete. More than one. They are not virtually unenforceable.
It wasn't enforced in your friend's cases though. Their employers got the heebie jeebies. That's an at-will issue.
I do agree that the NLRB should go on an advertising campaign to inform employers that previous employers threatening legal action basically have no basis in law and you should just send them a reply saying 'No thanks'. Because that's what you should do in virtually all circumstances.
I think the distinction doesn't really matter. If an action taken by a company -- even if based on illegal contract terms -- causes harm, then the effect is the same. The idea of the "chilling effect" is predicated on this: if someone can ruin your life even if you are in the right and they are in the wrong, it doesn't matter what the law actually says.
The noncompetes I've seen in California tech companies prohibit simultaneously working for the company and its competitors. But you could always quit to work for the competitor, as long as you don't break the confidentiality agreement and don't break the recruiting agreement.
It's more complex when you work at a megatech company and there's barely anything you can do that could not be consider competition, but at a smaller company, it's not too restrictive.
> One of the key factors to Silicon Valley's success has been a lack of non-competes.
Yes and I think that was a big factor when tech was made by "hackers" who had an open disdain for the rules. I think that lately even an unenforceable noncompete is enough to scare people away from competing directly with a former employer. And let's not forget the infamous Meta/Oculus fiasco (trade secrets issue, but close enough).
This seems like a reasonable rebalance of power in favor of labor as opposed to capital -- that needle has shifted way too much towards capital in the last few years.
However, since we have seen several U-turns in the US recently due to changes in political party, I am apprehensive that this will be flipped immediately the next time there's a Republican president in power (and consequently, their appointees at the NLRB). Unfortunately it seems as if only one party is interested in these sorts of pro-worker regulations.
Just curious - have any investors pulled out of an investment because one or more of the most senior / talented employees of a firm has left to found their own or to join a competitor? One employer I worked with had pretty much grown around the skills of a tech lead whose business they had bought out. If he had left, their growth would have been compromised. Saying that, I thought he was under-compensated - I am not sure what the compensation model should be to retain key talent, but I think part ownership of the fruits of one's labour seems logical. This is at least an incentive to stay as opposed to a disincentive to leave.
The NLRB is an executive agency, set up to enact the will of the legislation passed by Congress.
Courts rule (in this context) on the validity of laws passed by congress, as well as the consequences of their implementation.
An NLRB lawyer saying something is merely an indication of a policy direction. Should the NLRB act on it by, for example, fining companies that have non-compete clauses in employment contracts, the companies would have to take the matter to the courts to seek redress. From there, a court may side with the NLRB, deciding that banning non-competes is within their mandate and that the mandate from congress itself does not violate the constitution. They may also side with the companies, determining that such fines exceed their mandate or that the mandate itself is unconstitutional.
That's great. You can't claim being a "right to work" nation, and prevent anybody from seeking better opportunities through some shady clauses in a contract. But the US government should make NC explicitly illegal.
That doesn't exactly support the idea of "you should have used this other already-taken phrase". So I still don't understand the 'correction' here at all.
For the specific reason of getting confused with the existing context, I would understand a conclusion of "don't use either" but I don't understand why that's a reason to prefer one or the other.
I was under the impression most non-competes were largely unenforceable unless meaningful consideration was given, e.g. in connection with selling shares in the sale of a company
Eh, after talking with a lawyer about one, meaningfully consideration is not all that meaningful. A couple grand raise for a new non-compete was, at least by his standards, solidly “meaningful consideration”
This is pretty good for me (tech), my wife (healthcare), and a lot of other people with onerous non-competes. Long past time we actually create a free labor market.
This is a nice signal on what the NLRB's interpretation and enforcement focus could be going forward for at least the life of this administration, but don't start throwing hats up yet. It's one thing to say they violate labor law, but even the NLRB has to prove they violate labor laws if they want to crack down on the practice.
> Observers on both sides say that limitations on the clauses will compel employers to get more creative about how they retain talent, using everything from compensation to career advancement to keep workers engaged.
So someone can now work at AWS and Google Cloud at the same time? Specialists are going to benefit immensely from this now that companies can't hog them.
The memo is something you can present in court, but it isn't law. No telling how the courts will look at it. In general courts don't look on noncompete well anyway unless strictly limited (a person should be able to make a living in their field, so if the noncompete stops that they are a hard sell). But each state is different, so check with a lawyer .
I'm fine with a noncompete, as long as you pay me for the extent of the noncompete period, and compensate me at at least as much as any competitors would for that period.
