Investors want to be protected and their attorneys will do anything that's necessary to make sure there aren't loopholes left open for ideas to be stolen.
The result is poorly drafted and ridiculously broad non compete clauses that would not be enforceable in most if not all states.
However even when they may not be enforceable (and you will hear the hiring manager saying that 100 times), non competes can still hurt candidates big time once they go back to the job market because many companies actually have provisions to disqualify those coming in with the extra baggage of a non compete.
If candidate A and B have very similar skills and experience and A has a non compete and B doesn't, why would anyone bother with A?
So it is true, non competes are in most cases non enforceable but they can still reduce your chances of getting a (better) job.
I declined offers after months of negotiations because of non competes and I would advise others to refuse to sign them, unless you desperately need the job, the compensation package is amazing or there are provisions or amendments to the clause, like a reasonable garden leave, that compensates you for having to carry a stinky non compete agreement on your forehead for an entire year or more if things don't work out.
If they want the non compete, make them pay for it, don't pick up the tab yourself.
Get a lawyer, ensure it's not enforcable, then sign it.
If you're in CA, sign it. If you're in MA and there is no garden leave clause, sign it. Then do what you want.
When a hiring company asks if you have a non-compete, specify: "I am not bound by an enforceable non-compete". If they ask for specifics, explain and mention the law firm you consulted. This has always worked for me.
I suppose you could also just say you're not bound by a non-compete, and leave it at that, as that's also not a lie. If I sell myself into slavery in the USA, then I can -- without lying -- tell everyone I'm definitely not a slave. Because I'm definitely, absolutely, not. Non-competes are no different: if it's prime facie unenforceable, then you are NOT bound by a non-compete, full stop, end of story. But I like to be a bit more up-front.
> If candidate A and B have very similar skills and experience and A has a non compete and B doesn't, why would anyone bother with A?
I've admittedly never been in this situation -- at least as far as I know -- because my skill-set is pretty niche (ie, I am pretty sure that I have always known all the other people in the world who are interchangeable with me for a particular position when I get to the stage of negotiating the offer).
There's a lot of daylight (and a few thousand dollars in legal fees) between "would be thrown out upon casual perusal" and "is not technically enforceable, but we'd have to litigate in front of a sympathetic judge".
The issue has never, EVER been whether or not Jimmy John's non-compete is enforceable, its that a person leaving a Jimmy John's for a $0.50/hr raise at the Burger King across the street can't afford to litigate it, and the Burger King franchisee definitely won't pay to litigate it.
For those of us who can afford a lawyer to analyze a non-compete clause (and the barest of legal fees necessary to show in front of a judge such a clause), they aren't really an issue. But that's actually a pretty small subset of the population.
Reference: https://www.upcounsel.com/blue-pencil-rule
What if the law changes and now it's enforceable? What if you move to another USA state, or to another country, and it's enforceable there?
if the result is "poorly drafted and unenforceable", how can you say that they "made sure there aren't loopholes left open for ideas to be stolen"? makes zero sense.
I mentioned my prior employer made me sign a form similar to the one they had made me sign.
An hou later I was pulled aside by the CFO, and quizzed about the tech I used at the previous company (to make sure it wasn’t the same tech we were using there).
I was worried I had just lost my job.
Which is such a clear and obvious lie that I'm amazed they even bother to say it out loud. There already exist several contractual and legal mechanisms that do a much better job of protecting trade secrets and confidential information.
Noncompetes aren't needed for this, and are only marginally useful for this at best.
I once caught a company I worked for in the lie about this. I was advocating for a new employee who didn't want to sign the no-compete clause. They say they needed it. I asked what problems they had in California, and how it was impacting their business - they replied there were no problems. So I was like, "Ok, so if it isn't impacting you in CA, why do you think it will impact elsewhere?"
In the end, they did hire that person, and did not make them sign the non-compete.
There is no financial incentive for them to say "We don't need noncompetes" or even "You know, it really doesn't affect our bottom line either way." So instead they will always say "Of course we need it." There's no downside.
I'm trying to think of a case where I want to hire someone, HR says I need a non-compete, the candidate won't sign one, and I don't push back against HR. I'm coming up empty. That said, if a colleague wanted to hire someone, I was iffy on them and saw a string of short employment stints, I might press for a gardening leave or tighter NDA regarding client lists and IP.
California hasn't had noncompetes for a long time (B&P 16600). But if you look in the code right around there, there are a few carveouts that cover most of the situations that are used most of the time for legitimate cases, like the split up of a closely held company.
There are other extreme examples that use a slightly different legal theory, like professional athlete contracts, which also rely on the forbearance of the other teams from employing the person in that specific role, though if Lebron wanted to pour beers for the Knicks, I'm doubtful that's covered. (Back when they were the worst team in existence, I did some work for the Warriors.)
The real reason they're haven't been so many issues in California is because they make you sign all kinds of things about IP, trade secrets, and so on which they will always start with if they really want to block a move. The courts know the score, they know this is just non-compete by other means, but if you cover your bases, it usually works (i.e. move is ok). Your new employer knows the score too and will usually just work a deal or fight the case. But if the cost gets too high, or maybe you kept an email print out you shouldn't have, it can get gnarly/expensive. And even just that drag/delay is enough of a deterrent.
So what's left? An employee who leaves with no critical information who just wants to open a competitor near by? There are a few circumstances like this where it might matter. Small company, key employee leaves, he has no IP, but it will probably impact your business. So what do you do?
Realistically, you probably engage in guerrilla tactics. And this brings me to my steel man.
How much of the oblique, bank-shot BS litigation (the guerrilla tactics I mentioned) about "trade secrets" is really just back door non-compete? That's your cost. Your benefit is free movement of employees, which means employees have more leverage in a freer market for labor and employers have to run their business well and can't just collect rents on their non-protectable intangibles, like being the only iPhone repair shop in town.
If you had a fair, reasonable standard for non-competes that had statutory limits and were void otherwise and that had to be supported by separate consideration, sort of like how we're trying to do employment arbitrations here, then I might be interested whether this cancels out the BS trade-secret litigation is enough of a benefit to outweigh the cost.
Of course, I doubt it. I've been involved with this stuff for decades and it's never perfect, and I understand that other states might want to be careful about adopting California stuff, but this statute is so old that it's from when Earl Warren was governor.
No one will miss these much. But I think the next question is how to tone down these BS trade secret cases too.
Employers do have legitimate concerns in their IP, but those are protected other ways. Maybe they don't believe that can be done easily. Or maybe it's in your brain and you can't unforget. Well, then the solution is in the IP universe, not in keeping competition out.
tl;dr best argument is that it's the only practical way to protect IP, but this can be addressed other ways both legal (contracts, lawsuits) and nonlegal (cybersecurity), which is exactly what people in CA have done sometimes too much.
There are also a lot of asshole business owners out there. A friend once had a former employer successfully enforce a non-compete agreement against him for structured cabling work while his daughter was undergoing treatment for leukemia. He had to drive 200 miles one-way to work for a year to avoid being sued. For snaking Ethernet cables behind drywall.
It's just bullying. Do you have $50K to drop on a litigator to dismiss a lawsuit from your former employee? If you were a startup hiring someone would you want to burn your valuable equity dollars on such legal defense? Probably not.
The best defense is a good offense.
You should just be asking for dismissal. You should be be counter-suing for legal fees + k*N, where:
- N is l.b. by the total value of your possible employment contracts, including any active offers and your current position. Where total value is defined as total comp out m years, where m is the last day of the last stock grant.
- k is the maximum possibly relevant statutory damage multiple.
ianal; my lawyer is not your lawyer.
If people are moving around to competitors, information will leak, intentionally or not, in small doses or large.
You can call that a feature or a bug. If you call it a bug, then you'll try to prevent people from moving, because when they do, it's too late.
When I was at Apple, in my free time, I started hacking on a clone of Plex Server. I had gotten multiple emails around the time saying that open-source policies have changed, and every open source contribution needs to be approved by the VP of technology, which sufficiently scared me. I managed to get a meeting with the VP of tech when I was in California, and while he was extremely polite, his response was that because my project dealt with video, and Apple sells video, it's therefore competitive, so I need to immediately stop working on it. [1]
It honestly kind of soured my opinion of the company, and I subsequently became a kind of crappy worker, because I stopped really caring if I made Apple better. I stayed on for about 1.5 years after that, and accomplished very little in the aftermath.
If he had just let me open source my stupid project that, lets be honest, would not have diverted a single dollar away from Apple, I think they would have gotten much better work from me by the end of my time there.
[1] Yes, obviously I could work on it in secret, and maybe it was a fools errand to ask permission on this, but I really didn't think Apple was going to be so overly broad with their definition of "competitive".
Confused, I said “but I would be doing this on my own time, not during work hours”.
His response was to say that Apple pays its employees pretty well so there really isn’t a dichotomy between “my time” and “Apple time”.
Here in France we can have them as well but there is a counterpart: if I want to go to a company which is a competitor, my current employer can say no but they have to pay me for that for the time of the non-compete (something like 75% of the salary). This is the law and they have no choice (short of not enforcing it)
Non-compete clauses must also be limited in scope (geography and profession) and must not stop employees to live from their trade. As a result companies rarely exercise non-compete clauses since they are regularly thrown away by courts ("conseil des prud'hommes" in french).
Still they are part of the so called "standard work countract". I imagine most companies just get their base contract copy-pasted from the same template.
The amount also depends on the employee (some employees can actually negotiate if they have the upper hand, others as you mention get what is in the contract). On top of that there may be provisions in the collective agreement (convention collective). An example is the collective agreement for metallurgy (CC Métallurgie - this is a French thing and the name is historical) where the lowest compensation is 50% of the salary computed over 12 months.
You see it in Oil & Gas a lot. Take 2 years off w/ a 80% pay, teach at a local community college or something for a minute, then back to the industry, etc. etc.
If you take it as an axiom that capitalism is an ideology designed to acreed economic activity to holders of capital -- and you should, it's literally in the name -- then "right to work means union busting and strong non-competes that sacrifice the right to work on the alter of return to capital" makes perfect sense
[1] https://www.fraserinstitute.org/economic-freedom/approach
> Many types of labor-market regulation infringe on the economic freedom of employees and employers. Among the more prominent are minimum wages, dismissal regulations, centralized wage setting, extension of union contracts to nonparticipating parties, and conscription. The labor-market component (5B) is designed to measure the extent to which these restraints upon economic freedom are present. In order to earn high marks in the component rating regulation of the labor market, a country must allow market forces to determine wages and establish the conditions of hiring and firing, and refrain from the use of conscription.
I have never seen a single convincing argument for why companies need non-compete agreements for employees. Every single argument I have been provided, including the arguments in this article, are not even covered by non-compete agreements and are actually covered by non-solicitation or non-disclosure agreements instead.
Non-competes are amoral, create a social and moral hazard that depresses wages and further imbalances the power relationship between employees and employers, and are on their face rather stupid. There is not, and never has been, any legitimate reason for any company to put a non-compete into their employment contract. The only reason companies do this is because they're allowed to and any competent corporate attorney will try to get as much over on the other party as possible in a contract negotiation.
This research is completely unsurprising to me. Anyone with more than 5 brain cells to rub together can easily figure out that non-competes are a total farce and have no reason for existence.
This change in the law killed all the non-competes for software developers, because it was ridiculous. If you wsnt me not to work then pay me for my time.
It's basically along the lines of, "we know you have talent in x niche, which is why we are hiring you. However, you will no longer be allowed to work in that niche if we part ways for whatever reason" Yeah, ok.
I said "I'm not signing this", they did the old it's not a big deal thing and I said if it's not a big deal you can change it.
In theory he was supposed to give me a reworded NC, but he promptly forgot it. Un/fortunately for him they didn't have anything that I would compete with.
When you put those two approaches side by side, you're almost forced to say Meta did it better, simply because if an employee bound by a noncompete can't work for a rival, at least Meta was paying them not to.
The difference is that non-competes are (mostly) illegal in California, so silicon valley tech companies don't use them at all. Meta has no choice but to employ and pay developers if they want to stop Google from having them.
At a past job, there was a 2-year noncompete clause that stated I could not work with any company, anywhere in the world, who currently competes or might someday compete with the company I was at. I'm in the biotech industry, so I was unimpressed when I first read that. I can only imagine it was designed to intimidate people who would take that clause at its word, not realizing it was so broad and vague that it would be unenforceable.
Those who want control might suggest otherwise, and they might actually believe it, but that's just lack of creativity (thinking of other possible worldviews) or empathy (realizing that others might see things differently).
That's why they're unethical -- they're using a former employee as a kind of cannon fodder in a business war.
I agree that’s one purpose, but I think another is to penalize the employee for leaving, discouraging them from doing so… and as a result increasing retention and/or reducing the pressure on the company to deliver increased benefits and wages in the future.
The labor pool of potential fast food workers is so vast, and the number of employees is so vast that it’s very clear these non competes were intended to threaten workers and suppress wages.
And along with the GOP are working to remove those laws/restrictions.
https://businessinsider.mx/fair-labor-standards-act-hiring-c...
/s
https://newjerseymonitor.com/2022/07/06/teens-in-n-j-can-wor...
Let's assume no Monopsony. Let's assume no collusion by employers, since this is explicitly illegal, indeed it did happen, but the tech firms were slapped on the wrist for it.
Why do employees not attempt to strike out those portions of their contract? Why does no entrepreneur create a tech company with one of the innovations being a no "non-compete" clause and using that to woo employees?
My guess is that employees do not actually dislike non-complete clauses that they would accept a lower wage in compensation for no "non-compete".
* Lack of laws. Non-competes should be treated as an exclusive employment by the company, to expressly NOT work on any of the covered topics. They must be funded.
Why does there need to be a law here? Why don't employees say: "If you want a non-compete you have to pay me $X/hr more" or conversely if non-competes are common : "you can pay me $X/hr less if there is no non-compete".
That this doesn't happen, and that there isn't a wiley entrepreneur out there figuring out that "if everyone would take X less for non-compete job, I'll offer then X/2 and make bank!". Since this doesn't happen, this means that employees don't care much at all.
I think this is the root of the problem. They do not attempt to compute a price.
