I've been thinking of a mutual defense society for startups in Washington who in good faith hire someone and the employee is then threatened by Amazon or Microsoft, as a former employer, on non compete grounds.
I suspect if you were willing to completely go to war over a hire, you could ultimately get noncompetes invalidated. The problem is the chilling effect on marginal hires -- it usually isn't worth going all the way on hiring someone when you have other options, and even when it is, it makes sense to settle and move on (for both sides).
(From what I've heard, Amazon is particularly egregious in enforcing noncompetes. I believe they are an unconscionable and unconstitutional restraint on individual liberty, and believe the federal courts would agree, as well as the court of public opinion.)
Perhaps the main thing such a society could do is maintain a website with data about employers that have non-compete clauses in their employment contracts, and the extent to which they try to enforce them (like Chilling Effects, but for employers).
If prospective hires for such companies knew that they would be seen as damaged goods on the employment market as a result of working for a certain company, it would influence their choice of employers, especially in the common scenario of having a few offers to choose between and not having much else to separate them with.
Sounds nice in theory, but in practice the greater part of offers at the high-end employers, like Amazon, Google, Facebook, is made through referrals or internships. Everyone who signs up has the full picture already. I just can't see this work.
A lot of times employers say "This is industry standard." or "Everyone else has the same sort of agreement."
If such a website listed companies that good/no non-compete clauses, it gives ammunition for prospective employees. Esp people with multiple offers, during the negotiation, the candidate can point to a competing offer from a company with no non-compete clause.
Are employment agreements secret sometimes? Can anybody get in trouble for disclosing the agreement they signed? Can a third party like we're proposing get in trouble for publishing such agreements?
The common piece of advice that you get is to run your employment contract past a lawyer. That's good advice. If the landshark is any good they'll tell you what is industry standard and what is overreach. You don't need no website, you need a professional network and some sense.
This is good advice for many people, sure, but not a replacement for transparency. Several companies I talked to for my first internship came with NDAs and noncompetes, and there's no way in hell I was scraping together lawyer money to address each one. Googling and asking friends was the only thing going.
Remember that freaking Jimmy John's sticks their sandwich makers with noncompete clauses. These are not people who have the freedom to reject a job offer, the pull to renegotiate a contract, or the money to hire an attorney. But they might well have the option of checking out a website and deciding which fast food places to apply to based on how abusive the contracts are.
More broadly, I'm skeptical of any argument which starts from "this doesn't need to be publicly available knowledge, just pay a lawyer to tell you how things are done". Personal legal advice is a good hedge, but it often highlights points where transparency is lacking and people without savings are getting screwed.
Having and hiring your own expert to negotiate helps.
But shining some very bright sunlight on practices and abuses helps as well. The more Amazon (and its recruiters) hear "I don't work for assholes", the better.
Markets rely on well-informed participants.
Also Microsoft. And, on different grounds, Oracle. And Google, Intel, Cisco, and Apple ("anti-poaching" market collusion -- the case is still ongoing AFAIK, though I've not been following closely).
I've many reasons for avoiding the industry, but these are among them.
Agreed. It's always a shame that the response to purported market failures is either (1) attempt to regulate directly or (2) do nothing, rather than (3) attempt to fix market failure through narrow means.
Are non-competes somehow acceptable when the supply of potential employees is higher? If the answer to that isn't "Yes" it's clearly not a market failure.
This isn't just theoretical by the way. There are quite a few cases of companies with non-competes forced on low-income employees often without them understanding the ramifications.
Non-competes prevent competition and therefore stand fundamentally in opposition to a free(-ish) market. There is no reasonable response but to either ban them completely or force companies to pay employees an income for as long as the non-compete is in effect.
> Are non-competes somehow acceptable when the supply of potential employees is higher? If the answer to that isn't "Yes" it's clearly not a market failure.
> This isn't just theoretical by the way. There are quite a few cases of companies with non-competes forced on low-income employees often without them understanding the ramifications.
There are many more kinds of market failures besides lack of competition. The one you suggest here is information asymmetry.
If you believe that a company should be able to have any say whatsoever on what a person does after they've left the employ of that company, then yes, you are unreasonable.
So let's say you're offered $500k a year to work on some cutting edge secret technology, something that improves the relevance of web search results by 50%. The company would be crazy to not have a noncompete. What else stops you from going to a competitor and applying everything you've learned to their product? You're basically calling for the effective end of most trade secrets, that aren't easily enforced directly. Alternatively, you'd have yourself take a huge paycut in exchange for the freedom to quit (or get fired) and live the life for a few years.
Edit:
I'm rate limited, but the replies below me claiming that China has no obligation to abide by our patents are mistaken. They've signed up to various treaties that do require them to respect American patents. They choose not to, and we mostly choose not to retaliate for it, for many reasons. Maybe we should.
What sort of hypothetical situations that would apply to an insignificant fraction of the work force will we attempt to accommodate to the benefit of corporations and the neglect of the VAST VAST majority of workers?
If your scenario were what companies by in large used non competes for then I doubt anyone would have a problem. But in the meantime they're mostly using it to fuck people over en mass. Maybe if they behaved like adults, but in the modern business environment where anything legal is good, sometimes you need to take away the toys from entities that basically act like a bunch of toddlers.
I used an extreme example to counter the argument that any such restriction is always unreasonable, which is what I was responding to.
But there are reasonable restrictions for lower-pay workers too. E.g. requiring that your secretary not work at your direct competitors for two years after leaving. Secretarial jobs at your competitors are probably a tiny fraction of the whole market for those jobs.
Replying here because I'm rate-limited: Because your secretary might know a great deal about your business strategy and plans.
Executive non-compete agreements always include monetary compensation for the non-compete period.
Peon (aka almost everyone reading HN) non-competes almost never include any kind of compensation. Companies rarely pay above-market rates or offer to pay anything during the non-compete period. They basically slip it into the employment agreement because they can.
What's good for the goose is good for the gander, don't you think? In the legal world it's called "consideration", as in courts often invalidate contractual provisions or whole contracts unless there is some kind of consideration, and especially when the balance of power is tilted.
> So let's say you're offered $500k a year to work on some cutting edge secret technology, something that improves the relevance of web search results by 50%. The company would be crazy to not have a noncompete. What else stops you from going to a competitor and applying everything you've learned to their product?
Around here noncompete clauses are fine but nobody include them anymore as the company might have to pay salary for the employee for the entire noncompete period all while the emploee is free to go on paid leave or take any other work as long as it is not targeted by the agreement. (At least this is my understanding of the explanation I got from a former boss when I asked why that clause was removed from my revised contract.)
This gives the full liberty for the employer to gave non-compete clauses only it assures they don't add them willy-nilly just because they can. For high-profile cases like you mention this seems like a perfect deal, doesn't it?
you're offered $500k a year to work on some cutting edge secret technology, something that improves the relevance of web search results by 50%. The company would be crazy to not have a noncompete.
That must explain why there have never been any innovative search engines from California, where non-competes are null and void.
What stops you from just publishing your secrets for free? Non-competes don't protect secrets, NDAs do. Nobody is suggesting to get rid of NDAs.
Non-competes exist to temporarily protect a company from a former employee taking advantage of the secret knowledge they have. The fair thing here is to pay employees for that time.
Because the details of how you accomplished something inside the competitor's system are themselves secrets that your former employer cannot see. It's very difficult to enforce.
In the relatively rare cases where that's true they would also consider it worthwhile to pay someone to sit on the beach rather than work for the competition. Do you think Intel would blink twice at paying a top chip designer full salary to work on their golf game or volunteer somewhere rather than jump to AMD?
The main objection is that you're expected to help protect their business without any compensation.
Beyond what pyre noted about a time limit, the kind of people who have those highly-important skills and knowledge tend to be the kind of people who are looking for new accomplishments.
I'd expect some would go somewhere different (e.g. leave Intel to work at AWS learning more deeply about what people do with those chips before jumping back), be grossly underpaid helping their favorite charity, take classes/do research, etc.
It's not indefinite. There are already non-compete contracts that exist like this, and there doesn't seem to be a problem with people purposely using them as paid vacation.
You get golf on the beach when you leave no matter how long you stay at Intel (in this hypothetical scenario). Leaving now doesn't get you more golf on the beach.
Salary is generally understood to be compensation for the work you've performed; attempting to redefine it that way would require them paying considerably over the normal unencumbered market rates. Those kind of deals do happen but they're rare: people with very specialized skills or connections do get paid for exclusives and the arrangement is formalized up front and comes at a hefty premium, not hidden in what otherwise looks and pays like an ordinary job.
As for “relatively rare”, most claimed trade secrets aren't as sensitive (or hard to independently reinvent) as people like to think. When the cost is subsidized to almost nothing, people will claim everything is critical but as soon as they have to pay for it, they'll focus on things which actually matter.
No. Absolutely not. Once they stop paying the salary, they should have no say whatsoever on what I do. It is entirely unreasonable to expect someone to not be able to work for a period of time after leaving the company, and not being able to feed their family.
When you optimise a program, you do so by looking at how things work and then optimise for that specific case (e.g. "instruction A runs faster than instruction B and can achieve the same result, so let's use instruction A everywhere"). This comes at the expense of lower performance in hypothetical worlds with different laws of physics.
That ""500k a year noncompete" is a great hypothetical, but it doesn't happen in this world, so we shouldn't worry too much about sacrificing it to improve performance of a hotspot.
I don't think anyone really has a problem with non-competes. But if someone is paying me $500k a year and really wants me to sign a noncompete, they better be offering me at least $250k a year as compensation for honoring the noncompete. It's totally unreasonable to say that the company can fire me at their discretion, but I can't seek other employment if they do so, and I'm not entitled to remuneration.
"I don't think anyone really has a problem with non-competes."
I absolutely do. There is no justification whatsoever that a company should be able to keep me from working in my chosen field, and as a result unable to feed my family, just because they're insecure.
Isn't that an example where the market alone could solve that problem, without needing a noncompete? If you were paid 500K to build it, and what you learned makes you worth 1M to a competitor, how are you not worth 1M+ to your current employer?
If all your current employer wanted was to get a head start in the market, they let you walk for the 1M. If you're still providing them great value and/or letting their competitor in on it would be worth more than that to them, they can beat the offer.
Maybe you'd have separate reasons for wanting to leave (though "I want to reimplement the thing I just built again" doesn't seem to be the most common reason to leave a place), but in that case why are the company's reasons more important than your own, to the point that they should be legally protected?
Just for the sake of argument, imagine you aren't the only one with the knowledge the competition wants. Say there's a 10-person team where each shares the knowledge. The competition only needs one to rapidly close the gap. That would mean the company would have to pay 10x what the competition is willing to pay for that knowledge in order to keep all ten employees faithful. The competition can make a $1 mil offer to each employee, one at a time, that the company would then have to beat. That gets ugly pretty fast.
That said, this does seem to be an edge case, where the general rule causes more harm than good.
I honestly don't care about the company. It is entirely unconscionable that they should prevent someone from trying to feed their family after leaving the company.
As for direct competitors, Non Disclosure Agreements work just fine.
We wouldn't need non-compete if companies got patents instead of trade secrets. But China doesn't give a crap about US patent so we can't have nice things.
Oh how convenient, blame the Chinese. Are American workers moving to Shanghai, taking all those amazing American inventions and client databases with them? What are you actually saying?
Information asymmetry isn't a market failure, it causes market failures. The second sentence of the article you linked explains that. I'm sure reading further you'll find more information on the topic. The same goes for lack of competition.
There also aren't many kinds of market failures. The market fails when goods aren't efficiently allocated, this and only this is a market failure.
May I suggest you learn about economics 101 before trying to discuss it?
Problem is that companies of that size are selling "Your dream and life!" and not a job.
With 200k on the table and a plethora of perks, nobody thinks "Yeah no, I'll need to pass this up because I might quit in 5-10 years and go to another somewhat similar company".
As is usually the answer with business, it's the Commerce Clause. ("Congress shall have the power... to regulate commerce... among the several states")
It's a basically open-ended constitutional grant to regulate business, with the only caveat being that it's restricted to activities which affect the flow of commerce across state lines.
That would give Congress the power to regulate these contracts; it wouldn't make them unconstitutional automatically, unless there's some argument I'm missing.
True enough, I'm not sure why the word 'unconstitutional' was used. This seems to be a pretty clear case of "laws enabled by the commerce clause", so all it would take is a repeal of Sherman to change the situation.
Were you thinking of something like the society mentioned i the article?
> So Mr. Johnson has started a single-issue union organizing campaign, EARN, for Employee Association to Renegotiate Noncompetes, and is collecting signatures at a website, noncompetes.org.
> The goal, Mr. Johnson said, is to create a “pop-up union” that would force EMC to abandon the use of most noncompete pacts.
I've been fortunate enough to have an employer with no non-compete, but in the past with my first job out of college I just signed everything and was under one for a year after leaving. My thought process now is that a non-compete is just another thing to negotiate during the hiring process. I'm happy to sign one but I will absolutely require that I'm compensated at least for a year of salary, benefits, etc. while under the non-compete. It's only fair that if you're asking me not to work for a year that I can actually sustain myself and my family. Employers are just coasting off the fact that people will sign these things and ask for nothing in return--once people realize it's negotiable (even if you just plain walk from that job opportunity to something else) employers will have a much tougher time with them IMHO.
Yeah, so it would in a lot of ways be ideal if people could reasonably read, understand, and negotiate the contracts they sign, and then be reasonably bound by those contracts. So each person could say something like, "Sure, I'll sign a non-compete. For an extra $15,000 per year." And then the company could decide if that's worth it to them.
In practice, people just sign what's in front of them, and indeed even if they want to read and understand everything, they can't without a fair amount of training -- and the existence of lots of other people who will just sign what's in front them means that it's hard to negotiate based on what you're signing even if you do read and understand it.
(Digression: I bought a house. The amount of paperwork that I signed without reading was probably around 100 pages. This is a crazy way to live.)
This feels like a problem that is getting amenable to a technological solution. It's pretty easy to imagine a digital assistant that could understand common contract phrasing and even do things like say to a person, "This offer includes a non-compete clause. Based on your demographics and the position, signing a non-compete clause will cost you approximately $X per year. Would you like to negotiate for +$X per year? Y/N" The problem, it seems to me, would be to get buy-in to the idea that such digital assistants should exist and that companies would have to accommodate such assistants.
I signed mine with my new hire paperwork. I had just flown across the country to take the job. Am I supposed to say no when my family had just spent a ton of money to move?
Bring it up in the interview process, particularly when talking to HR, etc. You don't have to make a stand right there but at least find out what's typically in an employment contract (a very reasonable question to ask even in an early interview). Then later on when they're trying to close the deal make it a negotiable thing just like salary, etc.
I asked about something similar at the offer stage: invention disclosure and assignment. I asked several times and the recruiting team told me that "everything I needed was on the website [where the job offer and the related terms were]." I even asked "No, I mean the forms you'd ask me to sign upon accepting the offer when I'm hired." Still nothing.
Sure enough, as soon as I accept the offer I'm presented with exactly what I was looking for on that very same website.
Somehow I think "never attribute to malice ..." doesn't apply to corporations.
I can't speak for this case, but the answer is often "you found out after you travelled across the country and turned down other job offers, and may be waiting for repayment of moving expenses".
Yes, a person could try to get this sort of thing in writing and sue for damages incurred, but they'd still be unemployed and loaded with expenses in the meantime. There's a lot of freedom to push this kind of thing because there's too much legal overhead to fight it.
Perhaps I should have. I was assuaged by the fact that they provided specific "exceptions from copyright" (e.g. open source projects that I have and will continue to contribute to).
This is really important for people to understand. It's insane to agree to work for someone without at least seeing the contract. To put is a bit more clearly, compensation is also part of the contract. Would anyone accept a job without knowing what the compensation is? I suppose if you are desperate...
Personally, I love most non-competes. They give you leverage in salary negotiation. While the non-compete might be non-negotiable, your salary is. Or a signing bonus. Or a parachute. If someone wanted me to sign a 1 year non-compete it would be expensive -- enough to allow me to write free software for that time. But if they are willing to pay, I would be extremely happy to sign.
The key is what to do when people aren't willing to pay. You have to evaluate your situation. As they say "beggers can't be choosers". Try not to get in the "beggers" situation, but be realistic. If you need the job now, sometimes that's what you have to do. Just make sure to set aside enough cash to carry you through the non-compete.
As a side note, my current benefactor demands neither a non-compete nor an inventions agreement. They encourage me to write free software and even allow me to free up things I write at work. They don't complain when I hole up for a week to really understand the technology we are using. I give them a pretty big discount over what I would demand from someone who didn't give me these things. I think it's important to communicate what I value. I sometimes read advice for salary negotiation as "take what you can get and give nothing back because that's how you'll be treated". I hate that.
At will employment. The new contract can be dropped off at your desk this afternoon for any reason. You can quit, or argue (aka fired for argumentativeness), or refuse to sign (fired for insubordination).
It is highly confrontational for a company to do this. The company is stating its willing to ruin your life over nothing, literally nothing, just for the sadistic joy of it, so you better be able to ruin the company as best you can, to keep up.
It's pretty much the same issue, though. If you are desperate for a job, then of course sign whatever you need to. But if you're not, don't sign.
One fairly large company I worked with tried to pull this nonsense on me. HR sent me a new contract to sign (which had unfavourable terms). I told them that I was already under contract and unless they were terminating my contract, I was not going to sign another one. They told me that I would be fired if I didn't sign it. So I marched down to the legal department and said, "HR tells me I will be fired if I don't sign this contract. Is that really what you want to do". Half an hour later I had an apology from HR. At least in Canada (where I worked) forcing someone to sign a contract under duress (being threatened with losing one's job) makes it not a contract. Legal knew very well that this was leading to lawsuit that they would lose and made the right choice.
I'm not saying it will always work. I was once sued by an employer for breach of contract when I left despite following the terms of the contract perfectly. Some people/companies are just nasty. I was lucky in that my new employer had thousands of lawyers on staff and threw a couple their way, making my problem disappear.
You need to understand your position. Things are not always fair. You will not win every battle. However, it is a good idea to avoid these kinds of things from the beginning if you can. Not every company is run like this. Vote with your feet. Work for companies that have good policies. And when you find one and you feel you can trust management, do what you can to stay there and make it successful. Good companies exist.
That's true of course. I was just remarking that baiting with a reasonable contract and then switching to a bad one looks, from an employee standpoint, much much worse than originally being offered a bad contract.
I seriously research any job or contract or freelance offer before I take it, and things like this don't hide.
> I bought a house. The amount of paperwork that I signed without reading was probably around 100 pages.
I bought a house and read every single one of those pages. No change possible--walking was only alternative. Was in too deep and didn't want to lose the house, the earnest money and my time. I understand the note and deed, but didn't get any other benefit.
Yeah, exactly this. I read my first contract ever really closely, saw it had a bunch of potentially onerous terms, then signed it anyway because I had no negotiating leverage and it effectively quadrupled my income.
What I've heard from a lot of WA devs is "yeah, if it looks like it's going to be a problem, I'll just move to California." It's nice that option exists, but it's kind of silly that "defensive relocation" is something people even have to consider.
Yeah, no, not at all. Or actually, it's not that simple. Many non-competes are specific to a region in the hopes of making them less likely to be ruled overly broad. Furthermore, if you work and live in California, the WA court can be found not to have standing, and the company can't bring suit in California because pretty much all non-completes are considered void there.
> This feels like a problem that is getting amenable to a technological solution.
While it's certainly possible to apply some technology to this solution, it actually amazes me that people don't spend more time reading and negotiating these.
If you're an engineer, your employment contract is worth literally hundreds of thousands of dollars. The idea that you wouldn't at least read and understand the whole thing yourself (and seek professional counsel if necessary) is ludicrous and a terrible way to live.
One sneaky thing which companies do is only giving you paperwork (including a non-compete) on your first day of work. During negotiation, I always insist on seeing a copy of what I'll be asked to sign before agreeing to take the job. Anyone who refuses this is trying to pull something over on you.
>If you're an engineer, your employment contract is worth literally hundreds of thousands of dollars.
I am an engineer. I don't have an employment contract, I have a piece of paper that has my salary and says I'm an at will employee. Ive never had anything else, literally every job - salary and "you are at will". Benefits have changed all the time with no notice. What kind of contacts are you guys getting?
I meant "employment contract" in the sense of the dozens of pages of legal documentation you'll typically sign, including stock agreements, non-competes, etc.
Never signed anything other than the aforementioned piece of paper (2 sentences) and a NDA. Unless you work for a start up with 5 employees and no HR the HR Dept has its set benefits and forms you must sign, those are not negotiable, only salary is. Typically you are in a standard benefits group depending on the date you were hired and if you are full time or part time. Example: benefits group 3, everyone in that group has the same benefits, you surely aren't going to negotiate special treatment.
- It is risky for the employee. Just how risky depends on a ton of factors like the company they're leaving, the company they're joining, what skills they have/who they are, perceived scarcity of talent, and probably how litigious managers feel that week/the phase of the moon. Most employees have far fewer lawyers and less money than, e.g., Amazon. If they come at you, odds are pretty good that even if you win, you lose.
- It is risky for your new employer. Just how risky depends on ... (see above). If you (employee coming in under an NDA) don't tell them about , you are being unethical and probably breaking your employment contract, and that sort of thing at the very least looks really bad. If you do, well, at the very least, you are making the hiring decision harder. There are companies that won't mind a lawsuit for a high-value hire; perhaps you even are one. But certainly, the risk of a lawsuit over a newhire is going to make the company think about it.
Oh, and if you're thinking about causing "a million dollars in damages" with passwords you shouldn't have retained because you're pissed about a noncompete, um. If you're interested in working anywhere with responsibilities more interesting that "take out that trash and dump it in the dumpster", I hope you think twice.
My bottom line on this way of thinking: it probably would have been more appealing when I was in my early 20s when I had a lot less to lose and knew a lot less about the legal system.
Obviously you should never actually do something like vindictively break the law and cause millions in damages. That would be illegal and hugely immoral.
But sometimes crazy and/or angry people do stupid things. The company doesn't 'really' know if you are secretly crazy or willing to risk jail for spite. Use that to your advantage.
An X% chance of losing millions is a stupid risk to take for little benefit.
The company has a significant incentive to not needlessly piss off former employees purely from an expected value perspective.
Any reasonably sized company is going to have the dollars and IT smarts to not worry about former employees causing damage (passwords, keycard access, etc. are all immediately cut off on the day of leaving.. and any actual damage someone does is grounds for a likely felony-level criminal case with years behind bars). As others have mentioned they don't even need to take people to court to enforce a non-compete--just the fact that a former employee is under a non-compete is enough to scare away and stop potential new employers (read the comments on this page to see examples of this). By making the non-compete something the company has to pay for it pushes it more into the realm of only applying to people that absolutely need it (high level executives, critical engineers, etc.) and who will be compensated while under it.
How about IP being leaked? EX: saving all your code on a flashdrive on the 1 day that you work from home.
Sometimes crazy people do stupid things.
Obviously you should never actually do something like that, but from the companies perspective, an X% chance of millions in damages is a stupid risk to take, for little benefit.
>Any reasonably sized company is going to have the dollars and IT smarts to not worry about former employees causing damage (passwords, keycard access, etc. are all immediately cut off on the day of leaving..
At least on the sysadmin side? The only way to be sure that someone who once had root on your server no longer has root on that server is to wipe and re-install using scripts that person didn't develop/sources that person didn't control. Of course, you kill the logins, but there are a million ways to leave a hard to detect backdoor... and many of those are impossible to distinguish from a simple mistake.
This is definitely something you need to worry about; and at the very minimum, you go out of your way to make sure you don't piss off ex employees more than you have to.
Yes, yes, if you have your whole process in source control, that's great, and will really help when trying to track down who put in the back door (However, can you prove it was a backdoor and not just, you know, a dumb mistake that left a security hole open? Innocent mistakes of this type are pretty common.) - even then, what of the sysadmins who have root on your revision control server? (this is actually an area where smaller shops, which tend to just use git, have an advantage; it's way harder for the repo owner to insert something without anyone noticing on a git system, say, than a more centralized setup like perforce, which tends to get used by the much larger companies.)
For that mater, even the ground-pounding so-called "rebooter monkeys" have a lot more power than you think. Anyone who has root on your workstation, even for a short period of time, can cause all sorts of mayhem, and worse, make it look like you did it, for some time to come.
>and any actual damage someone does is grounds for a likely felony-level criminal case with years behind bars).
I mean, I'm not saying you couldn't make things pretty miserable for the perpetrator, you could. but that doesn't really help the business that was harmed. It does provide a pretty good deterrent. but that's why the comment you are responding to was talking about "crazy" - there are people who do things that are not in their long term best interest, and if those people have root on your systems, or access to your codebase, they can do more damage to you than you can possibly hope to recover from them. It's a pretty rare sysadmin who couldn't do millions of dollars in damage to his or her employer; and a pretty rare sysadmin who has the assets/insurance to cover a judgment that large.
From where I'm from (Eastern Europe) the law mandates that the non-compete clauses are only enforcable when appropriate compensation was being paid during employement period (must be labeled as such). Since most employers (even those with non-compete clauses in hiring contracts) don't follow this, in practice virtually all non-competes fail if/when challenged.
You can fire someone to go to their competitor for a lower salary, eg off-shoring. That's just fine. Surely it has to work both ways. You must be able to quit to go to a higher salary unencumbered or it's just pure regulatory capture by employers to screw employees.
It's nice for some anonymous internet person to say "Non compete clause? just don't sign them" but if you are ever lucky enough to get high up in a company this often just sometimes isn't an option.
So if you do have to sign one then the below is the advice I've been given by the employment lawyer's I've spoken to over the years.
1) make sure it says you are compensated for the time you can't work. ie if it says you cant' work for a competitor for a year then you should be getting a salary for the same duration. Some companies will try to give you a signing bonus and include language that the signing bonus is consideration for you waiving this compensation. I mean it's nice to get $50,000 in stock vested over 3 years just for signing, but it won't feel that way if your former employer also views this as compensation for you not working for a year.
I've had 3 or 4 employment lawyers go over this with me, both as an employee and as an employer and they've all repeated this, if the company doesn't' pay your salary during the non compete period then you just cant' sign it. Now they also stressed that this means the non compete is probably not enforceable but that won't be much consolation if they drag you to court.
2) Be very clear as to what "salary" means. So if you are a Google engineer and you have a salary of say $125,000 and then a bonus of say $100,000 worth of restricted shares vesting over 3 years and maybe a signing bonus of $50,000 worth of shares vesting over 3 years, you might brag that you just got paid $275,000, but the company will probably argue that they only need to pay you the pro rated amount of your salary over the waiting period.
Finance especially gets burned by this, as small salary and huge bonuses are how many hedge funds compensate their key employees, also known as the "you eat what you kill" compensation package.
3) Be very wary of telling your former employer of where you are going to work. There just is no real upside to it.
I've also been told not to hire former employee's in the first year you leave for a competitor. It's one thing for a company to loose you, but if you leave and take an entire team with you then even though you've probably done nothing wrong, it own't be very comforting when you are out of pocket $10,000's of dollars in lawyer fees and stress.
As always, IANAL, I've just happen to work in the most incestuous industry around, finance, and I've seen and heard too many horror stories of people leaving for another firm and bringing their team with them and then being in court for years.
I think the key point isn't not to automatically sign or not sign non-competes.
It's to realize they are a negotiable item (just like salary, stock, vacation, severance, etc.) and to ask for appropriate compensation in return for signing it. This can include a guarantee of salary during the time of its application. You can also narrow the conditions under which they're invoked or the scope of what's considered competition.
> 3) Be very wary of telling your former employer of where you are going to work. There just is no real upside to it.
This!
I live in Ireland where non-competes are illegal under EU law, but that doesn't stop some employers trying their luck.
I was made redundant from a company that provided a SaaS retail reporting/analytics system. They had never added a mechanism or developed a business process to easily cut off customers who weren't paying their bills, so rather than fix it they made a few people redundant to make up for the shortfall.
A friend introduced me to a rival firm who liked me enough to hire me, this was during my 30 day notice period when I was still working for my old employer. I never told my old employer that I had been hired as I knew the MD would lose his shit. Unfortunately I told one person there whom I considered a friend. I swore him to secrecy, but he had a drinking problem - I think you can see where this is leading. The MD got wind that my friend knew where I was going and one day (after I had left, but before starting the new job) when he arrived in a bit hungover the MD said "Tell me where he's working or I'll fire you for being hungover". So he blabbed on me.
The next thing I know I'm having abusive texts and emails sent to me, a motorcycle courier delivered a letter ordering me to not start with the new company. He even went to the Garda and falsely claimed that I was stealing trade secrets - they told him to go see a solicitor.
Then he came banging on my door in a rage. I had to call the Guards on him.
Although the new employer initially supported me, after a while they said I had baggage and they had to withdraw the offer.
As for my old boss, I had to ask the Guards to get him to back off.
Yep, you old employer does not need to know where you are going.
None of those states will catch up with California. The other states are proposing weak limits on noncompetes - limited by industry, limited to "unreasonable" terms, etc. California also doesn't let employers claim rights in work you do on your own time. Both of those rights fuel California's startup culture.
It says that IP assignment clauses that cover non-competing work done on the employee's own time with their own equipment are not allowed.
How it works at Google is that you sign an IP assignment clause that says effectively "All the intellectual property that you create is the property of Google except where prohibited by law" and then they attach a copy of that law to the contract.
After that you can work on personal projects but if you don't like uncertainty Google has a process that will affirm that Google has no claim to your side project. The process has you describe the project and affirm you worked on it on your own time and then if Google agrees that it doesn't compete with them they'll let you know that they're ok with it.
I have worked part time at several different places while keeping a full time thing going. (which doesn't pay much, but I choose my own adventure) Each one has tried to make me sign paperwork involving them getting first right of refusal on things I make. I have refused to sign those documents, three times now, twice for one company, with no real recourse from their side. HR put on a show but I didn't take the bait. Make a stand when it comes to things like that. I own my spare time, nobody else.
Exactly. And that's why we in Silicon Valley don't have to worry about competition from other states. State legislators will cave to lobbyists on this and screw it up.
When an employer sends you their boilerplate agreement and you see "Employee will not work for a competing business", you're not looking at the only employment agreement they've ever signed. You're looking at the version most favorable to them. Strike out the "for 2 years following employment" and replace it with something reasonable like "while employed by the Company."
It's customary to ask for a ridiculous clause like this up front, because no candidate will walk away over the mere sight of it. They get one free chance to screw you over, just like when you were talking about salary and they asked what you made at your last job. But you have to do your part; politely bounce it back.
You are a professional and this is a negotiation. No one will begrudge you putting a reasonable counteroffer on the table.
Man, I don't know who all you Captains Of Industry are who are able to successfully negotiate things out of standard employment agreements, but most of us do not have this option. I remember once objecting to a non-compete, and tried the "strike it out" trick, and I was given a very clear "Sign it unmodified or GTFO" warning. I don't think negotiating these things is as common as some of you believe.
Then you did what you could. My comment was more directed towards those who don't even raise the point at all.
Whether you're successful depends on the company, your state laws surrounding noncompetes, whether you're in a good bargaining position, and how easy internally it is to change "standard" employment terms. I can't promise all those things will align, but it's helpful to remember that in many positions and companies this is a negotiable term.
Many reputable companies won't ask for a ridiculous clause, and you might choose to work for them, instead. For example, all of the IBM employee paperwork I signed (after selling them a startup) had notices of where California law gave me additional rights compared to the rest of the country -- and of course, no non-compete. I quit 3 weeks later, no hassle at all.
That's a bit of an oversimplification. They are enforceable under California law, but (AFAIK) only when equity is part of the employment contract. I'm not sure if stock options count; you'd need to ask an attorney.
Bottom line: if a company demands that you sign a noncompete agreement, that's your cue to ask for a chunk of the company.
In California, "every contract by which
anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void", except for certain enumerated exceptions (Cal. Bus. & Prof. Code, Sec. 16600 [BPC 16600])
Those enumerated exceptions are, in summary form:
(1) Someone selling a business and/or its goodwill may agree not to compete with the business thus sold, if the new owner is carrying on the same kind of business (BPC 16601).
(2) Partners in a partnership may enter an agreement in anticipation of an eventual separation from the partnership, such as they would be able to do when selling their interest as described in 1, as may members of an LLC, mutatis mutandis. (BPC 16602, 16602.5)
Receiving equity in a business doesn't seem to qualify for any exception.
Are you saying that employees with a standard RSU grant are not eligible for protection of that law? I would guess most software developers in California are receiving some kind of RSU or option grant.
Broadly speaking they're unenforceable in the EU as well, anything beyond 3 months restriction in the UK would certainly fall under restraint of trade.
Employers include them in contracts to scare people, and generally it works.
Yeah, that's just for the chilling effect on people who don't realize it's unenforceable. A California noncompete is not something you'd want to take to court as a plaintiff.
Because the opportunism of the company's legal department (or laziness of them using RocketLawyer boilerplate) doesn't correlate one bit with whether you'd want to work as an engineer there. Other signals matter way more.
That's getting to emotional. The definition of "screwing you" is you taking their first offer, no matter what it is. Both sides should be trying to get as much as they can in a negotiation.
This is not true at all. Getting too high of a salary may increase your chance of getting canned (performance or RIF.) And offering too low of a salary to a new employee may cause problems if the new employee finds out they're paid less than their peers.
You're never going to convince an employer to give you "too much" money. And employers have no problem low balling you - they really don't think you're going to find out what all your peers make, which is why they discourage the practice of sharing salary information so heavily.
It's really simple. If you want to enforce a non-compete you have to pay* the employee gardening leave for its duration.
Enforcing a non-compete when you've laid someone off is utterly indefensible and anyone who does this deserves to go bankrupt fast. Usually when forced to pay employers discover ruining an employees career isn't actually worth anything much to them and don't enforce. But if it's free it's a great lesson to current employees - we'll go after you if you want to leave so no you're not getting a raise.
*pay the maximum of the employees salary including any bonuses vs market rate, where the market rate calculation has to be defended by the employer in court and can be retrospectively re-applied. With the usual obvious basis of "the employee had offers for $x" etc.
I'm curious if there has ever been a case where an employee going into competition with their former employer has been a net negative for society at large.
Most of the tech we enjoy today probably would've been prematurely killed if the creators were under modern non-compete and NDA paperwork.
It's hard to imagine that we would be even close to where we are now if non-compete agreements, that are common in other states, had existed in California in the 1950's and 1960's.
In Australia it's quite simple. If you want an enforceable non-compete, you have to pay the person their salary for the duration. I'm personally quite happy to sit on the beach on full pay for a year or two if you guys think it's important!
In New York State, the company has to demonstrate damage to it in order to win a lawsuit, and non competes are usually tied to some sort of previous granting of something, like stock options which can be lost. In practice judges rarely enforce them more than a year although the contracts stipulate longer periods.
Now, the above is just my understanding, I'm not a lawyer and new to this awful world of non competes.
Just the threat of a lawsuit can steer behavior since defense against one can be costly.
I worked for a small company for a number of years. We wouldn't even look at anyone who had a non-compete that could even conceivably have triggered legal action.
Wait, so in some states you can be prevented from working in your field, and the company doesn't even have to compensate you? That's insane! Why would you agree to that?
Because you have one job offer, are almost out of money, and like having food to eat this month?
Most employment agreements I've seen are "agree or GTFO". Sure there are some HNers here who have successfully negotiated this or that out of their agreements, but the option is not available to everyone.
>Wrong question. The proper question is, "Why is that allowed?"
Because people should be able to put whatever ridiculous terms they want into a contract. It's up to you to agree in the first place, and in the second, a court to determine if the term is enforceable.
There are a few valid reasons for a non-compete, after all.
No, you're right. Someone like, say, you, should get to decide, preemptively, what a contract between two parties should or should not be allowed to include. Because you know better than the parties actually doing the negotiation, right? Why should we trust that the relevant parties know what's in their own interests?
"No, you're right. Someone like, say, you, should get to decide, preemptively, what a contract between two parties should or should not be allowed to include. Because you know better than the parties actually doing the negotiation, right? Why should we trust that the relevant parties know what's in their own interests?"
When one party has far more power than the other, and the clause in question is only there to screw the worker over and prevent them from working in their chosen field? Yes. There is absolutely no reason why a worker would want one of these clauses. They get railroaded into them only because they need a job and don't have negotiating power.
Stop pretending that everyone has the same negotiating power.
"Yes, there are."
No, there aren't. A company is not entitled to make money. Especially not at the expense of someone being able to feed their family.
The old boogeyman that used to get trotted out by companies was the "they'll steal trade secrets and run away to other companies".
With the federal defense of trade secrets act now a thing, can someone tell me exactly what purpose at all non-competes still have that makes any sense?
(If it's "we spend time and money training people or signing bonuses or whatever", great, make them pay back the money if they leave too quickly)
Non-competes can make sense in client-facing roles.
You don't want to pay a lot of money for someone to come in, develop relationships with clients, and then walk out the door with all their clients when someone else offers more money. It makes some sense to have non-competes for sales, lawyers, and similar positions.
Errr, that's not a non-compete.
That is a "no-solicitation-of-clients" agreement, and that is common in the legal industry, for example.
There is no reason, as a lawyer, i should not be able to go to a competing firm just because they compete with you for the same client base. Full stop.
If you want me to not solicit your clients, that's fine. But again, that's not "non-competition", it's "non-solicitation".
So while i don't disagree with you, that isn't what these agreements cover :P
You're right. Non-solicitation agreements and non-compete agreements serve slightly different and overlapping purposes.
Technically, non-solicitation agreements only prevent solicitation. So they can bar me from hopping to a competitor and calling up all my old clients to bring them over. They don't prevent me from joining a competitor, having all my old clients find out, and having them then decide to join me.
Thus, a non-compete is often simply a stronger form of non-solicitation. That's also why you sometimes see non-compete agreements which apply to a geographic area.
They're also often regulated in tandem. AFAIK, both are unenforceable in California.
For what it's worth, I think the harms done by non-competes far outweigh this limited argument. But you can't argue that there isn't an argument.
"They don't prevent me from joining a competitor, having all my old clients find out, and having them then decide to join me."
That's on your clients though, and their call. You have done literally nothing to make that happen, and it's unrelated to you leaving or not. If the other firm hires a superstar lawyer, they may do the same thing.
This is essentially "not an evil we should prevent" :)
" But you can't argue that there isn't an argument."
I think there are good arguments for non-solicits. I don't still don't see any for non-competes.
That is because I don't think "try and indirectly prevent people unrelated from employee from doing things" is a valid argument for directly restricting employee movement, instead of directly dealing with the behavior at hand. If having clients move is really just that harmful, make it part of the contract with the clients. They sign retainer and other agreements, require they not move for x number of days upon their current contact leaving the firm, or else they pay you damages for jumping ship.
(i'm a lawyer, so i'm aware this would run afoul of most states ethics rules, i'm just pointing out there are valid ways to deal with this that make sense, all things being equal. )
> You have done literally nothing to make that happen, and it's unrelated to you leaving or not.
It's obviously not unrelated. The lawyer they had been working with leaves the firm. They (obviously) find out and this causes them to decide to re-evaluate their choice of firm. They find out where you jumped ship to and go there. Thus their move is a direct result of you moving firms without requiring solicitation.
Like I said, I don't think it's a sufficiently good argument to justify non-competes. But it's absolutely an argument that people make.
Restricting the client is of course another avenue. It's certainly a major contribution to discounts for long-term contracts.
Or you could make sure they're happy, and be willing to pay market rates for your talent. But that would indicate competition, and lord knows we can't have that.
Without noncompetes for principals, it would be very difficult for companies to acquire consultancies. Clients want continuity, and will follow longstanding vendors even without solicitation. Consultancy acquirers are purchasing that continuity, and noncompete agreements (for very high consideration) directly enforce it.
Standard employee noncompetes, I agree, seem pointless.
If you voluntarily enter into a contract in which you agree not to do a certain kind of work later in exchange for compensation now, it's perfectly legal for the other party to enforce that contract (unless it was in the form of a non-compete and you live in e.g. California.)
This is a matter of labor standards, not individual liberty.
It's hard to argue that a competitive salary for work done is "payment" for not doing something later on. If they are paying an above average salary for the job, it might be arguable.
How so? They're prohibited from possessing firearms, so they're not suited for armed security, but there's nothing structural preventing them from earning a living. Plenty of companies will hire felons, just not all of them.
In practice "plenty" translates to "almost none" and those that do tend to abuse their employees since there's very few repercussions.
Simply being unemployed for an extended period of time is enough to exclude you from many jobs. Being a felon and having done jail time excludes you even more severely.
That can work for a case of simple unemployment if you can make it sound plausible, but if you can't come up with a single client reference from that period of time you could be pooched.
This is also complicated by the fact that you may have no option to admit that you're a felon and served time since they may have your police report on their desk.
We're living in an era where having nothing more than an arrest record, even if no charges were ever filed, is grounds for suspicion. It doesn't even matter if you were someone walking their dog and rounded up by the police in some kind of illegal kettling, you have a record.
It's possible to sign a contract with unreasonable terms, but such a contract may or may not be enforacable.
If you happen to live somewhere where a contract can have a noncompete for 6 or 12 months without compensation, and it also happens to be enforcable there, only then do you need to worry about this.
A noncompete without compensation likely isn't enforcable in many places (Although it may be in some or most of the states of the US).
I had a non compete clause crossed out of a contract once. I was told they didn't usually change contracts, but they did.
I was also told 'it isn't usually enforced, there are plenty of people that have taken jobs at <only competition in the city>'. I said 'then it shouldn't be in there'.
Everything worked out for me but people need to remember a few things:
1. A contract is a negotiation/conversation/two way agreement. It is never a take or leave it offer in my experience.
2. Get the contract EARLY. Companies try to build momentum and act like a contract is a formality. Then they hand you something that takes away as much power from you as possible. They have lawyers, bargaining power, choice, time, experience, and a global view of salary that you might not. There is a huge imbalance of information.
3. If it is worth signing, it is probably worth having a lawyer take a look at it. A lawyer might bill at $250/hr. It might take 30-45 minutes to look through a contract and that can be a very worthwhile investment.
4. And of course, take the contract seriously. Don't sign something thinking the scenarios where it comes into play are too rare for you to care.
"1. A contract is a negotiation/conversation/two way agreement. It is never a take or leave it offer in my experience."
In your experience. In many others, it is. Especially if they're in an area with not a lot of tech employers. Just because you find it easy to negotiate doesn't mean everyone does, and that doesn't mean that those who can't should be screwed over because of it.
No, this is a complete cop out. You're saying, "I can do it, so there's no problem." Yet, most people aren't in the position to do it, so there is a problem.
If you live in MA, please write to your state legislator and ask her or him to move on this. We need noncompete reform here. This bill isn't perfect. But, as a child I know might say, "EMC isn't the king of me."
My favorite is when the company you work for is purchased and the new owners come in and lay people off, then those who are left get 3 days to sign a non-compete. I begrudgingly signed because I had nothing else lined up at the time.
Yeah when I was working retail, there was a cat that i met that needed some help, (he was known by all the managers). I offered to help him on his project, to which my mangers found out, and were talking about firing me over it. I had no idea that that would violate my NonCompete clause that i signed to when hired, being that it was not related to retail AT all, and there were no transferable skills that I learned. Luckily my lead saved my ass, and told the managers "theres no way he knew that."
I have a friend who was "reminded" by his first employer that he had signed a non-compete after he changed jobs to a second (competing) employer. He ended up finding a third job at a company in a somewhat different field.
This was in Ohio where non-compets are enforceable, and the courts likely would have sided with the first employer if it had gotten to that point.
I don't think he ever realized what he had signed until he was "reminded" of it.
I don't understand the companies that are going under, lay off employees and then still except the non-compete to be binding. I would at least expect where the company initiated the departure that the non-competes are no longer binding. That, and that I get a small stipend for the duration of the non-compete.
By "states" they mean Massachusetts. In many states they are all but entirely unenforceable (CA) or only enforceable under very specific circumstances (PA).
uh... isn't the whole point of "States" because a larger controlling body is a bad thing, and many groups want to make deals in their own ways? so then a Company WANTS to make deals their own way "Noncompete Pact" deals, and now you're telling them they can't do that... and you think by driving away these companies by not letting them do what they want, that you will somehow compete better? for what? the 50th spot on the economic rankings list?
So your argument is that to achieve economic growth one just needs to pass a law that says "companies can do anything and everything that they like, no restrictions?"
The article is seriously misinformed. It seems to imply that noncompetes can restrict employees from working in their field. That is not the case in New York. Post-employment restrictions are only enforceable to the extent they protect a "legitimate business interest" of the former employer. That interest does not extend to preventing former employees from practicing their trade. Employers use noncompetes abusively all the time. The problem is not the state of noncompete law. The problem is the nature of the legal system.
How is it misinformed? So New York is different. The article clearly says that the legality of noncompetes varies from state to state, and it doesn't mention New York State at all.
I suspect if you were willing to completely go to war over a hire, you could ultimately get noncompetes invalidated. The problem is the chilling effect on marginal hires -- it usually isn't worth going all the way on hiring someone when you have other options, and even when it is, it makes sense to settle and move on (for both sides).
(From what I've heard, Amazon is particularly egregious in enforcing noncompetes. I believe they are an unconscionable and unconstitutional restraint on individual liberty, and believe the federal courts would agree, as well as the court of public opinion.)