Senators propose near-total ban on worker noncompete agreements

A noncompete ban has served Silicon Valley well. Should it apply nationwide?

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[JamesHulsmann]

I'm an engineer on the east coast and I signed one of these when I got my latest job. It's understandable why companies want them -- to prevent competitors from snatching up talent (and therefore, cutting edge institutional knowledge). Obviously it sucks for us peons because we learn a very specialized skill and then can't apply it.

I wish there was some solution to intellectual property rights that didn't involve armies of lawyers, so that the working man can do an honest job and at the same time, his former employer isn't on the hook...

I am a little shocked that this is a promoted comment. It sort of reeks of corporate indoctrination.

Let's take typical corporate thinking and mirror it back.

A company paying an employee what they deserve and providing a good work environment (etc.) would probably have nothing to worry about, right? If another company CAN pull employees away with better monies and other things, than the original employing company is not capable of competing properly for talent. We shouldn't permit lesser companies stifling competition and innovation by letting them legal restrict where a worker can go.

Now of course, in some cases, it might be that both companies are great, but one is larger and richer - but that sort of thing affects more than just hiring away employees and we don't permit contracts or create laws to limit THAT. So why are we doing it in the one way the screws over a specific worker? (because they can, they can force you to sign one, because in the vast majority of cases, people wont turn down a good or good-enough job due to such a clause).

 

[pi.squared]

I had to sign a non-compete. They're annoying and should be banned

But one thing people on this website don't seem to be thinking about is training. At my job we often spend tons of time and money training people. Sometimes they just leave once the training is over.

That sounds like a problem with the company doing the training. If they are losing employees after those employees receive training, perhaps they should take a good long look at their working conditions and figure out why, and then perhaps offer salaries and working conditions that cause such employees to want to stay there rather than immediately move on.

One of the ten largest (in terms of employee numbers) local organizations expects to lose 80% of the people that show up on day one, by day 90. There was absolute panic in the corporate office, when 50% of the class survived day 91. OTOH, there is no corporate office panic, when day 45 rolls around, with no survivors. Employees who survive day 181, probably will be there 10 years later.

Apparently, it has one of the best training programs in the state, and people apply, just to undergo their training. Corporate management jokingly considered setting up "training only" positions, but that didn't go down to well with certain third parties. Overall, the two major issues are that the training is "too good", and when there are too many survivors, there aren't enough work hours to give them.

OTOH, the second or third largest (in terms of employee numbers) local organisation, starts recruiting replacements, before the ink is dry on the new hire's contract. The day that contract expires, is the day that new hire goes elsewhere. The only reason the new hire lasts that long, is because lawyers are expensive. Problems with this organisation are so well documented, that anybody who applies for a position there, should already be aware of how bad the work environment is. They either hire the most naive graduates out there, or the most desperate, unable to get a job anywhere else in the country.
(Ponder on considering a 50% pay cut, to be "better working conditions", which is what several former employees have claimed.)

The largest employer has a perennial labor shortage, that won't go away, until the people in charge of the top brass get their heads screwed on straight,

 

[Inaksa]

How did noncompete agreements ever become acceptable in the first place? They seem like a pretty blatant symptom of unequal bargaining power. "Sure, I'll give you control over myself for two years after I stop working for you!"

Do other countries also allow noncompete agreements or is this another case of "American exceptionalism"?

They are made possible largely by a weak to non-existent union movement in the fields they exist in.

i do not think that is a real reason. At least in my country (not US) there is no generally recognized union in IT (there is one but it only exists in a couple of big companies like IBM) yet we have these. They can't be enforced, but they are there.

 

[Dark Jaguar]

Here's the thing, there is ALREADY a system in place to keep people from jumping ship with their talent. It's called "reputation". If someone builds a nasty reputation for doing that sort of thing, people will stop hiring them. You don't need a contract for that.

 

[Starlionblue]

Here's the thing, there is ALREADY a system in place to keep people from jumping ship with their talent. It's called "reputation". If someone builds a nasty reputation for doing that sort of thing, people will stop hiring them. You don't need a contract for that.

It depends somewhat on the industry and job. In some areas, for example sales, jumping between jobs every 3-4 years is not seen as very unusual.

In some industries, there are other mechanisms in place. For example in my job seniority is pretty much the only thing determining salary and benefits. If I move to another employer I have to start at the bottom of the scale there.

 

[pi.squared]

My favorite new twist is in non competes they say that you can not work in any industry or field even "ancillary" to the industry you are in.

That part isn't new.
I worked at a law firm that bought a company. I was tasked with looking over personell contracts.
Some of the clauses in their contracts:

• 
  * May not work in the legal industry for ten years after termination of employment with this firm;
  * May not work in the collections industry for ten years after termination of employment with this firm;
  * May not work in a call center for ten years after termination of employment with this firm;
  * May not work in the security industry for ten years after termination of employment with this firm;
  * May not work in the recovery industry for ten years after termination of employment with this firm;
  * May not work in the security industry for ten years after termination of employment with this firm;
  * May not work in the credit industry for ten years after termination of employment with this firm;
  * May not work for a loan origination company for ten years after termination of employment with this firm
  * May not work for a financial institution for ten years after termination of employment with this firm;
  * May not work for any law enforcement agency for ten years after termination of employment with this firm;

Those were the some of the more benign, employee-friendly parts of the contract.
My boss, who played fast and loose with the law, wondered how they passed legal muster. He couldn;t see any legal loophole for including, much less enforcing that set of clauses.
He wasn't going to enforce any part of any of those contracts.

 

[johnsonwax]

Wait they used California as an example of non-competes working? Sure if you forget that the major tech firms were all colluding.

Bro, the companies were caught, penalized, and the practice ended. That means the legislation worked. Or are you under the impression that passing a law prohibiting a thing means the thing will never happen?

That's now how laws or anything in the world works.

 

[pi.squared]

Is this worker only, or does it cover consumer contracts too? Because my four year old’s karate gym has a non-compete clause.

I think I am missing something here.

Are you saying that the place that teaches your four year old, prohibits the child from going elsewhere, for karate training?

So if Chuck Norris were to teach a weekend seminar, your child couldn't attend?

 

[Gilgamesh]

I'm an engineer on the east coast and I signed one of these when I got my latest job. It's understandable why companies want them -- to prevent competitors from snatching up talent (and therefore, cutting edge institutional knowledge). Obviously it sucks for us peons because we learn a very specialized skill and then can't apply it.

I wish there was some solution to intellectual property rights that didn't involve armies of lawyers, so that the working man can do an honest job and at the same time, his former employer isn't on the hook...

There is a solution for employers to protect their intellectual property rights while respecting employee mobility: trade secret law and non-disclosure agreements. Both work just fine without a non-compete agreement.

In the states that allow non-competes, often the employer combines a non-disclosure obligation with the non-compete, which can be confusing. A non-disclosure agreement prohibits the departing employee from disclosing trade secrets and other proprietary information learned at the first employer to the subsequent employer, and is enforceable even in states like California, which prohibits non-competes. A non-disclosure agreement coupled with a trade secret protection program, along with patent and copyright law where applicable, are typically sufficient to protect an employer's interests without a non-compete.

In short, you're allowed to bring your skills to a competitor, but you aren't allowed to bring your former employer's trade secrets with you. It's a compromise that seems to work in California.

 

[TrellyTB]

Long ago, when I worked in the software field, I took a 3 month contract via a head hunter (employment agency). During the interview with them and the client, I said I had other clients who I worked for as well and might need to address their needs on weekends. They said that was fine, and I got the contract.

Near the end of the contract, the headhunter called me to their office. I assumed it was that the contract would be extended, since the client was happy with my work. Instead, the headhunter demanded I sign a (very general) retroactive non-compete clause preventing me from working for my other clients, and anywhere in the software field within 250 miles.

It was an easy choice, I said no. The head hunter said fine, I will terminate your contract rather than offer the extension. I said fine, it really wasn't much of a choice and there was plenty of other work. Plus, I really didn't like them as head hunters and wasn't planning to do more work with them.

He ripped up my contract in front of me, even though there was about 2 weeks left. I said "Really? You terminated me with no notice at all?" Yup he said, too bad too sad but you wouldn't sign. He gave me the weekend to "come to my senses".

That was a Friday afternoon. Monday I submitted a nice letter to the client saying I enjoyed working with them, but my position was cancelled without notice by the head hunter. I wished them well.

Tuesday I started a new contract (turned out to last several years) with the client, who had hired me directly. No non-compete required, slight increase in pay, and no head hunter.

The head hunter was livid. I was sure he would try to sue me, but since he cancelled my contract and I didn't sign a non-compete with him I thought he would have a tough time making a legal argument.

Have any of you ever had that happen -- that the head hunter demanded the non-compete but the client didn't require one?

 

[Starlionblue]

Long ago, when I worked in the software field, I took a 3 month contract via a head hunter (employment agency). During the interview with them and the client, I said I had other clients who I worked for as well and might need to address their needs on weekends. They said that was fine, and I got the contract.

Near the end of the contract, the headhunter called me to their office. I assumed it was that the contract would be extended, since the client was happy with my work. Instead, the headhunter demanded I sign a (very general) retroactive non-compete clause preventing me from working for my other clients, and anywhere in the software field within 250 miles.

It was an easy choice, I said no. The head hunter said fine, I will terminate your contract rather than offer the extension. I said fine, it really wasn't much of a choice and there was plenty of other work. Plus, I really didn't like them as head hunters and wasn't planning to do more work with them.

He ripped up my contract in front of me, even though there was about 2 weeks left. I said "Really? You terminated me with no notice at all?" Yup he said, too bad too sad but you wouldn't sign. He gave me the weekend to "come to my senses".

That was a Friday afternoon. Monday I submitted a nice letter to the client saying I enjoyed working with them, but my position was cancelled without notice by the head hunter. I wished them well.

Tuesday I started a new contract (turned out to last several years) with the client, who had hired me directly. No non-compete required, slight increase in pay, and no head hunter.

The head hunter was livid. I was sure he would try to sue me, but since he cancelled my contract and I didn't sign a non-compete with him I thought he would have a tough time making a legal argument.

Have any of you ever had that happen -- that the head hunter demanded the non-compete but the client didn't require one?

What a muppet. What did he think would happen?

That type of character can be found in most industries. Always seems very possessive of "his" information and "his" people. To the point that he undermines himself, as illustrated in your story. By being more open and not so blatantly greedy, he would profit in the long run.

 

[Mrweidler]

I'm all for banning noncompete agreements. They're one of several common employment clauses that do nothing for workers and the overall economy, but let employers exert too much control over their employees. (Another one is forced arbitration, which absolutely needs to go.)

Glad we have a case study in California of how these rules don't help.

Forced arbitration is arguably the worst of the two. The noncomp agreements are bad for the individual employee. But binding arbitration is universal with any agreement regardless of the status of the parties. And it always comes without any recourse, which unfairly benefits the company at the expense of, well, everyone else.

It's cheaper for a company to pay an arbitrator to rule in their favor (and they do 99% of the time, because they want to get the business from the company again) than it is to litigate class action suits. If we want less predatory behaviors of corporations, mandatory binding arbitration (or just binding arbitration at all) should be universally banned.

Make the companies pay into the court system to expand it, if need be, through higher corporate taxes. God knows, most of them pay little or nothing now.

What is prevent the aggrieved from bringing his own Arbitrator? What we need is an 'ACLU' of arbitrators.

 

[albeit]

I wouldn't object to such agreements if employers didn't spring them on people AFTER they've already left their previous employment to take a position.

Disclose any and all agreements up front when people are considering a job. Actually give them a copy of the contract they will be expected to sign.

As far as banning any kind of legal agreement where all parties are fully informed and there is no such trap, I am against it. People are adults and rule of law is important. Just outlaw failing to disclose such arguments before people accept a position.

 

[Dark Jaguar]

I'm all for banning noncompete agreements. They're one of several common employment clauses that do nothing for workers and the overall economy, but let employers exert too much control over their employees. (Another one is forced arbitration, which absolutely needs to go.)

Glad we have a case study in California of how these rules don't help.

Forced arbitration is arguably the worst of the two. The noncomp agreements are bad for the individual employee. But binding arbitration is universal with any agreement regardless of the status of the parties. And it always comes without any recourse, which unfairly benefits the company at the expense of, well, everyone else.

It's cheaper for a company to pay an arbitrator to rule in their favor (and they do 99% of the time, because they want to get the business from the company again) than it is to litigate class action suits. If we want less predatory behaviors of corporations, mandatory binding arbitration (or just binding arbitration at all) should be universally banned.

Make the companies pay into the court system to expand it, if need be, through higher corporate taxes. God knows, most of them pay little or nothing now.

What is prevent the aggrieved from bringing his own Arbitrator? What we need is an 'ACLU' of arbitrators.

No, we need to outlaw binding arbitration. We have courts of law for this already, no need for an "ACLU of arbitrators" when we established an entire branch of government just for these situations.

 

[tsetol]

I am the head of the IP department of a large European company and we are doing quite well despite essentially also having no non-compete clauses.

All you need to do is to set up processes to protect your company's IP in a smart manner. This may include filing patent applications, design rights etc., but also defining trade secrets. Trade secrets are an area where many companies struggle, because they never really fixate trade secrets and the people who may have knowledge of them in writing. Accordingly, many trade secrets are ill-defined and abstract and different people have different views on them which can result in problems and missunderstandings when people change jobs. However, if you have what you consider as trade secrets well-defined (and also realistically defined, i.e. not in such a manner that it covers everything) and you have an "exit talk" with an employee that is leaving, in which you explain that the leaving employee must keep your trade secrets secret, there are no huge issues in my opinion. It is my impression that most people respect trade secrets when they are reminded what they actually are, in particular if the trade secrets are not unrealistically broad so as to also cover the "normal experience" an employee has gained and is entitled to take away. I also promote an "don´t ask, don't tell" approach in our company because we do not want to "infect" our own IP with our competitors' IP and it is my impression and past experience from other companies, that most large companies handle the matter in a similar way. In summary, from an IP point of view, I believe that non-compete clauses are normally not necessary if everyone does their homework.

 

[ralphnobody]

If you have a trade secret, then you keep it secret from everyone but just a handful of employees. Those handful of employees, you keep using golden handcuffs (throw money at the problem).

 

[Coyoacán]

“I wish there was some solution to intellectual property rights that didn't involve armies of lawyers, so that the working man can do an honest job and at the same time, his former employer isn't on the hook...”

Easy. Move to California. Problem solved!
I sign whatever non-compete people want because I know I can move back to California and ignore that agreement.

 

[wk_]

This is a way overdue piece of legislation. My wife works as a pre-school teacher, and her last two locations have required a “non-compete” which has limited her ability to move up into better jobs at higher wages at times. I had to take the last one to a lawyer who called it totally unenforceable. Anymore “non-competes” dont protect intellectual property or knowledge, they end up being intimidation tactics. Toss them out.

The trouble with "unenforceable" clauses is that employer basically tries to intimidate you. It is way easier for companies to go to the court than to employees. Even if you win, you will get into financial problems.

 

[ip_what]

Is this worker only, or does it cover consumer contracts too? Because my four year old’s karate gym has a non-compete clause.

I think I am missing something here.

Are you saying that the place that teaches your four year old, prohibits the child from going elsewhere, for karate training?

So if Chuck Norris were to teach a weekend seminar, your child couldn't attend?

I think it just says she can’t enroll in another martial arts gym for a period of time (a year? Two?) unless we move or something. so presumably a weekend seminar would be fine.

Gym contracts are famously awful, but this is some weird shit even by gym standards. Its a chain with a take it or leave it contract, and she has friends at this place, so I didn’t even bother saying anything about it. I’m not exactly losing sleep over it, but just brought it up to highlight how these kinds of clauses get slapped on everything without much thought given to enforceability or common sense.

 

[dhughes]

How did noncompete agreements ever become acceptable in the first place? They seem like a pretty blatant symptom of unequal bargaining power. "Sure, I'll give you control over myself for two years after I stop working for you!"

Do other countries also allow noncompete agreements or is this another case of "American exceptionalism"?

In Norway, the norm is that the (ex)employer pays salary for the non-compete period. This of course means that the period are kept short, and only used when there is a real need for them.

That's a fantastic way to do it.

 

[lnz]

How did noncompete agreements ever become acceptable in the first place? They seem like a pretty blatant symptom of unequal bargaining power. "Sure, I'll give you control over myself for two years after I stop working for you!"

Do other countries also allow noncompete agreements or is this another case of "American exceptionalism"?

Here in Germany, it's common to have clauses in business contracts that prevent companies from hiring their partners' employees. E.g. A licenses software product from B, and A wants experts from B in their team.

But that's between two companies, not between employer and employee. And of course unrelated competing company C can hire A and B employees.