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Comment by rdl | Hacker News Reader

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.)

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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.

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.

https://en.wikipedia.org/wiki/Information_asymmetry

> There is no reasonable response

Uh oh. The folks who disagree with you aren't just wrong, they're unreasonable...

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.

I see no reason why the secretary example isn't complete overreach.

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.

This

The only acceptable non-compete is where they pay you to not work for a competitor.

This is how it works in banking

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.

Why would China need to give a hoot about US patents? It's not the United States of China. If only the US submitted to every Chinese demand.

China would never agree to respect US patents in any trade deals - is my point.

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?

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.

The compensation is your salary. The noncompete is part of the terms.

I agree these things are overused and need to be reigned in, but let's not oversimplify.

>relatively rare

I'd say it's the opposite. Only a small percent of trade secret theft has any chance of being directly enforced against.

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.

What would be the point of continuing to working at Intel if you could threaten to leave and get your salary plus golf on the beach?

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.

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.

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.

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.

A non-compete doesn't stop you from disclosing secrets. That's an NDA, which no one is complaining about.

> 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?

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.

Tough, I guess.

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.

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.

No business has a fundamental right to exist. So, if one of your workers leaves, starts his/her own company, and puts you out of business, then tough.

Your business has no right of any kind to exist. Period.

Isn't that how the "invisible hand" of the "free market" (or some such garbage) is supposed to work?

That would be a Trade Secret

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.

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?

You're arguing semantics (actually, more like grammar) and didn't respond to the substance of my comment.

Your last sentence probably is the one that attracts the downvotes.

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.

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.

Porque no los dos?

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.

"Porque no los dos?"

¿Por qué no los dos?

Por que no los dos?

Please don't bring that garbage here.

It's not a funny meme.

It wasn't funny when it first aired and it's not funny now.

Translation for the rest of us: "why not both?".

http://www.fluentu.com/spanish/blog/porque-por-que/

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.

I absolutely love the idea. Kinda like a https://tldrlegal.com/ for employment agreements. Somebody should build that.

...and also cross reference it against companies that have at any point complained of a lack of affordable talent.

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?

Unconstitutional according to what legal argument?

(I'm not disagreeing with you, just curious)

Restraint of trade?

http://www.rotlaw.com/legal-library/what-is-restraint-of-tra...

That article doesn't talk about constitutionality at all.

Oh, you're right. I don't know how that legal argument derives from constitution.

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.

I would compare it to "I Paid a Bribe" in that they need a bit of secrecy

http://www.ipaidabribe.com/

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".

What is your basis for believing that federal courts would agree?

They generally take a dim view of a company trying to prevent someone from earning a living.

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.

Heard where?

Other employers in WA.

THIS.

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