CA State Supreme Court rejects noncompete clauses | Hacker News Reader

CA State Supreme Court rejects noncompete clauses

sfgate.com

33 pointsiamelgringo34 comments

This is good news.

Two thoughts:

(1) This may cause (stupid) companies to incorporate and operate out of other areas, like Austin and Atlanta.

(2) Though other states haven't "rejected" noncompete clauses, they remain notoriously hard to enforce; in jurisdictions like Massachusetts and Illinois, your noncompete has to be specific to your role, tied to a "reasonable" business concern, and exchanged for extra compensation, and the court can "rewrite" the agreement from the bench before enforcing it.

Aren't pretty much all companies incorporated in Delaware anyway?

For purposes of noncompete, the jurisdictions that seem to matter are the place you work from, and the place your employer operates out of.

I'm not a lawyer, I've only ever observed noncompete drama.

Georgia is work at will state also, non competes don't really work here either.

"At will" usually just means you can get fired for nothing.

The ruling "advances the strong California policy favoring open competition and employee freedom,"

Wait, what? How does it favor 'employee freedom' to say that employees cannot agree not to work for a competitor? Being able to make an enforceable promise about your own future behavior is an important freedom -- some Game Theory texts claim that the most crucial right we have is the right to be sued for breaching a contract.

Noncompetes are probably, usually, a bad idea -- but banning them altogether is far worse.

I'm not following. Being able to work for more companies is pretty clearly a greater "freedom" than not being able to work for some of them. Your idea that the ability to contract away that right is somehow itself a "freedom" sounds awfully orwellian, no? The freedom to choose not to be free? Please.

And I don't follow your game theory point at all. This decision was about one particular kind of contract in the multiverse of possibilities. It certainly didn't throw out our "right to be sued" (again, Pravda much?) for breach of contract generically.

Okay, how about a simpler example: if California announced that, from now on, all restaurants must allow all patrons to smoke, would we be a) more free, because if we smoke we can smoke in any restaurant, or b) less free, because we can no longer elect to eat in a smoke-free restaurant, decide whether or not to allow smoking in our own restaurant, compare the benefits of a smoke-free or smokable restaurant, etc.?

When you no longer have the right to make an agreement, you are not more free just because that agreement restricts your freedom. A state could ban loans (you're more free -- you never have to pay interest again!) or marriages (screw this "'til death do us part" shit) or promises of any kind. You would be free of the obligation entailed by the promise, but you would no longer be free to trade restrictions for benefits.

It's profoundly misguided to say that being free means never being free to limit your future actions. This is a lot more clear when you study game theory -- people who can restrict their future actions have far more bargaining power. People who can't restrict their actions are, to that extent, unable to make promises.

Anyway, this should be a moot point: if you think noncompetes are a bad idea for you, you can turn them down. For someone who thinks noncompetes might be okay (e.g. a company can only afford to hire a new researcher if they know they can restrict this researcher from handing off ideas to a competitor), this ruling only restricts their freedom. Irrelevant to you, bad for other people -- how could you possibly desire this?

Smoking is restricted because it is a public health hazard, for the same reason we regulate the emission of toxins from other sources like industry or agriculture. So yes, there is a restriction in "freedom" in that case. But it's done for a clear, transparent and very compelling reason. (c.f. "no first amendment right to shoud 'fire' in a crowded theater", yada yada yada).

What is the public health interest in restricting employer choice?

It was a simpler example, for which there isn't a one-to-one mapping with the actual case. The point of the example was that when you turn a choice into an obligation, you don't get more freedom, even if the obligation is to do something that, on average, maximizes freedom.

We can try another example. Let's say you own a nice sound system. You want to move into a nice new apartment, where they like things quiet after 10 PM. If the manager is able to ask you to agree not to use your sound system after 10 PM, are you a) less free, because you are able to give up a particular freedom, or b) more free, because you can agree to abide by a set of rules in order to get something you want? I think it's clearly b), and I'd even question whether or not you 'own' a sound system if you are unable to agree to turn it off sometimes.

You seem to be making an absolutist argument about freedom here, but that's missing the point.

In your example: the answer is that the 10pm rule is a good thing if it means people have a choice of whether to live with late-night noise or not, and a bad thing if it means that no one does (because all available apartments have the rule, or don't). The proper balance of "freedom" (understood in the colloquial sense of being able to do what you want most of the time) depends on the state of the market, and has absolutely nothing to do with an abstract idea of "Freedom" that must be maximized in all cases.

In the linked article, the court found that in practice (because essentially all employers use these non-compete clauses) collective freedom would be better served by eliminating them. It's the equivalent of all the landlords in a city enforcing a 10pm noise rule, and it sucks.

It's the equivalent of all the landlords in a city enforcing a 10pm noise rule, and it sucks.

This seems like a fairly obvious flaw in your argument -- if noncompetes are such a bad idea, why are they so common? I'm not saying that their ubiquity makes them a good idea. I'm asking why nobody has gotten around to starting a company that avoids using them, and then gotten lots of great developers who work for less money because their freedom is maximized. If I found out that every landlord in my city enforced that rule, I would work hundred-hour weeks raising the money to buy an apartment that didn't enforce the rule, knowing I could charge a huge premium and get lots of residents.

As I've said in other contexts, most complaints about a purely capitalist system can be boiled down to a business plan -- and if nobody has done it, and you won't do it, what does that say about your complaint?

If noncompetes are such a bad idea, why are they so common?

It could be a Prisoner's Dilemma where everyone's defecting (a similar situation to hockey players voting for a rule mandating helmet usage, but not using them without the rule: http://www.econport.org/content/teaching/modules/NFG/Hockey....).

That said, I agree with you that there should not be laws about what contracts you can make. There's been plenty of harm from that.

That's edging really close to a 'freedom is slavery' argument right there.

No it isn't. I don't agree with the argument, but it's not insane. What the commenter is saying is that if candidate employees are in competition for jobs with candidates from other jurisdictions where noncompetes are enforceable, and many people don't really care about noncompetes, the candidates in the places with enforceable noncompetes have a market advantage. They can exchange a noncompete agreement for job opportunities.

The commenter is making the point that you always had the freedom not to sign noncompetes, even when they were enforceable, just as you have the freedom not to work 70 hour weeks for a $150k salaried job: don't accept the job. But you probably want the opportunity to work the odd 70 hour week, if it advances your career.

For a slippery-slope alternative to the "freedom" you're talking about, see France in the mid-90's, and try to start a competitive software shop there.

Like I said, I disagree with the commenter, because noncompetes are wildly abused in our industry. But I think reasonable people can disagree.

Why would it have been a problem to start a software shop in the mid 90's in France? 35 hour workweek? Other government mandated benefits? Not saying it wasn't. I just want to know exactly what the referent is.

Um, the statement "You are not allowed to freely agree to X" is clearly limiting your freedom, even if X is "limit your freedom in exchange for something."

You are not allowed to sell yourself into slavery. Do you feel oppressed yet?

You're invoking Game Theory, by which I gather that your objection is more theoretical that practical.

I can't think of a single real-world situation that would be improved by having noncompetes enforced. Can you?

Maybe they are a lot like software patents. There are a very few cases where someone has created software that is a genuine advance, requiring rare skill and talent and time investment -- but the overwhelming majority of patent claims are totally invalid, hence they are a bad idea.

Maybe there's some imaginary noncompete agreement that would benefit the parties to a contract or the general public, but in practice they are just going to be used by institutions with greater legal resources to provide leverage on with fewer such resources.

I can't think of a single real-world situation that would be improved by having noncompetes enforced. Can you?

XCo. is about two years ahead of the rest of the world in their widget technology research. They'd like to hire a new product designer, but they know that the information this designer would need to do his job is worth millions to any XCo. competitor. They would like to hire someone they already know and trust, but they've pretty much tapped out their immediate social network. So they stipulate that if you work for XCo, you can't work for Y LLC or Z LP over the next two years.

Or they could not hire someone.

This is an interesting example. But to take the question further, exactly what choices do you allow an individual to trade away? As an extreme, will you allow an individual to trade his life away(or as in The Merchant of Venice, one pound of flesh), if it can be used in some way to obtain a better contract from someone else? In the poorer parts of the world, people sometimes sell themselves into slavery.

The options here are either A)the extreme position - an individual is free to make any contract whatsoever and is henceforth bound by that contract(the government is the enforcer), or B)there is a set of fundamental freedoms which one can't freely trade away.

Are you advocating A or B? If B, one would need to find some basic principles which determine what freedoms can't be given up voluntarily.

I don't think you can properly claim to own your own life if you aren't able to relinquish that ownership -- the obvious question is: if you don't own it, who does?

I am advocating A), in the sense that I would prefer to be governed under a judicial system that focuses on enforcing the promises I make, not making my decisions for me. The nice thing is that B is a subset of A -- under A, I could put some of my rights (the right to sell my life, the right to harm myself, the right to agree not to take a job in the future) under the control of a legal entity that prevented me from exercising it. Since anyone under A can live as if they were under B, advocating B over A can have no effect but to deprive people who do prefer A of their freedom.

Your version of B is actually distinct because it still requires the individual to explicitly limit his choices beforehand. It would still leave open an option for the following to happen,

A farmer after a poor harvest faces the prospect of starving to death, goes to a local landlord for money in exchange for which he becomes a bonded labourer for life. The next season he tries to run away. But the government, which operates under principle A, catches him and forces him to return to slavery. I am uncomfortable with the government actually doing this and this is why i reject A.

There is an argument made in the context of minimum wage that it actually hurts the people whose work value is less than the minimum wage as employers wont hire them anymore. I am not arguing for or against minimum wage, but want to point out a counterargument which might work in the example given above. When the landlord knows that if one person refuses slave labor in exchange for money, he can hire some else. But with a law forbidding such contracts in place, the landlord doesn't have this option. In effect, the law enhances the bargaining power of the labourer by restricting his options.

In effect, this is the same as the as argument pointed out in the thread above of there being a Prisoner's Dilemma.

I think, in practice, that your example still doesn't work.

First of all, that's an argument against not divulging trade secrets, rather than forbidding the worker from working in the same general field. There aren't a lot of cases where somebody can reproduce an important new product from scratch without bringing over mountains of documentation.

If somebody can take the bare idea, go to a competitor, reproduce a product, and get it out to market faster than the original company, then the previous company was probably doomed anyway. This does happen from time to time but let's face it -- this is a GOOD thing.

> I can't think of a single real-world situation that would be improved by having non-competes enforced. Can you?

One that comes to mind for me is hiring inside and outside of the state of California. If I'm in a state outside of California and I have two candidates that otherwise are identical I might lean towards the one who will sign a non compete over the one who legally can't.

In this scenario, the California law has disadvantaged the worker.

I'll willingly grant there is alot of "if" statements there, so I'm not sure how likely this will be in practice:)

That only shows that employers value non-compete agreements. I agree that non-competes are valuable to employers, because they can provide leverage for future shakedowns.

The question is whether non-competes are good for the worker or innovation or society in general. I think it's clear that they only hurt these things.

Well I guess my point is that the ability to sign a non compete benefits the person who isn't in California in this case, by way of getting the job.

Whether or not it will benefit the employee in the long run is up for debate:)

I agree with you in that the state should not go overboard in preventing people from entering into contracts.

Some things however may be overall beneficial to regulate. For example, you can't to sell yourself into slavery or sell your own organs. I think the overall principle is to prevent people from painting themselves into the corner without seeing what's coming to them. Non-compete for non-executive level employees is one such example.

To put my money where my mouth is I have removed all non-compete clauses from incorporation papers in my startup.

I've done more than a few freelance jobs in CA where I was asked to sign a NC. I always try to explain things to them.

Now the question is: what constitutes a "trade secret?" Could one take what they do in their current corporate job and turn it into a startup using some of the (non-patented, general knowledge) techniques you learned on the job, but using different technology? Say, to make a competing product to one that you are currently working on?

Obviously the guys at Cuil did this. Are there other precedents?

A trade secret is "a plan, process, tool, mechanism or compound which a company desires to keep confidential as a competitive advantage."

By definition, trade secrets are not patented (that would be public exposure). Also by definition, they are not general knowledge (they must be known only to those inside the company). A trade secret from Google might be the exact set of elements and weightings that go into the search algorithm.

I have always thought this was a horrible idea. If you work for years in some specialty say machine learning. If you leave one job chances are you are still going to work in that same specialty. NCs really ruin a persons options.

You shouldn't take any code, and if there was a particular area a past employer was innovating in perhaps steer a bit clear of that specific thing.

Summary: "As long as you don't steal trade secrets or confidential information, you can do what you want."

Oh my god it is so incredibly offensive.

How can it be the land of freedom if something like this would have been ok? It is f*g absurd.

I'd rather die standing than live on my knees and I will fight this anti-freedom bullshit til I die.

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