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Comment by paxys | Hacker News Reader

Over the years so many different jurisdictions around the US and the world have stated their desire to be the "next Silicon Valley" and have poured an immense amount of money and effort to make it so, whether in the form of incentives for businesses, tax breaks, education, job training, or even just straight paying smart people to move there. Every such scheme has generally failed because they refused to emulate the one key piece of California law that is necessary for a startup ecosystem to exist – banning noncompetes.

"But I'll spend money to train my employees and they'll just take those skills to go work for a competitor or start their own business!" Yes, that's a feature of the system, not a bug.

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I'm fine with allowing non-competes as long as the company pays the ex-employee their full salary for the length of the non-compete and can't rescind the non-compete without mutual consent. For example, an 18 month non-compete would mean 18 months of paid vacation after you leave a job.

I imagine this would be functionally equivalent to a ban on non-competes because it seems like it'd be an insane waste of money but if a company wants to provide a paid vacation on the way out I see no reason to stop them. Unpaid non-competes should be illegal as somebody's right to earn a living trumps a corporation's right to impose an unconscionable contract on its employees.

This is a smart way to go about it.

Only a tiny portion of truly critical positions would have compensated non-competes under this system and the rest would have no such blocks.

This is how it works in Norway.

Paying to delay competitors could be a good use of money for companies in many circumstances. That would work fine for an individual from a financial perspective, but keeping talent away from work is suboptimal for society as a whole.

> but keeping talent away from work is suboptimal for society

I think this is basically a non-issue in practice. People with such iron-clad non-competes typically either a) take a non competing job, or b) work on something anyway. The latter effectively means the original company funds some research.

If you do this with say, sales people, or traders, or whatever, it shuts down their work. If you do it with engineers they'll just make something at home.

I'm impressed by your faith in engineers, but it might be misplaced. I enjoyed a five months paid non compete when last moving between banks, and build nothing worthwhile during that time.

> I enjoyed a five months paid non compete when last moving between banks, and build nothing worthwhile during that time.

Every now and then I see someone comment on HN about their experience with longer between-jobs periods, sabbatical, etc. The core theme I've noticed is that, apparently, it's common to "waste" some 3-6 months before one starts making good use of their time - apparently this is how much it takes to properly switch over to being fully self-directed.

If that hypothesis is accurate, then it's not surprising you've built "nothing worthwhile" during your five-month break - you've got yanked back into employment right as you were finally ready to make good use of your time!

Yeah that is pretty common in the hedge fund/trading world. They call it garden leave and you get your base salary for usually 6-18 months. The downside to that is you only get your base salary which is usually a fraction of the expected bonus.

> garden leave

It's called the same thing in Germany. The term also applies to when you quit, but the employer wants to cut your access to the company ahead of your contract termination date. It's typical to have 1-3 months of "notice period" in Germany.

This is almost exactly how noncompetes work in practice in the finance industry, where most employment contracts are governed by New York law or something similar, which will generally require the payment of "consideration" during the noncompete for it to be enforceable. The amount of consideration is part of what you negotiate when you join, generally always at least your most recent base salary at resignation, but possibly much more, i.e. some fraction of your total comp.

Usually the way it works is that when you resign, the employer has a fixed amount of time (specified in your contract) within which to decide whether to exercise the noncompete, and for how long (i.e. they could elect a subset of the maximum term in your contract), and once exercised, they can't change their mind. If you violate the noncompete, they'll of course stop the payments, possibly claw back payments, keep your deferred comp (which they are holding over your head during the noncompete), possibly reset the noncompete clock (so you have to start waiting all over again), and possibly sue you. Details will vary, but broadly that's my experience.

Some consider it one of the major perks of the industry, assuming you become important enough to have it exercised on you, and would be sad to see them banned. Firms consider it money well spent, which makes sense when you consider that investment strategies have no real protection as intellectual property... copyright is only narrowly useful, patenting would mean disclosing, and so at the end of the day they are just trade secrets, which can really only be protected by nondisclosure and noncompete agreements.

> I see no reason to stop them

This sort of a non-compete would almost have certainly resulted in Zoom not being built.

I think that's fine for the employee (great, really: long-term paid vacation!), but if the goal is to create the "next Silicon Valley" or whatever, then allowing paid non-competes is going to work against that goal. You want an employee to get excited about striking out on their own and starting a company, immediately after quitting their old job (or, hell, before quitting their old job, as some SV founders do). Allowing their previous employer to delay that by 6, 12, 18 months (or whatever) isn't great for the entrepreneurial spirit.

Maybe, but the cost means that it won't be the norm, they'll only actually exercise it when they really, really need to.

This is functionally how it works in Germany. Usually reserved for C-level types.

It's also done because it not allowed to have anti-poaching clauses IIRC.

Beyond banning them de-jure you've also got to ban them de-facto.

"We all know non-competes are unenforceable and illegal." <- Absolutely useless if you can end up in court. Using unenforceable rights as a deterrant is common and potential future employers get spooked by it even if it is illegal. "Don't hire Jill, Mary is almost as good and has no non-compete. Don't want to go to court even if its unenforceable."

There are no consequences for forcing someone to have the stress, expense, time and to secure the financing so that if everything works as it should (which it often doesn't in all the various legal systems) you get only some of that back. If it doesn't work as it should you're toast. Not a nice thing to be hit with when the law is clearly designed that you should not be hit with anything at all.

For an individual or a startup it matters. For a large revenue incumbant they have people employed to abuse the system like that and the business expense of doing it is trivial, more than worth it. The law may exist so that the strongest do not always get their way - but this is an ideal with many exceptions including this one.

Ban away, but with no consequences for abuse and all measurements for the abused being the magnitude of the downside alone, no upside possible you don't get the result you're looking for.

Summary dismissal with costs, compensation and the potential to be branded a vexatious litigant so it is more difficult to bring any court action against anyone would be a real consequence for abusing the rules. Is the best one? Is it fair? Dunno. What we have now in most countries sure isn't.

I worked for a very small company. We wouldn’t hire anyone with a non-compete end of story end of discussion. Just wasn’t a risk or cost management was willing to even entertain.

How would you know they had one? What is the process for disclosing or discovering non-competes? Ostensibly part of a private citizen's employment contract, that's a confidential document.

So what basis would a prospective employer have to request a copy, and how would said third party verify its authenticity?

You ask them. And you probably have little interest in seeing a copy in my example. Just if there is one.

Yes, they can presumably lie to you. But if you then so much as get a letter from a lawyer at that point, you fire them at a minimum.

Most contracts I’ve signed have language to the effect of “the employee is not bound to any covenants that could restrict his ability to provide his services to the company”, which would include noncompetes.

Of course, noncompetes being unenforceable make for a good argument that one is not, in fact, bound by that covenant.

In practice, I’ve always just answered “no” to the question on this basis. If any former employer behaves in such a way as to get me fired from my present job, I’m rather optimistic about my prospects for legal remedy.

I've never heard of a court case involving a noncompete. Have you?

(of course, I live in California.)

It's maybe a little different if you're a chef and you've spent a lifetime mastering a particular recipe which is very hard to get right. You teach it to someone, and he goes out and opens his own restaurant selling that same dish. You can see the intuitive appeal of a noncompete, even if it's usually ineffective, and actually harmful to a high-tech ecosystem.

I have heard of such cases.

The situation regarding the difficult recipe could be handled under the Uniform Trade Secret Act, as adopted in various states, or under common law related to tortious misappropriation of classified information.

This might be a place where restrictive covenants not to compete aren’t really relevant, and if they disappeared, employees might still have all the tools they need to protect their interests.

Brown v. TGS Management Co., LLC is an interesting court case involving a "noncompete" from California: https://law.justia.com/cases/california/court-of-appeal/2020...

I have a friend who got a new job, then gave it up because his previous employer "reminded" him that he had signed a non-compete.

Now, we're both in Ohio, where it likely would have been enforceable, but the point I'm making is that a court case wasn't necessary - the mere threat was sufficient.

Had the same reminder when I changed jobs (in MA) ages ago. That reminder went to me and to the general counsel of my new employer.

Got hauled into a meeting with HR and general counsel where they both said basically “we got the same letter; we don’t think we compete nor would a court find we do; we’re sending them the following letter; don’t worry about it and get back to work.”

IBM v Papermaster was a pretty high profile one.

Blue Mountain Enterprises, LLC v. Owen https://law.justia.com/cases/california/court-of-appeal/2022...

https://www.jdsupra.com/legalnews/california-court-of-appeal...

> Despite California’s general hostility towards post-termination restrictive covenants, the California Court of Appeal, in a recently published opinion, Blue Mountain Enters., LLC v. Owen, 74 Cal.App.5th 537 (1st Dist. Jan. 10, 2022), affirmed that a post-termination customer non-solicitation agreement was enforceable under California Business & Professions Code § 16601.

> Under most circumstances, contractual provisions that prevent a person from engaging in a profession, trade, or business, including customer non-solicitation agreements, are void in California. However, section 16601 of the California Business and Professions Code carves out a statutory exception to the rule for individuals selling all of their interest, including goodwill, in a business.

> ...

> After Owen’s employment was terminated for cause, Owen established a competing construction services company and sent a letter to Blue Mountain customers stating, among other things, that he was launching his new business with “greater perspective, more resources and a much stronger team.” Blue Mountain obtained preliminary and permanent injunctive relief prohibiting Owen from soliciting its customers and prevailed on its motion for summary judgment adjudication of its breach of contract claim.

That's a "post-termination customer non-solicitation agreement", as you quoted, not a non-compete. CA may generally prohibit those as well, but we can't tell from this if a hypothetical non-compete would have been enforced in the same situation.

Yes. They aren't common, but I e seen maybe half a dozen. Typically high level employees. Never a normal engineer.

Here are 2 cases of Amazon suing former employees after they quit and got hired by Google:

https://news.bloomberglaw.com/daily-labor-report/amazon-uses...

https://www.geekwire.com/2019/amazon-sues-former-aws-exec-jo...

Disclosure: I work at Google.

Dejure harry defacto

Here (Canada) the courts almost always rule that the non-compete is unenforceable. The core issue is the rights of an individual to earn a living supersedes the rights of a corporation.

https://globalnews.ca/content/8363992/can-non-compete-clause...

" The majority of non-compete clauses challenged in the judicial system have been rendered unenforceable. Canadian courts, in my experience, look unfavourably on clauses that restrict an individual’s ability to use their knowledge and experience to earn a living."

What companies here do falls into two general categories:

1) attempt to get people to sign and hope they don't know it is unenforceable.

2) pay people to stay at home and not-compete - Given this is expensive it doesnt happen often.

I wonder what the cross-section of the population is smart enough to be worth making sign a non-compete yet not smart enough to do a basic Google search on their enforceability.

Canadians don't break rules.

A lot of people are good natured and just take others at their word.

This is exactly why I posted this. I want to make sure other Canadians are aware...

It is really dumb that while unenforceable, companies are able to get you to sign. As per the link the government is working on laws to outright ban the process.

The government needs to step up here, and enforce its own laws. If these are unenforceable companies should not be allowed to "trick" people.

The real danger is if you don't train your people and they stay. That risk is why you train everyone even those who leave.

For cases of expensive training it is fair to demand they pay you back if you don't stay for a couple years. We are talking about a full masters at a major university though, not just some random 3 day design patterns class or whatever the hotness of the day is.

The clawback also needs to be contingent on the employee somehow requesting the training and initiating the end of the job.

If you spend $20K on an MBA that I initiated and I quit, totally fair to have an arrangement where I have to pay some of that back.

If you fire me? No obligation.

If you send me to some series of certifications because you want me to have them? Also no obligation.

> If you fire me? No obligation.

Lets change fire to lay off. There is a subtle but important difference. If you fire someone it is generally for cause - that is they did something bad. You still want someone doing their job, but because of their bad behavior it can't be them. That is if someone gets a MBA, moves to a management position and starts demanding sex of their underlings, you fire them and demand they pay for the education you got.

By contrast when you lay someone off, you are saying "you were good at your job, but we don't need someone doing your job anymore" (or maybe we can't afford to pay someone to do the job). You lost your job, but there wasn't anything you could have done different if you wanted to stay.

People mostly get fired for not doing or for sucking at their job rather than for sexual harassment. For a termination "for cause", I don't care much either way whether the training is reimbursable to the company. For termination for poor performance (still a "firing"), I think training should not be reimbursable.

Firing for gross misconduct is a reasonable exception, but not all firings in general.

> Every such scheme has generally failed because they refused to emulate the one key piece of California law that is necessary for a startup ecosystem to exist – banning noncompetes.

As I look out the window of my Seattle apartment, observing a literal forest of new construction, sky-rocketing rents and costs of living, I must interpret the tech boom here as 'the next Silicon Valley failing', because Washington state has had a very strong form of non-competes prior to 2020, and a somewhat strong form of non-competes today.

Or, maybe I can choose to believe my eyes, and note that the the presence or absence of non-competes isn't a very important factor for driving a tech boom. [1]

It is a popular topic to bikeshed over, though.

[1] As a sibling poster points out, non-competes are absent in Canada, and yet nobody can accuse any locale in Canada of being the next SV...

You can argue the degree to which non-competes have contributed to Silicon Vslley success but there are a ton of companies elsewhere in the country with various degrees of non/compete enforcement that have had and have considerable success in various technology sectors. Another example is MA which historically did allow non-compete enforcement (now somewhat weakened) which spawned the whole Route 128 computer industry and more recently biotech/pharma.

Although allowed, I only once had to sign a pretty limited non-compete with an MA company. And people jumped between the various minicomputer companies all the time although tenures tended to be longer for other reasons.

> Or, maybe I can choose to believe my eyes, and note that the the presence or absence of non-competes isn't a very important factor for driving a tech boom. [1]

Or that other factors of working in WA somewhat mitigate downsides of non competes. Sad that WA lawmakers accepted the bribes from large businesses and capped non compete bans at $100k per year payrates. Could have leveled the playing field with CA a bit more.

Seattle succeeds because it's the same time zone and Cali, Microsoft pulled tens of thousands of programmers here, then Amazon, now we have critical mass. What we don't have is nearly as many companies starting up here. I think noncompetes do actually reduce the number of new companies started in Seattle, and also reduce people switching jobs.

Right, the idea is to train + pay them well enough that they stay. It helps the local economy because rather than your business putting more into investments around the world (or wherever the rich store / grow their money), that person puts the money in the local economy.

Folks understand this, but their pay depends on them not understanding it so. . . here we are perpetually.

Funny enough, paying folks well often will pay dividends for your business in the long run. So long term they would make more money.

Humans are unfortunately quite short sighted, which I'm fairly sure nothing can be done about. We're just fancy animals after all.

I saw first hand a sales guy at a prior company I worked for start a side business directly competing with the primary business he was working for in his day job, while still working with them. Including redirecting customers while working for them.

The owner got suspicious due to some comments made by customers, and started listening in on the phone calls he was making on the company phone system.

This was a small business, and it nearly tanked the company, as the customers were confused as hell, and the ‘new’ company wasn’t doing well either. She ended up having to fire him, and sue him, but it took years, and meanwhile he kept operating.

He was paid well, but for some people it’s never enough.

I don’t care what anyone says, that is shitty criminal behavior.

That's basically the one situation in which non-competes are enforceable in the US. The problem is, most people don't understand that, and fall prey to companies putting non-compete clauses into their employment agreements that say they can't go do CRUD software development at any company in a 50 mile radius.

Yeah, I'd say that's different, not sure how the anecdote applies whatsoever.

The reason it’s relevant is because that is literally what a non compete is supposed to be for.

This is talking about non competes that apply after one is no longer employed.

Yours is something entirely different.

Different and yet his is a lot more valid than want most are

If it was different, then he would have been fine once he was fired no?

But that is not the case.

If he wants to quit and compete with you he should be able to even if this destroys your business. The problem is he used his access while employed to redirect customers. It wasn't fine after he was fired not because it wasn't ok for him to compete with his prior employer but because he had already swiped your customer base. The prior behavior and challenges after he left are inextricably intertwined. Him quitting didn't separate them.

If he had done NOTHING while employed and quit to do his own thing do you think it would have been a problem? If so why?

I think you might want to re-read things a bit.

1) It wasn't my business, and I'm not sure why you seem to think it was.

2) He only started the business because he was able to siphon off customers, and felt it was easy money.

3) If he had quit, and started his own business (even based on the prior one), and started from scratch, that wouldn't have been a problem. Him waiting a period of time (non-competes pretty much HAVE to be time limited to hold up anywhere) would not likely have changed it either.

But that would have required more work and more risk.

It's rare that folks actually do that.

> "But I'll spend money to train my employees and they'll just take those skills to go work for a competitor or start their own business!" Yes, that's a feature of the system, not a bug.

This mentality has never made sense to me. Why would a business invest so much money into training someone, then fail to spend the money needed to retain the (more valuable) trained employee?? "They'll leave after we train them" is a ridiculously easily preventable problem.

wonder how that is solved in practice?

(also wondering about the armed services and paying for medical school)

The armed forces are probably not the best example. There tend to be pretty severe consequences to just deciding you don’t want to be in the Army any longer.

What is the usual term of an enlistment?

I believe 4 years active duty and 4 years in reserves.

The investment into training isn't merely money and can't usually be neatly calculated. It's usually paid in the form of time, motivation, distraction and lost opportunities by more senior staff. If you, personally, sink a year into training someone intensively, and then they leave, would you perceive it as merely lost opportunity costs? Probably not. Mentors and mentees are supposed to have a more than purely transactional relationship in most understandings.

As to why not just pay more, probably the reason you were trying to train someone to begin with is because you can't afford to pay the higher wages to just poach the most experienced people? Otherwise why not just pay the higher wages to start with and skip the risky and slow training? Also, the software world has the unique problem that everyone is competing against VC backed startups that are willing to spend more up front to minimize time to market, so these firms generally don't train but can afford to poach anyone who is trained at a perhaps unsustainably high salary.

> why not just pay the higher wages to start with and skip the risky and slow training?

It’s not like walking around with sacks of money and hiring people interested in that money is low-risk. I’ve found training to be lower risk/uncertainty than hiring in terms of fewer outright failures and negative surprises.

Yet, companies just love to hire instead of retain. Take an employee who just got trained/experience and is now worth $N, who is currently making $N-2. Most companies I've worked with would piss and moan about giving that employee a raise to $N-1. They'd rather let him leave. Then, they suddenly have no problem hiring a relatively unknown employee and paying him $N+2. It's never made sense to me in all my decades in this business. Obviously value-destroying behavior that's routinely done by most companies.

You talk as if figuring out what an employee is worth is easy, and that worth is absolute (same to all employers). If you have competitors who are willing to pay a premium over what the skills are worth to the first company not to train someone, then this situation can arise.

The issue is that a company that (all else equal) doesn't spend on training has more budget for salaries. Employees who already have skills generally value salary over additional training.

Also there's the obvious culture / coordination angle: if enough companies train their employees, then the people they hire to replace ones that left were already trained by their competitor. It boosts average competence level for everyone. And, to the extent it builds goodwill with the (ex)employees, you may discover they're sending quality candidates your way.

Unfortunately, this is a coordination problem, and those are what humanity sucks at.

> This mentality has never made sense to me. Why would a business invest so much money into training someone, then fail to spend the money needed to retain the (more valuable) trained employee??

It didn't and doesn't to me either. It's very similar to the disturbingly common case of a company cheaping out on office chairs, computer hardware, etc. when the total cost of creating a comfortable working environment for an employee is less than the company pays them for a month of work!

Or, related, and perhaps even more common in tech: skimping on infra (be it physical or virtual), despite again wasting more money in lost productivity than they save. Like e.g. at one place, I used to regularly complain about the amount of build bots we had for the team, and the resources allocated to them. The response was always that it's as much as we can get from the company cloud, to which I'd reply, why not buy more compute? Never got a straight answer to that. Sure, more and beefier machines cost some money, but when the CI is running at capacity at all times, and you have several well-paid devs sitting there and getting distracted while waiting for their jobs to finish... Penny-wise, pound-foolish was the saying?

In fact, I'd happily spend a fraction of my salary to buy a beefy PC to use as a compilation server. And another one to lend to the team's CI infra. But I can't do that, because procedures and company IP protection and whatnot. In the end, I was left with the feeling that the company just wants to make it hard for me to do the very job they're paying me for.

You'd think that management and finance education would let the company do the obvious math, but apparently, it doesn't. But then, the whole problem seems eerily similar to what's apparently a Business Wisdom today (and to me is total insanity): always being focused on acquiring new customers, and not paying attention to retaining existing ones. Maybe the reasons are similar, whatever they are?

Does banning non competes help if you don't already have businesses attracted to an area in some critical mass?

I can see how it could make for a vibrant scene if you already have incumbents, but if you are an area trying to attract them, I am not sure that works.

Without talent, your employer pool isn't going to grow much. Non-competes are one of many things to make the chicken and egg problem worse.

After visiting SV, I wonder why anyone would want to replicate it. I was so disappointed to see so much poverty, such high rents and such poor public transit in the tech capital of the world. It seriously realigned my perspective.

Obviously there is a little more to it than that. Oklahoma and North Dakota have both banned noncompetes for 130 years or more. no nexus of tech in either place.

...and then there is Michigan where they were banned beginning in 1905, but then the ban was repealed 80 years later in 1985.

Yup kinda interesting to see this play out. With the federal trade secrets law tho it no longer matters.

I thought austin was like silicon valley, but with own-the-employee-mind-invasiveness. Maybe companies get bigger and move to austin?

(it's actually just the weather)

Some say the valley dominated over route 128 for this very reason.

Except things didn’t really switch West for many years and a lot of other factors were in play.

> "But I'll spend money to train my employees and they'll just take those skills to go work for a competitor or start their own business!" Yes, that's a feature of the system, not a bug.

Pay your employees well, listen to their problems and fix them, and they won't leave the company for a competitor.

People leave for a handful of main reasons to competitors:

1. Money - this is the most obvious. Most employers simply don't want to give pay rises, to the point where they would rather hire a new person at 50-100% higher than your current salary, to do the same job, than to give you a 25-30% raise.

2. Bad management - second most common reason I see people leave, even for lesser paying jobs, just to be rid of bad managers. And for some reason most companies would rather hire _yet another_ manager to "fix things" rather than listen to the actual workers' problems. So the worker leaves when all they see is manager upon manager upon manager getting paid 2-3-5x as much as they are, who either don't do jackshit, or are overbearing micro-managers. Oh and of course these managers often claim any success of their managed people, while pushing any blame on them simultaneously.

3. No way to progress, either professionally, or within the company hierarchy. A lot of professionals end up doing the exact same job for years upon years, without going anywhere. They don't get promoted to a new position (but get new responsibilities continuously, without any financial renumeration of course), they can't go to another project, they're stuck in one place. And nobody likes feeling stuck.

Overall, a company can easily ensure that people they invest in, stay with the company to use those skills - just freaking listen to them. Not the managers, not some external "corporate coach", the people you invested in. Make sure they're happy, and they'll stay with you.

Oh, also, let's debunk that whole "I invested money in you therefore you can't work for my competitors" bullshit - all that investment, that's actually net zero for the company, since they can do tax writeoffs on those, as an expense. So at the end, that argument is pure BS, and restricting (ex) employees from working for the competition is pure pettiness.

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