FTC cracks down on companies that impose harmful noncompete restrictions
ftc.gov
ftc.gov
A few years later, I moved to the company's offices in Washington State, where non-competes are allowed. Before the move I emailed HR and asked if I needed to sign the WA state employment agreement (with that non-compete clause) and they said "no". I saved that email.
Forward a decade, I resigned to work for a competitor.
That exit interview was fun. :-)
[I was working on completely different stuff at the new company. I do take NDAs and trade secrets seriously].
I’ve had both cases, with one company coming up with contract “additions” every now and then with super specific terms, including monetary amounts etc. The other companies usually had one single broad contract mentioning that any other provisions would be explicited in the company’s general HR policies. The HR policies get regularily revised, and employees didn’t need to sign every single change.
IMO it probably comes down to transparency. The company going the super granular route had many specific clauses negociated at an individual level, and stuff they wouldn’t want to have in a semi-public document any other employees could look at.
I don't think that HR really understood my question, but I sure wasn't going to clarify things for them!
Workers should be free to employed wherever or start a business that's not lifting IP.
These sort of regs needs to harmonized like UCC. California's model is mostly the right one.
Also there are some companies selling full employment and payroll option, reporting. They might work for large enterprises, but for us it is just easier to limit the talent pool for those who are willing to work as a contractor and pay then more for taking that risk. Global talent pool is larger than any local talent pool, so you find more staff, more talented staff and staff willing to go for more competitive compensation.
Payroll companies are, sadly, the way to go here.
http://web.archive.org/web/20230104170101/https://www.ftc.go...
> In its complaints, the FTC said the restrictions constituted an unfair method of competition under Section 5 of the FTC Act. In each case, the FTC has ordered the companies to cease enforcing, threatening to enforce, or imposing noncompete restrictions on relevant workers. They also are required to notify all affected employees that they are no longer bound by the noncompete restrictions.
I remember them saying Accuweather is close to the main campus of Penn State which has a large meteorology program. They were saying if you joined accuweather and quit you couldn't work in any weather related field for 5 years after leaving accuweather. Basically the NDA locked you in and you were a prisoner.
You don't want me ot work for a competitor for a year? Great. You get to pay me full pay and benefits for that year. Let's see how keen companies are to enforce a noncompete then.
Even then they should be limited in scope but without paid gardening leave they should be utterly unenforceable.
The problem even with paid noncompetes is that you are only getting your salary, not bonus and in the roles it is enforced, salary kind of caps out and bonus ends up being 25%.. 50%.. 75%+ of your income.
Some firms have started to enforce garden leaves long enough that you are guaranteed to miss at least one, if not two bonus cycles.
Additionally, your health care coverage is revoked at most of these companies during your gardening leave so you have to decide whether to go without, take COBRA, or hope you are on your spouses plan already.
Finally, the terms of the contract are generally asymmetric. Your employer has the right to waive the garden leave, but you do not. So you don't know if you are getting a few months paid time off until the day you resign. For legal reasons most companies won't make an offer deal with you and give you a deal like "if you can get out of your garden leave at old job and start here earlier, we'll let you take a month off paid by us before you start" as it is solicitation.
That said - 3 month garden leave over the summer is awesome.
Which is why they should be required to pay your TC+xx%, including any costs you may incur for things like health insurance, not just your salary.
I forgot the other fun thing is that any of your deferred compensation is zero-d out as soon as you resign, even though you might be on garden leave for 12 (and now some cases, 18) months.
How is this not an illusory contract?
When I gave advanced notice to Tudor Investment that I would be quitting they threatened to fire me with cause so that they could still enforce the non-compete without paying me in accordance with NY state law.
And they followed through with their threat, sending me a letter telling me I was being terminated with cause the day I officially quit.
To make their shitty shenanigans worse, they made the unpaid non-compete just short enough so that it wouldn't be worth it to sue. The NY Department of Labor also doesn't handle complaints if you're salaried above a certain threshold.
Don't ever work for Tudor Investment, they're two-faced assholes, but I shouldn't be telling you that when the government should.
I'd love to shame the company as you're doing, but we're legally bound by the settlement not to say anything about them but how great and wonderful they are as a company.
None of this is fool proof and requires savings, and I'm sorry if it seems like I'm victim blaming. As you point out, our legal system wont even reach discovery for $30,000, it's not a system of justice, it's a system of power, so do consider utilizing the power you have to keep quiet. "I'm quitting, I don't have another job lined up, but I might look around; oh yes, of course I'll follow the contract, but I'll seek my own counsel to advise me on how best to do so; goodbye". It's hard to imagine this could end up any worse than what you already experienced.
Thankfully now though, it's mostly all behind us. My spouse is in a new job in a company that the first employer gave the ok to, and in two more months a year has gone by, and they have no more hold over us at all.
The current employer doesn't actually know anything about the situations, as when my spouse took the job the lack of work for the previous three months was explained as, "I was unhappy at the previous job, and I took some time off and helped my aging parents get settled into a retirement home", which was all true. The new employer also wanted a non-compete signed and was a little confused why we pushed back so hard on it. They'd never seen anybody ask for changes in it. They agreed to some changes, but in the end really didn't want to make one that was compliant with state law. We settled for a written statement from their corporate council to our lawyer that said they understood it did not comply and was likely unenforceable.
Source?
Labor Standards cannot accept every claim. Labor Standards will not accept claims if you:
- Worked as an executive, administrative, or professional employee and earned over $900 per week
https://lni.wa.gov/workers-rights/workplace-policies/non-com...
Could you elaborate on that part?
That sort of non-compete that seems reasonable to me- very specific, time limited, and only for people with actual trade knowledge.
A good test is the number of openings a prohibition covers. The non-compete I signed covered maybe 30 openings nationwide in a good year, and zero in my local metro area.
One easy test for contract fairness I learned from my lawyer is, "Would it make sense if it were symmetric?" So, e.g., would your employer also agree not to go after clients that your next employer has? Or would they agree not to hire any engineers you consider competitive with yourself while you're there and for a year after you leave?
My guess is no.
Also- most of the reasonable cases for noncompetes are already covered by trade secret/NDA stuff
Posting this on the website and claiming that it constitutes "vigorous enforcement" shows just how ineffective these underfunded Government agencies typically are. They rarely choose to go after large companies, who can keep flouting regulations with impunity.
Smells like an Abacus Federal Savings Bank [1].
----------------------------------------
[1] https://en.wikipedia.org/wiki/Abacus_Federal_Savings_Bank
https://www.justice.gov/opa/pr/justice-department-requires-s...
Simple, small, limited conditions to stop certain behaviors.
As to why many industry/business non-competes are legal? There’s a good chance they may not be. But until taken to court we don’t really know.
I’d be curious to know why these companies were chosen. Were they especially bad? Or just the companies they had the best evidence against?
I would argue that's not fair at all. Think about what you're saying: you're saying that your Mexican restaurant should effectively not have to worry about your competition providing a better job to your staff than what you offer. That changes the dynamic so that you don't have to worry about doing your best to retain your staff.
This problem is the crux of why Silicon Valley is so successful (where you can't do this there) and tech hubs in other locations aren't anywhere close to as successful (where you can do this there).
I don’t think it’s fair if they leave you without a chef and open a new restaurant selling the same kind of cuisine down the bock tomorrow.
That seems more like a spite restaurant. And I’m ok with putting a simple time/distance limit on that. Next year? Nearby city? Different kind of food? Go for it tomorrow.
I’ve tried to come up with a comparable situation where the roles are reversed. Suppose that you owned a restaurant. If you fire your chef and buy your local competitor, can the chef argue that this purchase shouldn’t be allowed because he can’t get a job in the local market anymore?
I’m curious if the Supreme Court has taken up cases about non-competes and analyzed if they violate the constitution since they clearly block individual freedom to pursue a living.
https://www.upcounsel.com/non-compete-agreement-enforceabili...
Another example could be tacitly encouraging holding multiple jobs.
When the interests of employers conflict with the interests of overall economic productivity, government should lean towards the latter, instead of always taking the side of the employer. Let capitalism do what it does best.
> “In its complaints, the FTC said the restrictions constituted an unfair method of competition under Section 5 of the FTC Act. In each case, the FTC has ordered the companies to cease enforcing, threatening to enforce, or imposing noncompete restrictions on relevant workers. They also are required to notify all affected employees that they are no longer bound by the noncompete restrictions.”
Here is the full excerpt of section 5 as it currently stands in the United States Code as section 45 (15 U.S.C. § 45(a).) [Text in square brackets are my own]:
§45. Unfair methods of competition unlawful; prevention by Commission
(a) Declaration of unlawfulness; power to prohibit unfair practices; inapplicability to foreign trade
(1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.
(2) The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except […a dozen exceptions…], from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.
(3) This subsection shall not apply to unfair methods of competition involving commerce with foreign nations (other than import commerce) unless— […insert paragraphs of exceptions…]. If this subsection applies to such methods of competition only because of the operation of subparagraph (A)(ii) [“on export commerce with foreign nations, of a person engaged in such commerce in the United States”], this subsection shall apply to such conduct only for injury to export business in the United States.
(4)(A) For purposes of subsection (a), the term "unfair or deceptive acts or practices" includes such acts or practices involving foreign commerce that—
(i) cause or are likely to cause reasonably foreseeable injury within the United States; or
(ii) involve material conduct occurring within the United States.
(B) All remedies available to the Commission with respect to unfair and deceptive acts or practices shall be available for acts and practices described in this paragraph, including restitution to domestic or foreign victims.
Why we are reading section (§) 45 of USC, not section 5: “Almost every provision of an act that is classified as a section of the Code is assigned a designation that differs from its act section number. For example, section 401 of the Social Security Act (act of August 14, 1935, chapter 531) is classified to section 601 of title 42. Most Code sections are based on an entire act section, but a few sections,[…], are based on less than an entire act section.” [3]
Citations:
[1] The Federal Trade Commission Act of 1914: https://www.govinfo.gov/content/pkg/COMPS-388/uslm/COMPS-388...
[2] Current United States Code (of law): (15 U.S.C. § 45(a).) https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prel...
[3] A guide to reading US Law https://uscode.house.gov/detailed_guide.xhtml
If a company really cares that much about stopping competitors from taking advantage of your skillset, they need to be willing to pay up.
It's completely unfair to pit an individual against a corporation. For the individual, a lawsuit related to a non-compete can consume their entire life for years while everyone working at the corporation has no real skin in the game. They'll go home and night and live their lives. Worst case they have to work late. It's not comparable at all.
It's better for a corporation to be wronged by an individual, than for an individual to be wronged by a corporation. So the law should err on the side of the individual.
To answer your question directly: frankly I don't see why not. Why can't the clients choose to change vendors? Is it not a free market? Are clients really going to change vendors just to still have the same sales rep?
A salesman doesn't exist as an island. He's selling products or services from a particular company, no? And if he leaves, he would then be selling products or services from a different company. Yes, maybe some clients will like the salesman enough to switch suppliers, but surely the fact that it's a different company with at least somewhat different products/services matters too, no?
Why are all these lazy entitled companies not pulling themselves up by their bootstraps and doing everything they can to keep customers?
If you are skilled in being the chief of staff at google maps, it is likely your highest market value is in that particular niche.
Restricting your employment opportunities to those where you don’t have the highest market value through the use of non-competes is absolutely unethical and needs to be banned.
It should be treated in the same way as other kinds of market fraud, insider trad8ng and rigging are treated.
I assume intellectual property law is sufficient to cover this case in practice though, because Silicon Valley is in California where noncompetes are unenforceable, and Silicon Valley is not exactly known for lack of R&D investment.
Chief of what? People use Bing Maps?
You are never allowed to steal trade secrets or use them elsewhere even if you didn’t sign any agreement about it.
An NDA isn’t even technically required. There are state and national laws which blanket ban using trade secrets outside of the company you worked for.
Not saying anything is right or wrong, just that when something is illegal doesn't mean it prevents that crime.
They don't. What I learned while working for your company isn't your company's property any more. Good ideas almost always eventually spread in our industry. And I think thats a good thing for software as a whole!
You can protect your data, and your code. But you can't really stop someone quitting a job at your company, working somewhere else and reimplementing a software system that worked well. It might take years to do it, but probably not decades.
I honestly think this is a pretty good tradeoff. It means if you build some software, you have head start, but not an impenetrable wall. For someone to compete, it'll take a lot of time and money just to catch up with where you are today. So it'll be hard to do but possible. This leaves the door open for any incumbent to be outcompeted in the market if they stop doing good work.
And thats a good thing! Competition is painful, but it pushes us to make better products for our users. Ultimately thats better for everyone.
I don't even think this case is undesirable. If we were welders, it would be absurd to be prevented from using a welding technique we learned on the job at a new employer. System design is just a technique.
You are only thinking about code. Imagine knowing all the dirty secrets about how your company screwed customers. I have seen employment contracts forbidding working for a customer, in addition to competitors and in addition to an NDA.
The "Front Page" ethics test is probably the best one I've heard: "What would people think if what was being done was reported on the front page of the NY Times or other major news outlet?"
Where trade secrets really leak (in tech), in my experience, is engineer to engineer. A chat between friends over beers about some technical problem. It is nearly untraceable and it doesn’t involve anyone leaving their job.
As a fun example, database tech is buried in trade secret restrictions and has been for decades. There is a classic problem in cache replacement algorithms that has no solution in literature. Nonetheless, an astonishingly elegant solution exists — the kind that you can’t believe you never thought of it yourself after you learn it — that has been selectively passed around informally among practitioners for (at least) a decade or two. No one knows who invented it but it was likely developed at one of the old database research powerhouses like Oracle, IBM, et al that have severe trade secret regimes. A trade secret that leaks isn’t a trade secret, but there are enormous punitive consequences if anyone knows who leaked it.
This kind of trade secret leakage happens even under non-compete regimes and it is pretty common. When it happens, the probability of figuring out how it happened is very low. It has to be part of your risk model.
A non-compete agreement doesn't actually "prevent" an employee from working at another company any more than an NDA prevents an employee from divulging confidential trade secrets.
If you're talking about trade secrets, I believe if there is evidence in the product/products that a former employees company is releasing that seems to be operating or working in a similar product they could gather publicly available evidence, hire a PI, and ultimately attempt to subpoena additional information if there is sufficient evidence that the employee is actually sharing trade secrets from a previous company.
> Anthony Scott Levandowski pleaded guilty and was sentenced today to 18 months in prison for trade secret theft related to Google’s self-driving car program, announced United States Attorney David L. Anderson and John F. Bennett, Special Agent in Charge of the Federal Bureau of Investigation. Levandowski was also ordered to pay a $95,000 fine and $756,499.22 in restitution.
There are dozens of small optimizations in my tech that where painstakingly discovered through years of research and iterative improvement. These are not cost-effectively patentable.
Even if you believe the trade secrets 'work' do you think companies are going to document every design of optics, electronics, laser frequencies, rf powers? Then if we did then we'd get a series of posts about how onerous the regular confidential info acknowledgement forms are for the employee.
Not to mention, once it becomes 'commonly known' via disclosure, it may not even be protectable anymore.
Non-competes sidestep all these issues. Sure, if they are overly broad its bad, but they have an important role to play.
Edit: My (possibly incorrect) understanding is that rather than having a blanket “everything is our secret” kind of contracts like we have now, the act requires the company to specify what they have that they consider a secret, and to show that they take steps to protect those secrets above and beyond regular day-to-day information exchange within their company.
For example, a list of customers would have to be explicitly identified as “secret”, and handled more carefully.