The FTC plans to curtail the use of non-compete clauses
economist.com
economist.com
U.S. moves to bar noncompete agreements in labor contracts - https://news.ycombinator.com/item?id=34260577 - Jan 2023 (494 comments)
FTC cracks down on companies that impose harmful noncompete restrictions - https://news.ycombinator.com/item?id=34254183 - Jan 2023 (176 comments)
Also related:
FTC intends to ban noncompete clauses that bind 30M US workers - https://news.ycombinator.com/item?id=34287441 - Jan 2023 (22 comments)
FTC Proposes Banning Noncompete Clauses for Workers - https://news.ycombinator.com/item?id=34260696 - Jan 2023 (9 comments)
Laws barring noncompete clauses spreading - https://news.ycombinator.com/item?id=33425934 - Nov 2022 (216 comments)
I wouldn't be sad to see the later form survive to be honest - there are a few situations where non-competes may be justified from a business perspective... but I think it's fair for companies to be on the hook for continued compensation at some proportion of the employee's former wage to actually exercise the privilege to deny the employee work in a specific field. But hey - better non-competes die than we allow the current chilling-effect bullshit of overly vague and broad non-competes that are never intended to see the inside of a courtroom.
Generally they are 3-12 months in duration, although recently we are seeing much longer ones (24 months) from firms such as Citadel.
You generally draw full base salary, and healthcare comes from COBRA.
US-wide ban of non competes is good for hiring firms (they get the talent immediately), bad (allegedly) for firms from whom the talent is leaving, and mixed for the workers themselves (for whom the garden leave can be sometimes received as a paid sabbatical). It will be a really big change.
So for sure no "garden leave" if you quit, and also not if they can find a reason to fire you. And of course no bonus, which is often a majority of total comp.
Possibly this sort of thing may vary by state. There might also be some room to negotiate depending on how much they want you.
100%+ annual bonus for performance are not unusual and typically they are not paid during a period of garden leave.
Yes. The proportion should be 100%, plus all benefits (401k, health, continued vesting of equity, etc). If you're being denied future employment then the employer can pay for it if it's that important to them. Possibly even more than 100% if they're preventing me from going to a company with a substantial increase in pay.
I was just replying to OP for implying that a worker should get a reduced (i.e. proportional) payout for being denied employment at a competitor. The "losing" employer should pay substantially for such a egregious act and the employee should benefit.
In six months everything will be out of date.
I’m sure in a forum of devs you’ll will think of plenty obvious “hacks” which are just fraud and our courts are perfectly capable of sussing that out.
Maybe I want to make a lateral move because I'm unhappy with my boss or my commute. What if I'm moving because my partner found a new/better job elsewhere, or I want to be closer to my extended family?
You can try to put a monetary value on some of these (pay my commute?) but I don't think you could "buy me out" of moving for an ailing parent or sick kid.
I still think there's something off about the power asymmetry though.
Which is to say, nothing prevents a company from offering that deal as an alternative, rather than attempting to force it through with a non-compete. But, the employee would have to consider the cost to them of basically pausing their career development and letting their skills atrophy. That’s a pretty big cost! It seems unfair to force that cost on them through the contract (especially if we agree with the premise that non-competes are usually entered on a sort of unwilling basis).
Nothing prevents the company from offering this sort of deal currently. But I’d expect something higher than the offer, to take it. Companies don’t seem to offer this sort of deal currently, I guess because it seems like a pretty bad deal on their side too. Paying somebody to do nothing seems pretty expensive, I think you only do that for political favors.
* not working due to noncompete and not getting paid for the duration of time
* not working due to noncompete and getting paid for the duration of time
The point is to make noncompetes a hassle and only worth it if you’re actually trying to protect something. The status quo is pretty poor if Subway’s “sandwich artists” are getting told to sign noncompetes without compensation. Companies aren’t really offering the latter if they don’t have to, because they’re more expensive; with the notable exception of finance.
The NYT has more examples including a summer camp counselor: https://archive.ph/1BvoM
If the noncompete truly has no value, and it is also not worth paying out for, then it should just not be in the employment contract to start.
Option 2: The labor pool is a class struggle, in which employees exploit their workers. Non-compete agreements of a form of exploitation, tying a worker’s livelihood to a single employer.
Option 3: Employees belong to the company they work for. Non-compete agreements codify this natural relationship. Hiring a different company’s employee is a form of theft, and is called “poaching”.
Option 4: Any voluntary, informed contract is valid. Non-compete agreements are one such contract. Forbidding non-compete agreements is an unjust restriction.
Under options 1 or 2, non-compete agreements are clearly unethical. Option 3 requires accepting an unethical premise. Option 4 requires stretching the terms “voluntary” and “informed” to apply to Morton’s Fork.
I’d put the question another way: Given the negative effects of non-competes, why should they be allowed?
This feels like a sacrifice play to me. I'm sure that the cost of improving wages, hours, and benefits so as to retain staff is a lot less than improving all those things plus the overall cost to the business and/or economy of a strike.
I worked for a very small company for a number of years quite a while back. We basically wouldn't even look at someone who had a non-compete even if it "probably" wouldn't be an issue. The risk of having to fight some big tech company--who might also have been clients to some degree--was just too great.
I assume you didn't ask to see new hires former contract and would you routinely ask, "are you subject to any non-competes?"
This may be true in theory, but more often that not for the most vulnerable people it's not true in practice. The problem is that people have to be both aware that they can challenge a noncompete and willing to do so. That is, at a minimum, very time consuming, and if you're working a low-wage job, you probably aren't going to be practically able to fight a noncompete. If you get a new job and your old employer sends a threatening legal letter to your new employer, they're probably just going to fire you rather than help you fight it.
If the system put the burden on the employer to prove that a noncompete was valid before making any attempts to enforce it, the current system might work well. Unfortunately, the reality is that even totally unenforceable noncompetes are still effective most of the time - that's one reason you still see them put into contracts in places where they have no chance of surviving a legal challenge.
The States have 50 different approaches written into their laws on how to deal with non-competes. Some ban them entirely, while others curtail their scope or shift the burden to employers to justify them, and many do not regulate non-competes at all. A rule by the FTC that preempts the laws of every state for all non-competes regardless of scope without any specific statutory authority is the wrong approach.
The FTC is justifying this under Section 5 of the FTC act, which in relevant part prohibits "unfair or deceptive acts or practices in or affecting commerce." This kind of wholesale preemption of state law regardless of context seems like an awfully big change for such a broad and vague statute. Underscoring this point, the FTC has not historically used Section 5 in this way.
Expect to see this challenged in court.
Non competes are rarely enforceable as written, so the FTC has a clear mandate from both the unfair and deceptive standpoint.
Regardless of which non-competes they choose to ban, however, the fact remains that this is the first time that the FTC is attempting to use Section 5 in this manner. It is very unclear that they have the authority to issue the proposed rule. My opinion is that they do not, and I think the courts will agree with me.
It’s one thing for agencies to suddenly focus on some new area tangential to their mandate, but this seems to be exactly that they are supposed to be looking at.
Conditional (the condition of every single one going to court) versus unconditional. I see no reason the power to ban would be limited to a specific interpretation, in this case.
What is the argument (not just reiterating the point of contention)?
I also think "they never did it before" is not a very good reason to not do it now. Especially as this is a growing problem. In 2018 research found, "noncompetes cover 18 percent of all U.S. workers and have covered 38 percent at some point in time."
Had the FTC banned them earlier, like in 1914 when the FTC Act was written, surely somebody at the time would have squawked that it was not a problem and how this was just another example of needless government regulation. If the right time to solve a problem is neither when it's small nor when it's grown large, it almost sounds like some people don't want the problem solved at all.
(One conclusion I can imagine for this debate is that laws are not coherent, they are self contradictory in some cases, and this might be one of those cases.)
However this turns out, I'm glad more people are talking about this issue, because I think 95% of the people agree non-competes are unfair, which is enough that maybe things will change.
"Under this Act, the Commission is empowered, among other things, to (a) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress."
Seems to me like the FTC is exactly the group to make this decision
One might conclude from this that there's a reason the Federal government can set minimum standards effective across the country.
Once the dotcom boom started, people were saying go to the SF Bay Area for startups, because that's where the investors are.
MIT graduates with computer-y degrees seemed to be fleeing Cambridge/Boston as soon as they could.
In the case of Google, I thought there might also have been a Stanford-vs.-MIT factor. MIT was known as very strong-minded and self-assured. (And Stanford and California have their own stereotypes.) Were I trying to craft a particular culture, starting either around Stanford or MIT, there's no way I'd open a major office on the other coast until the HQ culture had really gelled, and I thought I could get the distant people to meet us more than halfway (rather than them carbon-copying what they already know from MIT or California).
Before that, pretty much all the technology-related companies in MA were out in the suburbs and I can imagine new grads thinking if there were going to be out in a suburban office park anyway, why not be in California?
And, yes, historically there have been east coast vs. west coast stereotypes that doubtless have some basis in reality.
That's pretty much my point. The presence of non-competes did not prevent the development of a tech industry in MA. And, while VC funding is about 20% of CA's, MA+NY+CA have far more VC than any other states--and NY and MA together have more than half of CAs funding.
Those two states collectively also have a lot of different kinds of "tech" that are far less represented in CA such as fintech and biotech/pharma.
I'll just add that I'm not sure how common non-competes actually were in the MA computer industry. I certainly never saw one until the company I was with was acquired by EMC in about 2000. What is true is that people tended to stay with companies a long time but I don't have any evidence that non-competes played a big role in that.
I have seen plenty where some Junior Vice President got angry at someone for quitting, and decided to sue to make that person's life hell. I've made several hires (sales, marketing, engineering, even executive) where the JRVP calls and tries to threaten my company with a lawsuit. My answer is, send over what it will cost to hypothetically settle, and we'll talk. Never once have I been given a number or sued. I assume this is because, A) they know the non-compete is unenforceable or B) the non-compete doesn't exist, or C) it's punitive with no real harm in the marketplace from the hire.
I have. Tiny company had a coder go off to another company in another state that they were approximately in competition with. They sued. Don't know the outcome, but I know it when to court.
That seems to be an argument for keeping non-compete clauses--allow firms to hire people on the condition that they'll stay a few years once they've be trained and can at least recoup the cost of training. Something like that would've been in my favor.
Maybe a better solution would be something like the government will pay a company if an employee leaves within some time frame after getting hired (2 years or so) if that employee gets a higher paying job in a similar role. It'd be tricky to structure correctly, but the whole idea is that what the government is really paying for is job training insurance. It mitigates the risk for firms for hiring people, thus making hiring faster and keeping people out of unemployment.
I favor training, loyalty, seeing a system through a lifecycle (rather than job-hopping before you see both cause and effect), etc., but...
Requiring an employee to stay at a company, especially in our current not-very-scrupulous business culture, sounds like a recipe for indentured servitude.
That was an argument that the labor buyers you were negotiating with were perceiving an excess supply of labor that they wanted relative to demand at that time.
Your solution would have been to try to sell to other labor buyers or change the type of labor you were selling to something that was in sufficient demand such that buyers would not have a choice other than to train you, and treat you well enough such that you are incentivized to stick around.
What companies probably can do in general (not an employment lawyer) is have a contract requiring the repayment of outside training if you leave on your own volition before some period of time--which seems reasonable.
holding a grudge over them because you trained them and are trying to recoup your costs is idiotic and doesn't work.
asking the government to subsidize corporate training is a non-starter. it is a corporation's job to both DEVELOP and RETAIN talent. Both. Companies would like very much to do neither--but putting in the effort is required for good results.
What happens if everyone concludes that they'd be better off waiting for a competitor to incur the cost of training someone, then hiring them away? We'd get into a situation where no one wants to train anyone.
In my experience, I've only used them when acquiring a business. I always like that there is a 3-5 year non-compete so the previous owner doesn't just setup shop again immediately after selling their business to me.
Here's the thing I wonder about (especially in tech) - who's to say where you currently work except what you may reveal in LinkedIn or on social media?
Companies sell this information to credit bureaus and background check agencies, who then sell it back to other companies. It's not secret.
All things being equal, a fluid marketplace with many options is best for all sides. Businesses that are too strict with their non-competes also risk driving away potential workers. In my experience, the businesses only ask for the non-competes when they're giving someone a significant amount of responsibility.
Also, your experience here is perhaps limited. Non-compete clauses are being given to janitors and sandwich-makers. E.g.: https://www.nytimes.com/2014/10/15/upshot/when-the-guy-makin...
I’m based in Europe (Portugal) and working for a USA company. This isn’t a serious concern, just curious.
For non-classified contexts, they should be properly regulated. For example, there should be a term limit that is something reasonable, like 18 months, and there should be a provision that the duration of their enforcement is paired with ongoing compensation at the same terms as during employment. So if you made $200k cash plus $100k Stock options per year, on the moment your employment contract ends if they want to make you unhirable from their competitors it should cost them ongoing money.
For classified contexts, it should be a longer term for some fields based on national security concerns and ongoing renumeration should not be provided, given it is literally national security. This nonsense where British pilots were training non-allies on UK flight tactics right after leaving the RAF is bananas.
A new congress that hasn’t received as many gifts from the powers that want to keep this. And probably the proportion of upper management of the FTC that has gotten such gifts is getting lower (or the gifts are getting weaker).
The head of the FTC is known to be someone who wants to enact progressive policies. For her and her staff, limiting noncompetes is driven by idealism that workers should have more rights.
I believe that these changes are echoes of Bernie and other progressives getting lots of votes since 2016. They are now insiders in the government rather than outsiders, so they advocate for progressives to lead departments.
Good ideas are good regardless of political party.
Barring several wedge issues that parties exploit to maximize outrage reaction in order to gain power, most people are pretty closely aligned on stuff like this.
I feel like if you polled the US population on this, 80+ percent of folks would be in favor of eliminating non-competes, regardless of political affiliation.
I agree with you though, that this is one of those good policy items that's historically been a casualty of tribalism and "campaign finance" aka bribes.
This kind of analysis only makes sense if you completely disregard what "left" and "right" mean. The right is explicitly anti-labor.
It's not a binary, it's limited thinking to say that someone is "pro-labor" or "anti-labor". Even that choice of words, framing the narrative and the associated emotional response is deliberate - and misleading.
Each situation is different, for example, I think you'd be pretty hard-pressed to find a majority of "right" voters who believe that coal miner unions are a bad idea.
I think it'd be pretty easy to find a majority of them who believe that the NEA does more harm than good.
But it's a lot easier to just lump everyone together and demonize them, right? To find a few tragic examples of abuses to maximize outrage reaction, and make sure everyone is properly corralled into their tribes and casting the "correct" vote, so we can show those nasty out-groupers what's what.
In case you were curious, the distribution of political leaning in unions is a lot more complex than what you might think [1].
If someone asks me whether I believe in unions, depending on the day and how hungry I am I'd likely respond with something like "which union? which industry?", though I don't consider myself to be "right".
I am skeptical of laws that both protect and prevent unions, though. I think people should be free to assemble in whatever manner they choose, and to negotiate the same way.
I also understand that this gets really complicated when strikes or mass-firings threaten fundamental infrastructure and security. So, like most things - it's complicated.
[1] https://www.thestrikewave.com/original-content/complicated-p...
For a group of workers who are generally less able to afford legal remedies to situations such as non-compete clauses I can see how non-compete clauses are especially damaging to this group of workers. (I'll show some hard data points on non-compete clauses by pay and by education level obtained in a few paragraphs.)
If I had to guess I would say that non-compete clauses are being removed now because there's a "worker shortage": 1M dead from covid and of that some percentage (50%?) of that in the workforce; restricted immigration - legal and otherwise - for the last 3+ years and before that a decline in immigration due to the polices of the former guy). Why the quotation marks around worker shortage? Basically, the service industry businesses want workers but hardly anyone wants to work in the service industry because the pay's bad, there are often no benefits, in many states you don't know your schedule until the day of (which makes planning for childcare, attending college, etc. damn near impossible), etc.
So if I had to guess this is the federal government's way of attempting to address the "labor shortage" in the service industry across the United States as well as allow people in white collar jobs to switch into new roles. I would bet that most folks who fall under the 'knowledge worker' class of employment know that their company's non-compete clause is pretty much non-enforceable, but ask your average restaurant worker who is under such a clause and I bet that they believe that the non-compete clause _is_ enforceable.
From this report from 2015, it looks like ~18% of all US workers are under a non-compete clause in their current role, with ~15% of workers without a college degree being under a non-compete clause and roughly the same percentage of workers with an annual wage of <$40,000 being subject to a non-compete clause (Rf. page 7 of 36): https://home.treasury.gov/system/files/226/Non_Compete_Contr... In that same document on page 16 you'll note that California, Oklahoma and North Dakota have the 'least enforcement' of such clauses. I suspect that the oil and gas industry in OK and ND enjoys not paying for training of employees, so if your employee can be trained at a competitor and then jump to your place of employment, full trained / ready to work, that seems to be what those states are looking for. (Yep, large swaths of ND and OK have over 20% of that county's employees employed in the petroleum extraction industries: https://www.ers.usda.gov/data-products/chart-gallery/gallery... )
TL;DR: Fifteen to twenty percent of all Americans are currently working under non-compete clauses (with 1 in 6 food service industry workers being subject to non-compete clauses). Thousands of jobs are going unfilled in the service industry as well as in white collar, 'knowledge worker' domains. By removing the ability of employers to create and enforce non-compete clauses this should, in theory, 'free up' around 20% of the workforce to change jobs. In theory, most of these workers would be changing jobs for factors such as more flexible work schedule (advanced notice in the case of service industry workers; WFH for white-collar workers), benefits and sick days, and increased wages. My (admittedly cynical?) take on this is that by freeing up 20% of the workforce to switch jobs the federal (and state) governments are hoping that they can get away with any increased spending toward social services and instead can just tell people 'Well, go look for and get a better [paying] job! What's stopping you? Certainly not a non-compete!" Also, by allowing a 'great migration' into new roles the federal government can get a rough tally as to how many immigrants they'll need to let in via the skilled (H1B, NAFTA, etc.) and unskilled (EB3) visa programs; it's my opinion from looking at state- and federal-level labor statistics over the past 3+ years that the data is rather 'noisy' and by removing non-compete agreements it should make it easier to get a "closer to reality" tally of how many workers the US will 'need' to import to create and maintain full employment in various skilled and unskilled industries.
Quite a tough lesson to learn that Arkansas hillbillies make shitty leaders.
> California, the global hq of disruptive innovation, goes a step further and bans non-competes altogether. The FTC should do the same, on the grounds that they are anticompetitive.
As it stands, I came away from the article not having been enlightened on any of the topics you just linked.
Can't even read the whole article because of the paywall, but the part before the “pay for the full article” does mention the FTC has them in their sights.
This is an opinion article about the news, not a news article, though, so it focuses on the why its good, not the details of the FTC action. See, for the latter, from the source: https://www.ftc.gov/news-events/news/press-releases/2023/01/...
As a subscriber, I think this is how it should be. There have been a zillion articles about this FTC action going back at least to June. Part of what I value about The Economist is its pithy, punchy writing and its assumption of a competent, numerically literate audience. Having to spoon-feed the basics in every leader would be tedious both for them and for its subscribers.