Noncompete Clauses Increasingly Pop Up in Array of Jobs | Hacker News Reader

Noncompete Clauses Increasingly Pop Up in Array of Jobs

nytimes.com

81 pointsGabrielF0089 comments

Noncompete clauses are bullshit.

We already have an extensive infrastructure in place to protect the intellectual property and trade secrets of companies, including NDAs and those clauses assigning ownership of anything you produce to your employer. But the idea that companies can overstep this bound and place restrictions on how you can use your brain and your general knowledge to produce new, creative work that has only a secondary or tertiary relation to their IP is utterly vile.

If the technology existed to erase memories from brains, would these employers insist in their employment clauses that employees who resign must have any professional knowledge acquired on the job erased from existence? This is almost the same thing. If you are an engineer in a niche field, in particular, being barred from that field for a year or more is tantamount to rendering your professional knowledge obsolete.

there is a movie about that

Perhaps you'd like to share?

I think he/she means Paycheck: http://www.imdb.com/title/tt0338337/

Thanks. I hardly feel this film is in the common vernacular. If he had said book, maybe the Dick authorship would have made it more clear.

I actually didn't know it was a Philip K. Dick story, although that totally makes sense.

Assuming reliable and safe memory erasure were invented, I wouldn't mind such an arrangement if I could keep my skills and reputation, while forgetting only who I worked for and what products I worked on.

It depends on how much you can separate skills from knowledge. If you learn new things during your job and are forced to forget them, that can be a problem. For example, you learn a new programming language, then they wipe it from your memory.

Paycheck, starring Ben Affleck:

   http://en.wikipedia.org/wiki/Paycheck_(film)

I was on a phone and not equipped to research what its name was, but yes it was Paycheck with Ben Affleck I was thinking of.

That's a good point. The problem is applying noncompete clause to every employee of the company, regardless of their position.

I guess enforcing noncompete is just easier than NDA because it might be very hard, if not impossible, to prove disclosure. I understand noncompetes for executives, etc. People who could seriously harm their employer with their knowledge (client list, etc) if transferred to a competitor.

But yes, applying noncompete to every employee regardless of the position is a bit silly.

"People who could seriously harm their employer with their knowledge (client list, etc) if transferred to a competitor."

Why should the government protect companies from their competitors?

"intellectual property logic"

Oh God yes. Yes they would indeed.

>If the technology existed to erase memories from brains, would these employers insist in their employment clauses that employees who resign must have any professional knowledge acquired on the job erased from existence?

Don't be silly: of course they would. Do you think they don't think they own you?

> If you are an engineer in a niche field, in particular, being barred from that field for a year or more is tantamount to rendering your professional knowledge obsolete.

What if it was the employer that taught you the niche field? They hired you, and then sent you through six months of training to learn the field. During this time, you are producing very little of value, but you are being paid.

Then, when you finish the training and are ready to be productive with your new niche knowledge, you get poached by their competitor--a competitor who can pay higher wages because it isn't spending tens of thousands of dollars on training for new employees.

It seems to me that there should be some way for the employer to protect against the above scenario. What would be acceptable instead of a noncompete?

Some ideas:

1. A noncompete that runs from the START of employment instead of from the END of employment. If training takes six months, the noncompete would say you cannot work for a competitor for 18 months after start of employment.

2. Charge for training, with payment due in monthly installments starting at the end of training. The company waives payment for each month that the employee continues working for them. The employee can leave for a competitor at any time, but will then be responsible for making the remaining payments for his training.

I'd be okay with provisions restricting (or penalizing) quitting early in those kinds of situations if they are approximately symmetric. For example a 2-year minimum employment period in which there are penalties for either side abrogating the contract early (the employee leaving before two years, or the company laying the employee off before two years, maybe with exceptions for serious misconduct on either side).

It's not clear to me why the employer investing in training has somehow shouldered some additional obligation to the employee.

It's the employer modifying the at-will employment arrangement and attempting to restrict the employee's freedom to choose jobs at will, which should result in a symmetric obligation. The default situation in most U.S. states is at-will employment: either side may terminate the employment relationship at any time, for any or no reason, with any notice they choose to give or none.

If a more durable arrangement is desired, so the employee cannot leave tomorrow with no notice (thereby giving up the normal freedom to work only willingly for employers, and leave when it is no longer willing), then IMO it should be set out in advance and honored by both sides, e.g. by using a fixed-term or minimum-term contract, with penalties for early termination by either side. That way both sides can plan on the stability of the relationship (barring serious misconduct).

For example in my current job, either my employer or myself can terminate the employment with four months notice, after the first six months. This gives us both some guarantee that we will be able to plan for major changes— they will have time to find a replacement if I give notice, and I'll have time to find another job if they give notice.

The employer is not "modifying the at-will arrangement". The employer is doing the same thing employers do with signing bonuses: "here is a benefit you can have, but if you leave before 12 months is up, you have to give it back".

Obviously, training benefits can be abused. "Here is a 'benefit' that is not really a 'benefit' but instead a job requirement for which we have assigned a nearly arbitrary value; if you leave within 12 months, you must pay us this random number back." But as long as "training" has some value assigned by the market with a reference price not controlled by the employer, what's the problem?

Of course, it is all about consideration. I just can't think of an example where training would be enough consideration for a non-compete.

Employers always have to pay for experience. You either pay more for an experienced employee or pay for training.

With an experienced employee you can include actual benefits, like you mentioned, or you can pay to train someone who will take a lower salary.

I'm not suggesting that training should be adequate consideration for a noncompete.

> what's the problem?

It's uncomfortably close to indentured servitude to me to say: you can't work for anyone else until you pay off this up-front investment we made in you (working only for us until you do).

Do you feel the same way about signing bonuses? All of them work that way, I think.

Are you W2 employed in the US with an employment contract that says you can't quit without 4 months notice?

What does the contract specify as a remedy for the company if you quit early?

Regularly employed, but not in the US. I believe the remedy is monetary on both sides; they can't get a court order to literally drag you back into the building and make you work, and you can't get a court order to force them to let you into it, either. I don't know of anyone who's violated such a period and haven't looked in detail into what would happen, so the details are sketchy to me. But I believe there would be some kind of court or arbitration hearing, where the company alleges damages from the disruption due to breach of the employment contract, and the person may be ordered to pay any damages that stem from the too-short notice.

There's a simple solution, of course (besides outright banning of such clauses): require that the employer continue to pay the employee's salary until they are released from the clause. See how many summer camps continue to ask for or enforce such clauses then.

Many non-compete clauses already do this, especially in finance.

Right; I'm guessing, however, that those covering hair stylists or summer camp counselors typically do not.

Many (and I would guess most) don't.

I do agree with the general point that at least they should pay the employee bound by such agreements, so as to eliminate frivolous use. If it's really economically important to a firm, they are more likely to demonstrate that by paying a cost.

But, is there really any reason not to outright ban them? Specifically, are there any strong economic arguments for allowing these?

It seems like everyone is worse off in an economy when talent has to sit on ice because these contracts, even if they still collect a salary they are no longer contributing to the wealth engine of society. It discourages more efficient uses of labor when people are effectively married to a company. It also seems like an inherently unfair practice with at-will employment being the rule.

This sounds like one of those ideas people hold up as protecting small businesses or start-ups from big corporations, but really doesn't end up being an advantage.

My impression was that "proper" use of the noncompete was to pay the employee the same salary for the time period with the purpose of preventing IP and other valuable proprietary information from being transferred to a competitor. I think this is reasonable.

>But, is there really any reason not to outright ban them?

Yes: making them pay the employee puts more money in workers' hands ;-). That is all.

> Specifically, are there any strong economic arguments for allowing these?

They benefit the employer, since it limits the job prospects of the employee.

This is not only the obvious solution, but a necessary part of the basic idea. I want to keep you from telling $STUFF to a competitor? That $STUFF is valuable? Then there's a very good chance the opponent will simply try an buy it. Employment is only one of the many ways they make such a purchase, and so this ends up being a simple supply/demand problem.

If I'm serious about keeping $STUFF out of the competitor's hands, I better be paying the people that know $STUFF better than any likely buy price (legal or not). This isn't even for post-employment when the typical non-compete is relevant; it's the same reason you pay your employees enough so they don't take your ideas to a competitor (or regulatory agency).

This same problem of having to pay at least some minimum if you want to maintain any loyalty is perhaps best seen with soldiers. Having an important engineer take the ideas for your next project is bad enough, but shorting the pay for soldiers tends to cause things like a "coup" or other "high chance of getting shot" scenario. During the last big budget mess, congress played fast and loose with a lot of stuff, but were able to agree very early into that mess to continue paying the "retainer" for the military's loyalty. ( http://www.politico.com/story/2013/09/government-shutdown-se... )

Of course, maybe managers could start to realize that their money is often better spent in R&D or production or sales...

IANAL but I understand that this is required by law in China.

If an employment contract contains a non-compete clause, the employer must may some agreed percentage of salary (I don't know what the minimum is, but the agreed proportion could be something like 50%) during the defined period of the non-compete. The employer can decide to end the period early, by notifying the employee. At this time they can also stop paying the x% of salary.

Naively, I would want x > 100%; after all, not being able to work doesn't just cost the employee salary. It costs them gained experience, bonuses, and vesting, to say nothing of a black hole on their resume. It's also better for the economy as a whole to have a strong disincentive to using noncompetes, even if the employee is compensated.

Yup, and you could try to negotiate this with your prospective employer at the time of joining. It can also be worth asking whether they've ever invoked the non-compete for employees of your title/role. If the answer is 'no', they you might let it slide and focus on other aspects of the negotiation.

> “Noncompetes reduce the potential for poaching,” said Mr. Hazen, whose company makes scratch lottery tickets and special packaging. “We consider them an important way to protect our business. As an entrepreneur who invests a lot of money in equipment, in intellectual property and in people, I’m worried about losing these people we’ve invested in.”

Then do everything you can to keep them (pay them well, create a workplace where autonomy, mastery, and purpose are the norm, etc). Spending that $$ on your people instead of lawyering up to take away a former employee's livelihood when they find a better opportunity is a terrible way to run your business.

That would be true in an ideal world, with no greed and where every employee loves his company.

But in our world, dealing this way might get nasty with some people. "Pay me $$$ or I am leaving for XYZ tomorrow". Wouldn't call that kind of employees toxic or something. Just everyone has a different number.

It's especially true for niche businesses, like scratch tickets. I guess finding a technologist (or whatever) for such a company is a bit harder than finding a jQuery or Rails guy :)

That's how a free market for employees works though. If an employee is truly that crucial to your business, you'd better come up with a package that encourages him/her to stick around. If an employer can fire an employee at will or give him a paycut, then an employee should be just as free to demand a raise or walk to a competitor.

> But in our world, dealing this way might get nasty with some people. "Pay me $$$ or I am leaving for XYZ tomorrow".

I wouldn't call that greed, I'd call that "the employee demanding their true market value." Employers get the right to fire people and replace them with cheap labor overseas (for example), it's only fair that laborers retain the right to leverage competing employers off of one another.

> finding a technologist (or whatever) for such a company is a bit harder than finding a jQuery or Rails guy

Then the market demands that they be payed accordingly.

> [Anticipated words I'm putting into your mouth:] "You seem awfully focused on the market for someone arguing in favor of regulation."

I like markets, but they have many well-known pathologies, and I see nothing wrong with addressing those with regulation. In this case, the issue is that the market can remain irrational longer than someone at the bottom can remain solvent. Sure, in some sense you could say that people who don't read their contracts and demand better terms deserve to be punished. But the market doesn't just punish them, it punishes the people who try to negotiate for better terms. Who would hire a smart worker when a dumb worker can be tricked into doing the same job for less?

This is why we ban contracts involving slavery and indentured servitude. If they were allowed, 1/4 of the population would unwittingly walk into the trap-contracts. Even if they were perfectly rational, the next 1/4 would be forced to sign similar contracts by the fact that they had to compete with the irrational 1/4 on price (otherwise they starve). Regulations against this kind of thing don't just protect people from themselves (which is arguably something government shouldn't do), they protect rational workers from irrational workers. The market needs them to function (for any reasonable definition of "function"), and that makes them a good thing.

...finding a technologist (or whatever) for such a company is a bit harder than finding a jQuery or Rails guy :)

This is LITERALLY the ESSENCE of supply and demand! The person is rare, therefore s/he commands a rare salary. End of story. If you don't pay well enough, you don't get to have the employee. Non-competes pervert the labor market.

Edit: formatting

Honest question: would a union help protect workers here?

I know many people here don't like unions in practice (corruption, stagnation, etc.), but isn't this kind of thing exactly what unions are for? It seems like employers are adding these because the feel they have more negotiating power.

I'd prefer if they were just banned like in California. I struggle to believe the fact that California is the only place where non-competes are much harder to enforce isn't a major contributor to the success of the tech (Silicon Valley) & film (Hollywood) industries. Even here in the UK, companies offering zero-hours contracts have started to try and impose non-competes.

What is a zero hours contract?

An employment relationship with an hourly employee which, unlike more typical employment relationships with hourly employees in the UK, does not guarantee a certain minimum number of hours of work available/assigned per week/month.

I'm okay with them, actually, but only as long as the company is still paying you the same wages. I think this condition should be a requirement. No pay == no non-compete.

If they're not paying, they shouldn't be able to keep you out of the market, period. It's not a fair trade otherwise and just having a job in the first place is not even remotely conscionable as 'consideration' for a clause that prevents you from working.

The main non-compete that unions are worried about is making sure non-members can't compete with members, or members without a particular occupational classification can't compete for jobs which "belong to" other members. For example, if you're setting up your startup's booth at a unionized conference hall, be prepared to be told you cannot plug in a Macbook because you'd be competing with qualified union electricians.

Yes.

Edit: I mean, unions are all about solving collective action problems. How outrageous is it to ask a camp counselor to sign a non compete? The only way out is if the camp counselors can band together and act as a group.

Yes. But in reality the government should be looking out for the workers. do we need a waitressing union? A camp counselors union?

I generally think that people should be free to make whatever agreements they want.

But noncompetes should be banned for the same reason we have anti-trust laws. They are in effect an agreement between companies to not compete for employees. It's anti-competitive.

The agreement is between the employee and the employer, and is a term of negotiation just like salary. The two non-compete agreements I've entered into both include provisions to be paid if the company chooses to enforce it.

When I worked at IBM and received a stock grant, they included non-solicitation of employees and customers as a term of the grant (though no non-compete).

If the non-compete agreement includes reasonable consideration, I think banning them would be wrong.

Someone I know recently started a lower level tech support job and he asked me about a non-compete he had to sign. I couldn't believe it! People just starting out in lower level positions have no bargaining power so they have no choice but to sign these or they won't get the job.

These companies are just screwing themselves because once these new non-competes begin to harm lower level employees then the laws will be changed so these agreements are invalid.

I am currently in Wisconsin under a non compete clause, I couldn't find many laws that help support inventors or software developers.

This seems like an extension of the growing trend towards believing that ideas are property. Given that ideas can be developed independently, ideas are not property in any real sense, and therefore require state support to enforce.

But anyway, this is a bad, bad trend.

This has nothing to do with ideas. Some of it is the belief that you've spent time and money training someone, you don't want that person to work for a competitor.

Or in other words, you believe you own your employees' experience, implying you partly own your employees.

Turns out capitalism eats even its own "I OWN MYSELF!!!111" axiom.

I think they should be enforceable only as long as the company is paying you. So they can either keep paying you and keep you from competitors, or they can waive the non-compete, but they can't keep you out of the job market for free.

You'd be surprised how easy it is to negotiate around this, assuming you're in such a position.

In either case, always make sure you review the terms and really think about where you'll be if you're let go or quit in the next 2-3 years.

There may be some room to negotiate as an engineer. As a hair stylist or a summer camp counselor, the terms usually tend to be closer to the take it or leave it variety.

Absolutely, but if a company is going to hire you, then you have some leverage.

Yes, usually companies, even big companies, are fine negotiating these things.

But I've experienced two companies that dealt with people having problems with the agreement by telling the candidate really hard that s/he should just sign it, don't worry, we won't enforce it.

I've already had to put my money where my mouth is and quit a job over a noncompete clause once. I am fine signing agreements to never disclose anything imaginable about a job, to return company property and destroy any copies of documents/information that I have, to not solicit the company's clients, etc. But to further agree not to work in the same industry for any period of time? Never, ever will I agree to such a thing.

And this is why I would not work in any state except for California.

(Actually one of many reasons - California has a lot of laws to protect the employee)

Noncompetes except in the most specific of cases is categorically stupid. And even in those rare cases, still feels nasty. I do understand where its useful in keeping a major dominant player/nigh monopolist from picking up key talent from up and coming competitors, but thats about it.

This is interesting because in CA, a non-compete is almost pointless - its illegal under state law, no matter what your term-sheet says. I think there's an argument that in some cases it may make sense, but those situations are the exceptions, not the rule.

They apparently only really apply when 'trade secrets' are in play, and CA has a pretty strict definition of 'trade secrets'.

Those exceptions do exist, but they are pretty small, such as when an LLC or partnership is being dissolved, or the goodwill in the company is being sold, or the entire company is being sold.

You don't want to sign a non-compete in Georgia. They went the direction of Massachusetts a few years ago. http://www.noncompetetradesecretslaw.com/?cat=37

As a developer, what can be done to protect against this if you are already signed to one?

I think you can work in California regardless (IANAL, of course):

http://en.wikipedia.org/wiki/Non-compete_clause#California

Even if you signed one in a different state?

You could move to California, as the link says.

I strongly believe that basic law and legal issues (i.e. contracts and legal rights) should be a required class and taught in all high schools.

Sign the strictest non compete you can - if it's too strict in most states, even the less strict clauses are voided immediately. Research first but that's usually true.

Unlikely to be true; non-competes, like most other contracts, include clauses that explicitly allow portions to be invalidated without invalidating the whole. In any case, if you're in a position to have to worry about that, you're likely already in court.

Consult a lawyer, and don't sign anything you're not prepared to abide by.

I had one non-compete that said I couldn't work for a competitor 1) within 50 miles, 2) within 100 miles, 3) within the US, 4) within North America, 5) on the Earth, 6) anywhere in the universe. And then was relying on the severability clause to make it just as enforceable as it could be made.

> 6) anywhere in the universe.

Unless they were covertly testing your attention to detail and reading comprehension, this last one seems like a prank by a bored intern or paralegal :) Did you have a chance to discuss this, and if so, what did they say?

The legal principle you're groping for is unconscionability (http://en.m.wikipedia.org/wiki/Unconscionability), and it can indeed provide protection from onerous contract clauses.

However, it's my understanding from various lawyer friends that the very act of knowing that a clause could be discarded as unconscionable may actually remove that as a defense. I would want to discuss the matter with a lawyer with lots of contract experience in my state before taking the route you suggest.

You should always consult a lawyer and research rulings in your state - but in Virginia and many other states, the benefit of the doubt goes to a crazy degree to the person signing the non-competes, because non-competes are seen as (obviously) anti-competitive.

Good luck trying to find a judge that would enforce a non-compete for basically any employee below a C-level title.

You can't sneak a non-compete clause in with no compensation for it and expect it to hold up in court.

From the article:

"Daniel McKinnon, who had been a hairstylist in Norwell, Mass., lost a court battle with his former employer who claimed that Mr. McKinnon had violated the terms of his agreement when he went to work at a nearby salon."

My assumption was that they left significant details out since there was so little on the case in the article. For instance some payment like severance in exchange for the noncompete.

If there was no compensation then it's truly insane - I can't imagine a judge possibly denying a person the right to work on the basis of a one-way contract. The thought that his options are to learn a new profession or get out of town, that's sort of insane.

In California, yes. In other states, this crap has certainly held up in court. You're also dealing with employees who, like some mentioned in the article, are unlikely to have access to lawyers or money to spare for legal bills.

Whether or not that's true, a lot of smaller companies in particular simply won't touch someone who has a non-compete because they don't want to get involved in any potential expense and effort of legal action. Rightly or wrongly I can tell you that a company I used to work for categorically refused to consider hiring anyone who had a remotely relevant non-compete.

I once dealt with a company that both 1) insisted I be clear of any non-competes, and 2) had an utterly horrible non-compete clause, that they assured me they would never enforce.

A company handed me a (client constrained) non-compete + non-hire and said the same before they would talk to me about a consulting gig.

The first thing to surprise them was that I actually read it. You should have seen their eyes when I started redlining it in front of them.

Agency: "We never enforce this, we are really cool, we even let one of our employees go work for one of our clients"

Me: "That's not what the paper says though. If you want to initial where I crossed that part out I can sign."

They dropped the issue and gave me the gig.

"No one ever reads it" is a standard negotiation tactic. You are being weird by trying to negotiate at all, so stop it, let's just move on okay?

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