Shouldn't these agreements be made not just unenforceable but illegal, such that you get sued or fined if you make a job offer that incorporates one? Most working-class people aren't aware that a lot.of the legalese in their contracts is purely for intimidation, so there should be serious penalties for employers who use this tactic.
Yeah that's a really good point. My last job in CA had some unenforceable non-compete language, which I thought was silly. But when you look at it as intimidation, which it partially is, it suddenly looks much more sinister.
Even if they are aware, the mere threat of a lawsuit (even a doomed one) is a huge threat to a family struggling to make rent.
I knew a family who was in that position, though it was more the business had done some things that likely made it unenforceable, but they were still unwilling to take the chance.
I agree. Part of the challenge is that there are strong incentives not to fight these. It's too expensive to employees--it costs $5-15k to pay a lawyer to review an employment agreement, much more to contest one. If the hiring firm has a choice between two employees, one where there is a risk of the original employer suing and one in which there isn't, they will take the prospect where there is no risk. CA is different because the dynamic is so settled that nobody takes non-compete threats seriously. We'd get there eventually with a national law that banned enforcement, but more slowly than necessary.
I was forced to turn down a job because the non-compete was worded such that I would not be able to work in my field (which they broadly defined) for years after I left or was fired. I spoke with a lawyer (quite costly it turns out) and was told that the contract was likely unenforceable. The company acknowledged this but asked me to sign anyways and at that point, I had to walk away.
Employment contracts that try to take ownership of side projects or otherwise unrelated endeavors are also an issue that should be dealt with. Every time I sign a contract I have to look for some clause that might be used to try to take control of a business that has existed for years before my employment. Again, these might be unenforceable but a legal battle with a large company is enough to scare me off most of the time.
I also think we should think more broadly about the job-seeking process and the imbalances that exist there. The amount of unpaid time job seekers have to put into applying to jobs because of cover letters, interviewing, and unpaid "test projects" can be quite large. It is made worse because many applications are being autoscreened so the resume and letter someone writes never gets read by a human so they could have been saved a lot of time if they were just screened out of the process using just a resume before having to put in additional work.
I am not sure what legislation could help with that but I imagine some enterprising politician could get behind a "job-seekers bill of rights". This could include things like requiring responses to applications and posting salary upfront. (This is sometimes done as a pay equality measure but it would help all job-seekers)
In particular for jobs in politics, you will sometimes find postings for campaigns that list neither the candidate nor the party. I imagine some are willing to work for anyone but that seems like the minority of people who want to work on campaigns. We should try to avoid wasting the time of people who are looking for jobs. Campaigns also seem to use job applications to build their mailing list for donations which seems pretty shady to do.
My pet issue would be non-disparagement clauses in out-of-court settlements. I was once fired for publicizing illegal conduct by my employer and although they did have to pay up--New Jersey turns out to have a strong whistleblower protection law and Congress should use it as a model at the federal level--I was a little irritated that the settlement included a mutual non-disparagement pledge. For the rest of my life I can get sued for saying "Company X cheated on its taxes", even though it's true. There's no social justification at all for allowing these clauses... if an allegation is factually false the company can always file a libel suit, but that should be it.
Yes, but this is a broader problem isn't it? Everyone knows that if you file a discrimination lawsuit or a sexual-harassment complaint, other companies are going to be wary about hiring you in future. Workers' existing legal rights are *already* hard enough to exercise even if you're informed enough to know exactly what they are.
"Everyone knows that if you file a discrimination lawsuit or a sexual-harassment complaint, other companies are going to be wary about hiring you in future."
That's why employers are bound by the non-disparagement clause. One thing to keep in mind is that employers are aware that their staffs are sloppy. And all it takes is finding one e-mail or IM in discovery disparaging you to have you winning yet another lawsuit against them. Keeping in mind that discovery software is pretty sophisticated these days. You don't need to hire a team of people to sort through a mountain of paper.
That’s true but regarding the issue of whether it negatively affects the whistleblower's hiring prospects, an employer who cares about this stuff can search public court records. If the whistleblower actually filed a complaint in court, it might not be that hard to find (especially if it’s federal).
I've signed a few of these, and it bugs me, but it just hasn't been worth it to me personally to fight or bargain around them. However, they are so routine now that it probably explains why we don't hear more about CEO behavior in tech from former employees. When we do hear things it tends to be a bit scandalous that someone said it, but it shouldn't be. People should be able to say "CEO X was a crap person to work for because of Y..."
Yeah, even when what's being censored is just generic bad-mouthing ("Company X is a lousy place to work") I think there are still some negative consequences, because it means all the business-page propaganda about Randian genius CEOs goes unanswered.
But I think the issue is even clearer in the case of whistleblowers. Laws to protect whistleblowing have two goals. The secondary goal is to prevent workers from being penalized when they reveal illegal behavior, because that's an injustice to an individual. But the primary purpose is to *discourage illegal behavior* by making it easier to reveal.
It seemed to me that in my case, and probably a lot of other people's cases, the law served its secondary purpose pretty well but its primary purpose not at all. I got cash compensation for wrongful dismissal, but to exercise my right to compensation I had to sign away my right to keep talking about the illegal conduct--for which my company was never held accountable, incidentally. It worked out fine for me personally but not so well for the rest of society.
My job was actually based overseas, not in New Jersey, but because the company is incorporated in NJ the whistleblowing law still covered me. (My memory is vague now but I think the worldwide coverage itself might be one of the things that makes the NJ law stronger than in other states.)
I doubt that anyone has ever accepted a job because the company which offered it was incorporated in a state where it's easier to sue for wrongful termination if you expose misconduct. The federal government has a general interest in making it harder for corporations to commit crimes, and that means it has an interest in not allowing certain states (Delaware?) to lure businesses for incorporation by passing weak whistleblower protection laws.
I just looked it up, in fact, and it turns out Delaware has a "screw the other 49 states" law which only gives whistleblowers the right to sue when their employer is specifically defrauding the State of Delaware:
Don’t believe SLAPP laws would protect someone who had a non-disparagement agreement. Unlike non-competes, non-disparagements are enforceable everywhere.
That Jimmy John's non-compete was even worse than I thought. For example, it not only prevented you from taking a higher wage at a Jersey Mike's, it forbid you from taking a job at *another Jimmy John's.* (See section 3: https://big.assets.huffingtonpost.com/FACExhibitA.pdf). Protecting "trade secrets"? Yeah, right.
I appreciate that the legal profession in most (all?) states have managed to convince the courts that non-compete and non-solicitation provisions applicable to lawyers would deprive litigants of their right to counsel of their choosing and therefore are unenforceable.
which is strangely egalitarian given that the organized bar is run by mid sized firm partners who have every reason to put their associates under adamantine contracts
You get a lot of cases saying that they are "disfavored" but that doesn't mean that they are never enforceable. It also varies by state. Florida lets employers get away with a lot more than NY, which lets them get away with more than California (I don't know that this is expressly a red-state/blue-state thing, but it might be).
The context also sometimes matters - e.g. was the non-compete signed in connection with the sale of the business, in connection with hiring the employee, in connection with a promotion, or as a requirement for the employee to stay in a position they already held? Some states also care whether the employee quit or was fired or whether the employer is seeking injunctive relief or just damages.
Even where there are restrictions on them, they do not always have to be carefully worded, as courts will often "apply a blue pencil" to limit the agreement in such a way as to make it enforceable. For example, if a state requires some geographic limitation or time restriction, and your agreement does not include one, the court may write one in rather than just invalidate the whole agreement. This can also depend upon whether the Court thought that the employer was being greedy, or just made a mistake.
The problem is that these are often fuzzy lines and balancing tests for which you do not get a clear answer until you have actually fully litigated the question. The nebulous aspect of these agreements can allow employers to effectively get away broader agreements than are technically allowed. If you have a non-compete barring you from working for another employer anywhere in the world for the next decade, it is likely not enforceable, but the downside risk of testing that in court (together with the cost of doing so) may discourage you from trying to take a job somewhere else.
CA also has laws that legalize moonlighting, as long as you aren't on company time or using company resources, which seems like it might also be valuable and worth spreading.
This can't come soon enough! My last job change was an absolute disaster. My non-compete was totally unenforceable on 3-4 points (e.g., overly broad, different role - so zero possibility to "compete", I had changed roles without amending my original) ... still my prior company stated they would litigate it so my new company had to negotiate a buy-out amendment. Total waste of money and took 3 months - which was the plan all along.
On a brighter side ... I also own a small blue-collar services business. We bought it 3 years ago. Longer story about the mess we inherited but one strategic decision we made was to eliminate the non-competes for the technicians. I think you need to create an environment with a growth orientation. Non-competes are a drag on culture.
In investment banking, firms have have what is called "garden leave." If you quit to go to a competitor, your old firm pays you for 90 days to sit in your garden (the term came from Britain; Americans might have called it "back yard leave"). During garden leave, time-sensitive information becomes stale and worthless, but other knowledge does not. After garden leave, you join your new firm without having had an interruption in pay/benefits.
It is a compromise and it seems to be working pretty well. It is widely accepted and one hears few complaints.
Interesting. I knew my friends who work for the big banks jump around a lot which I always thought odd given how much the firms hate each other and compete tooth and nail.
One thing that this article overlooks is that at least some amount of non-competes are designed to protect customer good-will and to prevent against poaching.
If you work in sales, a lot of your value is the relationships you build with your customers. Often you even have a person who's job is entirely to develop those relationships, with the actual work of servicing the customer done on the back end, in a way where the people actually doing the work never create a relationship with the customer. Since there is often no avoiding the stronger relationship being between the customer and the employee, rather than the customer and the employer, this creates a serious risk that your employer is going to invest in your developing a book of business, only to have you decide to strike out on your own (or move to a higher paying competitor) once that book of business is large enough, basically running off with the good will your employer paid for you to develop (through your salary, your expense account, and by paying for your support staff). I've seen examples of where a company has poached an entire division of its competitor with the (justified) expectation that that divisions customers would follow the employees rather than stay loyal to their prior employer.
Non-competes are often intended to avoid this problem. They basically give the employer a period of time to firm up the relationship with their prior employee's customers before they have to compete against that employee, which employee has the benefit of the good will that the employer paid for the employee to develop.
You can accomplish something like this through non-solicitation agreements, but those are much harder to enforce than a non-compete. If the employee has a modicum of tradecraft, they are often able to alert their customers of their move without leaving a paper trial. Even just the fact that the customer calls up the employer and finds that their contact no longer works there is often enough.
I'm not sure that this justifies non-competes, but it is a somewhat different problem from the one discussed, where the employee is running off to exploit trade secrets learned working for their prior employer. Notably, unlike trade secrets, good will is a rivalrous good. Additionally, unlike trade secrets, we don't have a patent system to protect good will.
I don't see it as populist. The democrats have been claiming to be the workers' party forever. However, certainly since Clinton, they have been very friendly with big business at the expense of workers. This feels to me more like a return to serving the constituency you claim to serve.
I don't have a great reason, tbh. I just kind of felt like Biden is of an era when Democrats didn't want to do much but the challenges, esp. climate, require big changes. I still want him to do more on a bunch of things, esp. climate, but he does seem.to be trying to push the envelope.
The argument “companies need massive rewards for innovation to be worthwhile” is increasingly a straw man. During the (Old) Gilded Age, capital really was scarce, and managers had to induce European investors to pump money into a startup country with often corrupt politics, and a slap dash banking system. The gold standard prevented the federal government from expanding the capital supply— the gold was owned by rich Englishmen and they pulled the strings until the late 19th century when America had finally generated enough wealth to pay for its own railroads.
Today is completely different. After a half century of fiat money, America is awash in capital. (The only reason all this money doesn’t create massive consumer inflation is it is heavily concentrated among rich people who don’t spend much of it at grocery stores. There has been massive inflation over the past two decades in high end real estate). The effective yield on mid grade corporate bonds is under 3%. This means that lots of rich people have nothing better to do with their money than get a fairly safe return of 2.5%. If scarcity of capital were choking innovation, bond yields would be higher.
"Inequality is all that's protecting is from horrible inflation" is a great take, and I'd like to see someone develop that argument and see if it's persuasive.
That point is both intuitively obvious and unlikely to ever be tested. There is $108 trillion of private wealth in the U.S. Distribute that evenly and there would be $1.38M for each four person household, almost a million would be non-real estate. Plenty of people have never had $25k in liquid assets and most have never had $250k of cash equivalents. Equality would unleash a world historical amount of pent up demand. Marginally greater equality would unleash a fraction of that demand.
Banning noncompetes has to be considered together with trade secret law. California may not enforce noncompetes, but it does protect trade secrets.
That means an employee who knows the crown jewel secrets of Company A can't just walk across the street and start using those secrets at Company B. Without noncompetes, it's harder to prevent that, but misappropriation is enforceable if you can prove it.
Having worked in semiconductors in California for 28 years, I would say this is absolutely not true. People absolutely walk across the street and deliver the trade secrets to the competitor, constantly. A huge number of startups in Silicon Valley (Cadence, Linear Tech, Micrel, Teradyne) all spawned from employees taking the crown jewel across the street (National Semiconductor for the listed companies).
Defaulting to 'you can't work in this industry because maybe you'll give up trade secrets' is way too deferential to the preferences of legacy companies.
I'm sure you're right. But a lot of company information that people collequially refer to as trade secrets aren't in fact legally protectable trade secrets. And many times when someone does leave with genuine trade secrets it may not be worth the trouble to sue over it. On the other hand, Anthony Levandowski went to prison for taking Google trade secrets to Uber.
Thoughtful post, Matt. One thing I wanted to point out re California: even though there is a policy generally making noncompetes unenforceable, there is an exception where it is necessary to protect trade secrets. The burden is on the employer, and it’s not super easy to meet. Your general points stand, but the reason why those tech companies can succeed could be because those employees who actually could harm the business by stealing trade secrets and giving them to a competitor can be restrained by a noncompete. There is of course a separate trade secret misappropriation law, but once the cat is out of the bag, the damage is done and sometimes irreparable. So there is probably a good case for a narrow noncompete protection, so long as the employer has the burden and can’t just baldly assert that they have trade secrets and use noncompetes indiscriminately (as happens in many other states).
I am confused by this. In California trade secret protection is exclusively by statute, not by contract. Yes, some employer contracts contain trade secret protections, but they are superseded by the statute. And that’s more efficient, because the statute applies to everyone, whether or not they acknowledge or agree that they have trade secrets. There is no additional protection afforded by contract - the “cat out of the bag” issue you raise is equally addressed by both. Source: I am a trade secret litigator in California.
The additional protection is that if an employee with knowledge of trade secrets is restrained from employment by a competitor, they are less likely to misappropriate trade secrets.
Silicon Valley is certainly an engine of innovation and wealth generation, but in a lot of senses it seems like a hideous place to work. To each his own, but I don't want to have a free cafeteria, free sleep pods, free laundry, free company bussing, all enticing me to blur or eliminate the line between work and the rest of my life.
I'm not comfortable advancing the argument that all of these work perks were born out of companies trying to sweeten the poaching deal in an environment where employees move more freely, but in five minutes of thinking about it, it sounds at least plausible.
In any case, making everywhere like SV sounds dystopian, not utopian. This information worker wants to go to the same office every week for a decade or three, work 40-45, and then go the hell home.
There’s a reason that the average age at a lot of these companies skews really young. Google’s work environment was explicitly patterned after the two places that Larry and Sergei remembered feeling the happiest: Stanford University and a Montessori school. If you’re a starry-eyed new college grad, it’s barely a transition at all and that’s very intentional.
That said, you can absolutely have a rewarding career at these places and still protect your personal downtime. But it takes some psychic self defense.
Um, I don't believe this effect actually happens? Almost everyone I know at these companies (the majority of my social circle) works normal hours and has pretty relaxed lives. The ones who do work strange hours do it because they have strange biological sleep schedules and wouldn't be able to function at a less accommodating workplace. They all have far better work-life balances than in other industries people from my cohort are likely to go into (e.g. academia, finance, or medicine). As an academic, I see them as the pinnacle of being able to live comfortable lives without obsessing about work. I'm incredibly jealous.
The 25 year olds working 10-4 are real and annoying when you have been up since 5 because of your foolish choice to have kids.
The "no work life balance" thing is cope as far as I can tell. You can pick flex time or workaholism and it is fine either way. The workaholics get promoted faster, but that seems fair.
The way non-competes interact with intellectual property assignment agreements is especially toxic from an innovation standpoint. You are likely to have your best ideas on the things you're an expert in, and most people are the most knowledgeable of whatever it is they do for a living.
Because of IP assignment, if you have a great idea you can't pursue it while you're working for your employer because it will belong to them even if it isn't related to your work and you only pursue it on your own time with your own resources. But throw in a non-compete, and you can't even quit your job to work on your idea without waiting out the non-compete.
At least removing non-competes from the picture would open up leaving your job to work on an idea immediately.
This is arguably as much a feature as a bug. If your employer is paying for you to do whatever prompts that great idea, why shouldn't they expect to benefit from your coming up with it? This is particularly true in white collar industries where the distinctions between on-the-clock and off-the-clock are blurred.
Because you aren't getting paid for these ideas and your work doesn't really prompt them. You have very specific projects and learn very specific things working for a company. It's pretty obvious when an idea overlaps with those projects and that IP, and when an idea is completely unrelated but in the same neighborhood as your work.
If you work on product recommendation for Amazon and have an idea for text summarization, your idea shouldn't belong to Amazon. Those are both machine learning applications, but product recommendation is what you're getting paid to do and you received zero compensation for work on text summarization.
But this is a tangent because we're talking about non-competes. Without them, you can find another job to work on your idea. But with them, using the Amazon example, whatever you're doing with text summarization probably competes with Amazon somehow. So leaving your job doesn't do you any good until the non-compete runs out.
This is a somewhat philosophical question, but if your employment contract says that any IP you develop while employed by your employer belongs to your employer, you effectively are getting paid for the ideas. Presumably, you could have negotiated the right to keep your IP in exchange for a lower salary.
Please educate me. Is IP typically developed by a single person, with clean margins totally separating it from related work done by other people? Or is some element of teamwork always involved? So could a single employee truly be responsible for IP development?
But that's not what most knowledge work looks like at all. You're not a free agent being hired to produce IP in general, nor are you paid like one. You are paid like someone who is told to do X, Y and Z who will necessarily learn of and develop some IP while doing your work.
If employers want to rent out your entire brain, they should pay you for it. But employees who work on side projects aren't compensated any differently than employees who do not. So it's clear that you are not receiving anything of value for your original, non-work related IP.
If you've entered into an agreement that gives your employer the rights to any good ideas you come up with, I think your employer may have rented your entire brain, whether you realize it or not.
Which is the entire point of my post! Workers are not compensated for these agreements, otherwise they'd be paid differently than workers who never produce IP outside of work. But workers can only avoid these agreements by accepting below-market compensation if they can avoid them at all. It's a monopsony issue.
Banning non-competes will drastically improve the situation, because at the very least you can leave your job and immediately work on your idea.
(I posted a version of this comment earlier, but I flipped monopoly and monopsony and wanted to get it right).
I object to calling the leverage that an employer has in negotiations with employees "monopsony." Not all kinds of leverage are monopoly/monopsony leverage.
Some for examples: Let's say the company actually is desperate to hire someone, and they agree to generous terms with you. Does that make you a monopolist? Perhaps if you are the only one who has the skills you provide, but what if it's just a tight labor market and they want to hire fast? It seems pretty clear that nobody would consider that a monopoly situation.
How about chairs? You don't need chairs, I promise. You can sit on other things, including if necessary the ground. If you never bought a chair in your entire life, your quality of life would perhaps suffer, but not incredibly. And indeed, I think it's pretty clearly the case that most people would not pay $1,000 for a chair even if that was the only price available for chairs and the alternative was to indefinitely go without. Does that make you a monopsonist for chair buying? No, because your power in this negotiation does not come from you being the only effective buyer, it comes from other things. Similarly, a company being able to do without a given position gives them power in a negotiation, but not monopsony power.
Monopsony means a particular thing, and it's a useful word. We shouldn't misuse it.
Kind of agree... but in a situation where an employer requires or gets a noncompete through ordinary leverage then it becomes a monopsonist with respect to that person -- it's "allowed" to require that person to only sell their labor to them, and can decide to stop buying the labor anytime the corporation wants... and the person has no recourse.
Shouldn't these agreements be made not just unenforceable but illegal, such that you get sued or fined if you make a job offer that incorporates one? Most working-class people aren't aware that a lot.of the legalese in their contracts is purely for intimidation, so there should be serious penalties for employers who use this tactic.
Yeah that's a really good point. My last job in CA had some unenforceable non-compete language, which I thought was silly. But when you look at it as intimidation, which it partially is, it suddenly looks much more sinister.
Even if they are aware, the mere threat of a lawsuit (even a doomed one) is a huge threat to a family struggling to make rent.
I knew a family who was in that position, though it was more the business had done some things that likely made it unenforceable, but they were still unwilling to take the chance.
I 100% agree with this. I had this scenario play out a couple of years ago and walked away rather than risk having to go to court.
I agree. Part of the challenge is that there are strong incentives not to fight these. It's too expensive to employees--it costs $5-15k to pay a lawyer to review an employment agreement, much more to contest one. If the hiring firm has a choice between two employees, one where there is a risk of the original employer suing and one in which there isn't, they will take the prospect where there is no risk. CA is different because the dynamic is so settled that nobody takes non-compete threats seriously. We'd get there eventually with a national law that banned enforcement, but more slowly than necessary.
I was forced to turn down a job because the non-compete was worded such that I would not be able to work in my field (which they broadly defined) for years after I left or was fired. I spoke with a lawyer (quite costly it turns out) and was told that the contract was likely unenforceable. The company acknowledged this but asked me to sign anyways and at that point, I had to walk away.
Employment contracts that try to take ownership of side projects or otherwise unrelated endeavors are also an issue that should be dealt with. Every time I sign a contract I have to look for some clause that might be used to try to take control of a business that has existed for years before my employment. Again, these might be unenforceable but a legal battle with a large company is enough to scare me off most of the time.
I also think we should think more broadly about the job-seeking process and the imbalances that exist there. The amount of unpaid time job seekers have to put into applying to jobs because of cover letters, interviewing, and unpaid "test projects" can be quite large. It is made worse because many applications are being autoscreened so the resume and letter someone writes never gets read by a human so they could have been saved a lot of time if they were just screened out of the process using just a resume before having to put in additional work.
I am not sure what legislation could help with that but I imagine some enterprising politician could get behind a "job-seekers bill of rights". This could include things like requiring responses to applications and posting salary upfront. (This is sometimes done as a pay equality measure but it would help all job-seekers)
In particular for jobs in politics, you will sometimes find postings for campaigns that list neither the candidate nor the party. I imagine some are willing to work for anyone but that seems like the minority of people who want to work on campaigns. We should try to avoid wasting the time of people who are looking for jobs. Campaigns also seem to use job applications to build their mailing list for donations which seems pretty shady to do.
My pet issue would be non-disparagement clauses in out-of-court settlements. I was once fired for publicizing illegal conduct by my employer and although they did have to pay up--New Jersey turns out to have a strong whistleblower protection law and Congress should use it as a model at the federal level--I was a little irritated that the settlement included a mutual non-disparagement pledge. For the rest of my life I can get sued for saying "Company X cheated on its taxes", even though it's true. There's no social justification at all for allowing these clauses... if an allegation is factually false the company can always file a libel suit, but that should be it.
But the they would have the right to say Jeff ratted us out, right? And future employers would say, “Ah Jeff’s one of those.”
Yes, but this is a broader problem isn't it? Everyone knows that if you file a discrimination lawsuit or a sexual-harassment complaint, other companies are going to be wary about hiring you in future. Workers' existing legal rights are *already* hard enough to exercise even if you're informed enough to know exactly what they are.
"Everyone knows that if you file a discrimination lawsuit or a sexual-harassment complaint, other companies are going to be wary about hiring you in future."
That's why employers are bound by the non-disparagement clause. One thing to keep in mind is that employers are aware that their staffs are sloppy. And all it takes is finding one e-mail or IM in discovery disparaging you to have you winning yet another lawsuit against them. Keeping in mind that discovery software is pretty sophisticated these days. You don't need to hire a team of people to sort through a mountain of paper.
That’s true but regarding the issue of whether it negatively affects the whistleblower's hiring prospects, an employer who cares about this stuff can search public court records. If the whistleblower actually filed a complaint in court, it might not be that hard to find (especially if it’s federal).
(Cue Matt to explain why full employment and labor shortages will solve half our social problems, including that one)
I've signed a few of these, and it bugs me, but it just hasn't been worth it to me personally to fight or bargain around them. However, they are so routine now that it probably explains why we don't hear more about CEO behavior in tech from former employees. When we do hear things it tends to be a bit scandalous that someone said it, but it shouldn't be. People should be able to say "CEO X was a crap person to work for because of Y..."
Yeah, even when what's being censored is just generic bad-mouthing ("Company X is a lousy place to work") I think there are still some negative consequences, because it means all the business-page propaganda about Randian genius CEOs goes unanswered.
But I think the issue is even clearer in the case of whistleblowers. Laws to protect whistleblowing have two goals. The secondary goal is to prevent workers from being penalized when they reveal illegal behavior, because that's an injustice to an individual. But the primary purpose is to *discourage illegal behavior* by making it easier to reveal.
It seemed to me that in my case, and probably a lot of other people's cases, the law served its secondary purpose pretty well but its primary purpose not at all. I got cash compensation for wrongful dismissal, but to exercise my right to compensation I had to sign away my right to keep talking about the illegal conduct--for which my company was never held accountable, incidentally. It worked out fine for me personally but not so well for the rest of society.
My job was actually based overseas, not in New Jersey, but because the company is incorporated in NJ the whistleblowing law still covered me. (My memory is vague now but I think the worldwide coverage itself might be one of the things that makes the NJ law stronger than in other states.)
I doubt that anyone has ever accepted a job because the company which offered it was incorporated in a state where it's easier to sue for wrongful termination if you expose misconduct. The federal government has a general interest in making it harder for corporations to commit crimes, and that means it has an interest in not allowing certain states (Delaware?) to lure businesses for incorporation by passing weak whistleblower protection laws.
I just looked it up, in fact, and it turns out Delaware has a "screw the other 49 states" law which only gives whistleblowers the right to sue when their employer is specifically defrauding the State of Delaware:
https://www.phillipsandcohen.com/delaware/
That seems like a good argument for federal intervention.
Don’t believe SLAPP laws would protect someone who had a non-disparagement agreement. Unlike non-competes, non-disparagements are enforceable everywhere.
That Jimmy John's non-compete was even worse than I thought. For example, it not only prevented you from taking a higher wage at a Jersey Mike's, it forbid you from taking a job at *another Jimmy John's.* (See section 3: https://big.assets.huffingtonpost.com/FACExhibitA.pdf). Protecting "trade secrets"? Yeah, right.
Oh, and when the Illinois attorney general finally brought an end to the\is odious practice, Jimmy John's was required to pay a fine of . . . $100,000. (https://www.polsinelliatwork.com/blog/2016/12/14/that-was-fast-jimmy-johns-nixes-non-competes).
I'm not a Bernie supporter, but reality keeps asking me why the hell not.
I appreciate that the legal profession in most (all?) states have managed to convince the courts that non-compete and non-solicitation provisions applicable to lawyers would deprive litigants of their right to counsel of their choosing and therefore are unenforceable.
which is strangely egalitarian given that the organized bar is run by mid sized firm partners who have every reason to put their associates under adamantine contracts
The mid-sized firm partners want to be be able to stab their partners in the back and run off with their clients.
You get a lot of cases saying that they are "disfavored" but that doesn't mean that they are never enforceable. It also varies by state. Florida lets employers get away with a lot more than NY, which lets them get away with more than California (I don't know that this is expressly a red-state/blue-state thing, but it might be).
The context also sometimes matters - e.g. was the non-compete signed in connection with the sale of the business, in connection with hiring the employee, in connection with a promotion, or as a requirement for the employee to stay in a position they already held? Some states also care whether the employee quit or was fired or whether the employer is seeking injunctive relief or just damages.
Even where there are restrictions on them, they do not always have to be carefully worded, as courts will often "apply a blue pencil" to limit the agreement in such a way as to make it enforceable. For example, if a state requires some geographic limitation or time restriction, and your agreement does not include one, the court may write one in rather than just invalidate the whole agreement. This can also depend upon whether the Court thought that the employer was being greedy, or just made a mistake.
The problem is that these are often fuzzy lines and balancing tests for which you do not get a clear answer until you have actually fully litigated the question. The nebulous aspect of these agreements can allow employers to effectively get away broader agreements than are technically allowed. If you have a non-compete barring you from working for another employer anywhere in the world for the next decade, it is likely not enforceable, but the downside risk of testing that in court (together with the cost of doing so) may discourage you from trying to take a job somewhere else.
It's not entirely a red state/blue state thing. Massachusetts is pretty open to noncompetes.
CA also has laws that legalize moonlighting, as long as you aren't on company time or using company resources, which seems like it might also be valuable and worth spreading.
This can't come soon enough! My last job change was an absolute disaster. My non-compete was totally unenforceable on 3-4 points (e.g., overly broad, different role - so zero possibility to "compete", I had changed roles without amending my original) ... still my prior company stated they would litigate it so my new company had to negotiate a buy-out amendment. Total waste of money and took 3 months - which was the plan all along.
On a brighter side ... I also own a small blue-collar services business. We bought it 3 years ago. Longer story about the mess we inherited but one strategic decision we made was to eliminate the non-competes for the technicians. I think you need to create an environment with a growth orientation. Non-competes are a drag on culture.
In investment banking, firms have have what is called "garden leave." If you quit to go to a competitor, your old firm pays you for 90 days to sit in your garden (the term came from Britain; Americans might have called it "back yard leave"). During garden leave, time-sensitive information becomes stale and worthless, but other knowledge does not. After garden leave, you join your new firm without having had an interruption in pay/benefits.
It is a compromise and it seems to be working pretty well. It is widely accepted and one hears few complaints.
Interesting. I knew my friends who work for the big banks jump around a lot which I always thought odd given how much the firms hate each other and compete tooth and nail.
Read the current line up of articles at Vox and you can sure tell who the NYT didn't poach and why.
One thing that this article overlooks is that at least some amount of non-competes are designed to protect customer good-will and to prevent against poaching.
If you work in sales, a lot of your value is the relationships you build with your customers. Often you even have a person who's job is entirely to develop those relationships, with the actual work of servicing the customer done on the back end, in a way where the people actually doing the work never create a relationship with the customer. Since there is often no avoiding the stronger relationship being between the customer and the employee, rather than the customer and the employer, this creates a serious risk that your employer is going to invest in your developing a book of business, only to have you decide to strike out on your own (or move to a higher paying competitor) once that book of business is large enough, basically running off with the good will your employer paid for you to develop (through your salary, your expense account, and by paying for your support staff). I've seen examples of where a company has poached an entire division of its competitor with the (justified) expectation that that divisions customers would follow the employees rather than stay loyal to their prior employer.
Non-competes are often intended to avoid this problem. They basically give the employer a period of time to firm up the relationship with their prior employee's customers before they have to compete against that employee, which employee has the benefit of the good will that the employer paid for the employee to develop.
You can accomplish something like this through non-solicitation agreements, but those are much harder to enforce than a non-compete. If the employee has a modicum of tradecraft, they are often able to alert their customers of their move without leaving a paper trial. Even just the fact that the customer calls up the employer and finds that their contact no longer works there is often enough.
I'm not sure that this justifies non-competes, but it is a somewhat different problem from the one discussed, where the employee is running off to exploit trade secrets learned working for their prior employer. Notably, unlike trade secrets, good will is a rivalrous good. Additionally, unlike trade secrets, we don't have a patent system to protect good will.
The solution in the absence of a non-compete is garden leave. That’s what happens with traders, investment bankers, etc. on Wall Street.
Yes. If you do t want me to work for your competitor you better be paying me.
If it’s not worth paying me not to do it, then why can you force me not to take the job?
I was sceptical of Biden but I really like him so far. I feel like he is much closer to "popularist" than I expected. What do you all think?
I don't see it as populist. The democrats have been claiming to be the workers' party forever. However, certainly since Clinton, they have been very friendly with big business at the expense of workers. This feels to me more like a return to serving the constituency you claim to serve.
I kind of agree - I feel like the Dems are the more natural economic populist and it's good to see them making good
Why were you skeptical?
I don't have a great reason, tbh. I just kind of felt like Biden is of an era when Democrats didn't want to do much but the challenges, esp. climate, require big changes. I still want him to do more on a bunch of things, esp. climate, but he does seem.to be trying to push the envelope.
The argument “companies need massive rewards for innovation to be worthwhile” is increasingly a straw man. During the (Old) Gilded Age, capital really was scarce, and managers had to induce European investors to pump money into a startup country with often corrupt politics, and a slap dash banking system. The gold standard prevented the federal government from expanding the capital supply— the gold was owned by rich Englishmen and they pulled the strings until the late 19th century when America had finally generated enough wealth to pay for its own railroads.
Today is completely different. After a half century of fiat money, America is awash in capital. (The only reason all this money doesn’t create massive consumer inflation is it is heavily concentrated among rich people who don’t spend much of it at grocery stores. There has been massive inflation over the past two decades in high end real estate). The effective yield on mid grade corporate bonds is under 3%. This means that lots of rich people have nothing better to do with their money than get a fairly safe return of 2.5%. If scarcity of capital were choking innovation, bond yields would be higher.
"Inequality is all that's protecting is from horrible inflation" is a great take, and I'd like to see someone develop that argument and see if it's persuasive.
That point is both intuitively obvious and unlikely to ever be tested. There is $108 trillion of private wealth in the U.S. Distribute that evenly and there would be $1.38M for each four person household, almost a million would be non-real estate. Plenty of people have never had $25k in liquid assets and most have never had $250k of cash equivalents. Equality would unleash a world historical amount of pent up demand. Marginally greater equality would unleash a fraction of that demand.
Banning noncompetes has to be considered together with trade secret law. California may not enforce noncompetes, but it does protect trade secrets.
That means an employee who knows the crown jewel secrets of Company A can't just walk across the street and start using those secrets at Company B. Without noncompetes, it's harder to prevent that, but misappropriation is enforceable if you can prove it.
Having worked in semiconductors in California for 28 years, I would say this is absolutely not true. People absolutely walk across the street and deliver the trade secrets to the competitor, constantly. A huge number of startups in Silicon Valley (Cadence, Linear Tech, Micrel, Teradyne) all spawned from employees taking the crown jewel across the street (National Semiconductor for the listed companies).
I mean, the solution then is make the companies prove there's been a trade secret violation and sue for that - it's happened recently: https://www.nytimes.com/2020/03/04/technology/anthony-levandowski-google-uber.html
Defaulting to 'you can't work in this industry because maybe you'll give up trade secrets' is way too deferential to the preferences of legacy companies.
.... and ...
https://www.cnbc.com/2021/01/20/anthony-levandowski-pardoned-after-stealing-trade-secrets-from-google.html
I'm sure you're right. But a lot of company information that people collequially refer to as trade secrets aren't in fact legally protectable trade secrets. And many times when someone does leave with genuine trade secrets it may not be worth the trouble to sue over it. On the other hand, Anthony Levandowski went to prison for taking Google trade secrets to Uber.
Thoughtful post, Matt. One thing I wanted to point out re California: even though there is a policy generally making noncompetes unenforceable, there is an exception where it is necessary to protect trade secrets. The burden is on the employer, and it’s not super easy to meet. Your general points stand, but the reason why those tech companies can succeed could be because those employees who actually could harm the business by stealing trade secrets and giving them to a competitor can be restrained by a noncompete. There is of course a separate trade secret misappropriation law, but once the cat is out of the bag, the damage is done and sometimes irreparable. So there is probably a good case for a narrow noncompete protection, so long as the employer has the burden and can’t just baldly assert that they have trade secrets and use noncompetes indiscriminately (as happens in many other states).
I am confused by this. In California trade secret protection is exclusively by statute, not by contract. Yes, some employer contracts contain trade secret protections, but they are superseded by the statute. And that’s more efficient, because the statute applies to everyone, whether or not they acknowledge or agree that they have trade secrets. There is no additional protection afforded by contract - the “cat out of the bag” issue you raise is equally addressed by both. Source: I am a trade secret litigator in California.
The additional protection is that if an employee with knowledge of trade secrets is restrained from employment by a competitor, they are less likely to misappropriate trade secrets.
Silicon Valley is certainly an engine of innovation and wealth generation, but in a lot of senses it seems like a hideous place to work. To each his own, but I don't want to have a free cafeteria, free sleep pods, free laundry, free company bussing, all enticing me to blur or eliminate the line between work and the rest of my life.
I'm not comfortable advancing the argument that all of these work perks were born out of companies trying to sweeten the poaching deal in an environment where employees move more freely, but in five minutes of thinking about it, it sounds at least plausible.
In any case, making everywhere like SV sounds dystopian, not utopian. This information worker wants to go to the same office every week for a decade or three, work 40-45, and then go the hell home.
There’s a reason that the average age at a lot of these companies skews really young. Google’s work environment was explicitly patterned after the two places that Larry and Sergei remembered feeling the happiest: Stanford University and a Montessori school. If you’re a starry-eyed new college grad, it’s barely a transition at all and that’s very intentional.
That said, you can absolutely have a rewarding career at these places and still protect your personal downtime. But it takes some psychic self defense.
Um, I don't believe this effect actually happens? Almost everyone I know at these companies (the majority of my social circle) works normal hours and has pretty relaxed lives. The ones who do work strange hours do it because they have strange biological sleep schedules and wouldn't be able to function at a less accommodating workplace. They all have far better work-life balances than in other industries people from my cohort are likely to go into (e.g. academia, finance, or medicine). As an academic, I see them as the pinnacle of being able to live comfortable lives without obsessing about work. I'm incredibly jealous.
The 25 year olds working 10-4 are real and annoying when you have been up since 5 because of your foolish choice to have kids.
The "no work life balance" thing is cope as far as I can tell. You can pick flex time or workaholism and it is fine either way. The workaholics get promoted faster, but that seems fair.
The way non-competes interact with intellectual property assignment agreements is especially toxic from an innovation standpoint. You are likely to have your best ideas on the things you're an expert in, and most people are the most knowledgeable of whatever it is they do for a living.
Because of IP assignment, if you have a great idea you can't pursue it while you're working for your employer because it will belong to them even if it isn't related to your work and you only pursue it on your own time with your own resources. But throw in a non-compete, and you can't even quit your job to work on your idea without waiting out the non-compete.
At least removing non-competes from the picture would open up leaving your job to work on an idea immediately.
This is arguably as much a feature as a bug. If your employer is paying for you to do whatever prompts that great idea, why shouldn't they expect to benefit from your coming up with it? This is particularly true in white collar industries where the distinctions between on-the-clock and off-the-clock are blurred.
Because you aren't getting paid for these ideas and your work doesn't really prompt them. You have very specific projects and learn very specific things working for a company. It's pretty obvious when an idea overlaps with those projects and that IP, and when an idea is completely unrelated but in the same neighborhood as your work.
If you work on product recommendation for Amazon and have an idea for text summarization, your idea shouldn't belong to Amazon. Those are both machine learning applications, but product recommendation is what you're getting paid to do and you received zero compensation for work on text summarization.
But this is a tangent because we're talking about non-competes. Without them, you can find another job to work on your idea. But with them, using the Amazon example, whatever you're doing with text summarization probably competes with Amazon somehow. So leaving your job doesn't do you any good until the non-compete runs out.
This is a somewhat philosophical question, but if your employment contract says that any IP you develop while employed by your employer belongs to your employer, you effectively are getting paid for the ideas. Presumably, you could have negotiated the right to keep your IP in exchange for a lower salary.
Please educate me. Is IP typically developed by a single person, with clean margins totally separating it from related work done by other people? Or is some element of teamwork always involved? So could a single employee truly be responsible for IP development?
Very, very context-dependent; there's no one answer to that.
But that's not what most knowledge work looks like at all. You're not a free agent being hired to produce IP in general, nor are you paid like one. You are paid like someone who is told to do X, Y and Z who will necessarily learn of and develop some IP while doing your work.
If employers want to rent out your entire brain, they should pay you for it. But employees who work on side projects aren't compensated any differently than employees who do not. So it's clear that you are not receiving anything of value for your original, non-work related IP.
If you've entered into an agreement that gives your employer the rights to any good ideas you come up with, I think your employer may have rented your entire brain, whether you realize it or not.
Which is the entire point of my post! Workers are not compensated for these agreements, otherwise they'd be paid differently than workers who never produce IP outside of work. But workers can only avoid these agreements by accepting below-market compensation if they can avoid them at all. It's a monopsony issue.
Banning non-competes will drastically improve the situation, because at the very least you can leave your job and immediately work on your idea.
(I posted a version of this comment earlier, but I flipped monopoly and monopsony and wanted to get it right).
I object to calling the leverage that an employer has in negotiations with employees "monopsony." Not all kinds of leverage are monopoly/monopsony leverage.
Some for examples: Let's say the company actually is desperate to hire someone, and they agree to generous terms with you. Does that make you a monopolist? Perhaps if you are the only one who has the skills you provide, but what if it's just a tight labor market and they want to hire fast? It seems pretty clear that nobody would consider that a monopoly situation.
How about chairs? You don't need chairs, I promise. You can sit on other things, including if necessary the ground. If you never bought a chair in your entire life, your quality of life would perhaps suffer, but not incredibly. And indeed, I think it's pretty clearly the case that most people would not pay $1,000 for a chair even if that was the only price available for chairs and the alternative was to indefinitely go without. Does that make you a monopsonist for chair buying? No, because your power in this negotiation does not come from you being the only effective buyer, it comes from other things. Similarly, a company being able to do without a given position gives them power in a negotiation, but not monopsony power.
Monopsony means a particular thing, and it's a useful word. We shouldn't misuse it.
Kind of agree... but in a situation where an employer requires or gets a noncompete through ordinary leverage then it becomes a monopsonist with respect to that person -- it's "allowed" to require that person to only sell their labor to them, and can decide to stop buying the labor anytime the corporation wants... and the person has no recourse.
Yes, if I negotiate for high enough pay that it tanks the companies stock then I am a one-man monopolist.