Making the labor market work
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.
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.
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.
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.
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.
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?
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.
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.
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).
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.
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.
(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.