What kind of sensitive IP do quants have? How is it different than the tech industry?
What kind of sensitive IP do quants have? How is it different than the tech industry?
General strategies of trading on financial markets. Entirely different than working at Google.
And what benefit does the economy and society get by allowing monopolization of these strategies by a single company at the expense of basic right for workers to switch jobs to the ones that pay them the most?
It sounds so profoundly anti-capitalist - if the knowledge of certain strategy is so important, the employee should be retained by paying them more and giving them better perks instead of enforced labor contract.
This is exactly the right question. If quant firms make the world a better place by tightening spreads - a common justification - then wouldn't we get an even better place if everyone knew about these strategies?
A counterargument here is the effects on internal transparency. If a quant firm knows its employees can leave and join a competitor tomorrow, they will be less forthcoming with IP. The lack of openness could lead to lower productivity within the firm, as work gets duplicated and teams can't share their insights with each other.
As long as we're throwing around generalized hypotheses, a company that shared internal IP freely, and also compensated people such that they didn't leave, would gain a lasting competitive advantage.
If you can’t protect your IP, you don’t have a reason to develop it in the first place.
It sounds so profoundly anti-capitalist
Only if you have an extremely vague and poorly defined definition of "capitalist", which I don't blame you, most people are ignorant, and we live in a society that prefers to throw out opinions like they're reality.
I am not defending for or against not sure why you replied to me.
But I think it is slightly silly reading your statements knowing that the individuals in that hyper specific industry are top earners already and educated to know what they are signing up for.
The benefit to society is the same as patents or copyright. Companies will be more likely to invest in developing new technology if they are confident their competitors won't be able to use the result.
Most tech work is not particularly novel at a technical level. Very few services have any sort of massive advantage in the technical IP. Some of them might have advantage in customer/data analytics, but most advantage is in the idea itself as well as being gaining the market and brand. Another firm can't just go "Ah, today we'll knock out X new app and take 50% of the market"
This is not true in trading. If I go take my strategy/forecast and go to a competitor, I can just outright take the same opportunities that the other desk was taking (to a fairly good approximation). There's no real branding/network effect - it's a pure quality of execution business.
Why is that the employee's problem? Pay the employee well and they will stick around.
The compensation model in investment companies is such that they will not be able to pay employees well compared to how much value they bring in, unless you're a partner.
Furthermore the industry attracts the sort of people who are never satisfied with what they got, and are always looking for more.
Not that I'm advocating for non-competes, just saying that you can't address the concerns non-competes are attempting to address by "paying employees well".
Why will they not be able to pay them well? Why can they not measure it unless you are a partner?
The compensation model in investment companies is such that they will not be able to pay employees well compared to how much value they bring in
There's definitely an argument here that those companies deserve to be out-competed then.
I'm not saying to ban any of these practices, but the legal system doesn't have to guarantee the feasibility of companies.
Quant firms at least are one of the few places where noncompetes can make sense. It's an extremely IP sensitive industry with stupendously high pay where the employee is going to someone probably competing very directly with you, for the same/similar opportunities.
So the solution is that employees should only be able to work for one employer in their career? I wouldn't disagree with this argument if the noncompete came with a payout in the tens of millions of dollars.
I feel like the solution is to force the company to pay full TC (average of previous years + inflation or something?) for the duration of the noncompete.
I feel like the solution is to force the company to pay full TC (average of previous years + inflation or something?) for the duration of the noncompete.
It absolutely has to be something like this at a bare minimum. The whole "We pay full base" argument is nonsense when the TC is multiples of base.
But bonus depends on how the team did plus individual perf... politics.
How do you establish what the person would have gotten paid?
Take the average over the last years? If the employer doesn't want to pay that then the employee can always go work for a competitor, right?
That's why he suggested "average of preceding years". Maybe you allow companies to appeal to reduce the amount based on a decline in profits leading to reduced bonuses for employees on identical schemes, but... Meh. If they want to use non-compete clauses I think they should bear that risk. It will make companies think hard about on whom they should impose them, which in my opinion is the point of creating restrictions.
In Germany non-competes have a max duration of two years and compensation has to be at least 50%.
Living two years on half the salary sucks though.
Realistically though, you're never going to have a system where it's generally more attractive financially to spend a couple years on the beach than to keep working. That's a perverse incentive.
But, yes, that's the thing with gardening leave. There are certainly some people who would be fine with taking a year off at significantly reduced pay--but not the majority.
It’s reasonably normal to be more like garden-leave where the employee is paid some high percentage of their base salary for some amount of time when they may not compete. This can still be very expensive for employees who will often have bonuses that are a large multiple of their base and so going down to base for the duration of the garden-leave.
Some places won’t compensate for the noncompete at all, others won’t compensate if the person works at a non-competitor. Some have a mix, eg up to a year of (paid) garden leave followed by up to a year of (unpaid) noncompete. If someone does leave one firm for another, there is often some negotiation, eg maybe the hiring firm agrees not to have the person work on certain things for some amount of time (potentially longer than the noncompete) and in return they can get them sooner.
So one solution is to allow noncompetes so long as employees are fairly compensated. It seems hard to discuss improving the rules around fairness there if you’re a politician because quant firm employees are not very sympathetic – it looks bad to say they are mistreated when they make many times more than lots of other professionals, even though by allowing that mistreatment you’re effectively giving the money to their even-better-off bosses instead.
It’s reasonably normal to be more like garden-leave where the employee is paid some high percentage of their base salary for some amount of time when they may not compete.
Some would use that money and time to start a competing company :)
Lawyers will advise you not to do this. It exposes you to accusations of IP theft and barred competition.
So the solution is that employees should only be able to work for one employer in their career?
Yes, I very definitely made this anything remotely resembling this argument in my post.
Regardless, it would be a beyond-amazing deal for most employees if they got lifetime yearly TC from a quant firm only on the condition that they didn't work for a competitor. Mindblowingly, shockingly, amazing.
I’ve seen “hostage exchanges” where two firms wave the noncompete (for people already on garden leave) so they can start right away. Seems to undermine the idea that sensitive IP is at risk.
So the solution is that employees should only be able to work for one employer in their career?
What makes you suggest that? If I understand correctly after you leave one of the quant firms you end up having to spend X months not working in the industry getting base pay. Which seems like a very reasonable deal.
Why does it make sense. Pay employees for their work and they’ll stick around.
To your point, it's ironic that firms who push a free market ethos don't actually want to compete. Instead, they want a thumb on the scale that tilts the advantages in their direction.
Welcome to Crony Capitalism (which should not be confused with traditional capitalism).
The absence of "traditional capitalism" from history makes it really hard not to confuse it with "crony capitalism".
Perhaps you mean liberalism, as an ideology of capitalism.
Perhaps. But, for example, we didn't always have The Fed. We didn't always have WS. We didn't always have "too big to fail". We didn't always have taxpayer financed bailouts. We didn't always have a top heavy (Fed) government (that has more influence than it has common economic sense).
At yet all those entities verbally champion "free markets" and "capitalism being a superior economic paradigm", Etc. Minds get lulled into the repetition of the words and stop checking the action. Reminders to turn on your BS detectors add some balance. Not much, but some.
Fwiw, I'm speaking freely and in broad strokes. If liberalism would be a better word then sure, whatever helps cut through the BS. Thanks.
Offering a contract with whatever stipulations to a potential counterparty that he can sign or not sign on his own accord is competing. Forbidding your counterparty from putting certain stipulations in their contract by using government intervention is not.
The argument against this is that a company spends millions of dollars in research to learn something valuable, and anyone who didn't spend that money can trivially outbid for the employee that knows the results, since they can pay the employee some significant portion of the cost of the research that they didn't have to do and still come out ahead. I'm not sure I entirely buy this, but it's a lot more nuanced than "just pay your employees well".
exactly this. Pay them well, and treat them well and they will stay. This is just another tool that employers use to nickel and dime their employees.
Quant firms at least are one of the few places where noncompetes can make sense. It's an extremely IP sensitive industry with stupendously high pay where the employee is going to someone probably competing very directly with you, for the same/similar opportunities.
Cry me a river. If knowledge of some particular employees worth so much to the quant firms, then they should pay them not to leave accordingly.
People sometimes leave and take less money. Plenty of other reasons to change jobs.
…sorry, how much exactly do you think quants make?
Knowledge of a secret does not imply that you provide value.
You can work at 2 companies without leaving either.
Non-competes have only ever made sense where the employee is compensated for signing. Codifying this change would immediately make companies stop with blanket non-competes, and only have them on key people.
While not impossible, non-competes without compensation are already hard to enforce as judges don't look kindly on preventing people from earning a living. The problem is the asymmetry of power let companies bully and intimidate ex-employees.
I mean yeah that's the point I made? FWIW, trading firm noncompetes are almost always compensated with the base salary and they're still blanket applied. A major contributor is that the employer is only paying a fraction of the true employee compensation, making it easy to blanket apply and creating a form of golden handcuffs.
They're not applied as widely as it may seem. The terms are typically "up to" the length of time, and in practice firms waive 50-100% of the non-compete length pretty frequently, which is a decent sign that the cost is non-negligible. It is a bit tricky not knowing until you quit how long you'll be held to it, though.
If it doesn’t make sense in California’s Silicon Valley, how can it be justified in NYC
Lack of noncompetes is the reason that most trading firms have opened offices everywhere except SF
how can it be justified in NYC
Wouldn’t it make a whole lot more sense considering what kind of business they are in?
For those unaware:
Quant = quantitative analyst
It's hard to forget how this stuff works though. It's just theatre.
You obviously shouldn't be able to walk off with a model but especially with hindsight I could bang out some models I've worked on very quickly as long as the infrastructure was amenable
Of course can be beneficial for individual companies, isn't hoarding up IP an impediment for progress in general?
In this specific industry tough one could argue that impeding progress is a good thing for the wider society.
Eh. Firms quants work for compete with the public market not each other. Writing an automated trading strategy isn’t targeting specific actors, it’s trying to convert alpha into profit.
I guess there’s a weak argument to make for the HF part of HFTs
Isn't the same true for SV companies, and aren't they doing fine without noncompetes?
So they only make sense in an industry that probably shouldn't be allowed to exist in the first place?
After noncompetes, they should go after non-solicitation. Entire teams that work well together should be able to defect from shitty employers. It kind of happens anyway but on the quiet, inefficiently - I'd love to see a job website where you can list an entire team.
Non-solicits also include not soliciting customers.
Which is particularly relevant at consultancies where the product is a service.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
All of these contracts are time limited, FWIW. E.g. non-solicitation doesn't mean you can never work your your colleagues again. It protects against someone leaving and then immediately poaching all employees within 12 months. After 12 months you're welcome to poach as much as you'd like.
Edit: Furthermore, non-solicits don't ban your colleagues from quitting with you, as long as you're not directly asking them to quit. If they make the decision independently without being lobbied by a former employee, it's not in violation of non-solicit.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
Yes. It's called free market competition and it's great for the society and economy. NYC bankers should be first in line to understand that.
What you’re advocating for is normalizing the stealing of company IP.
The way you solicit clients from a prior company is downloading the client list, exporting to a personal drive, quitting, then using the list to poach.
I’m fine if that’s your intention, but let your employer know upfront that you won’t protect confidential company data.
What you’re advocating for is normalizing the stealing of company IP.
I am not.
The way you solicit clients from a prior company is downloading the client list, exporting to a personal drive, quitting, then using the list to poach.
Which part of this is "IP"?
The whole concept of "stealing IP" is something that was lobbied in to prevent market competition and establish monopolies. Calling a list of clients that might choose to vote with their wallets for better service "IP" is one of the most ridiculous claims I've seen here lately and pretty much proof of how this term has become a problem for modern free market society.
While IP protection itself is critical for some innovation, the way you all wield it to defend monopolization and entrenchment is a main reason to rethink what IP and protection actually gives to american economy.
Which part of this is "IP"?
I should have said conditional customer data. (Client lists, phone numbers, email addresses - basically whatever you can export out of Salesforce)
In order to poach your old company’s customers, you’ll need confidential data from your prior employer, assuming that your employer doesn’t publish their client roster publicly.
The debate is being dragged from poaching customers to how IP protections enable monopolies. That’s too big of a leap to be relevant in this thread (sorry for saying IP rather than confidential data)
My email is not your confidential data. My phone number is not your confidential data.
If your company can only exist by blocking other companies from competition with your customer, then your company should not exist in first place.
We’re talking about an insider who has insider knowledge about accounts and maybe also a personal relationship that they were paid to develop with a client.
Also, it’s a 100% fact that companies consider client rosters confidential. It’s fun to say no one can claim my name or phone number as confidential data… but that’s not how things work.
I claim my browsing history is confidential, the only difference is I don't have the government enforcing my wishes. On a moral level "stealing" one is the same as the other.
Also, it’s a 100% fact that companies consider client rosters confidential. It’s fun to say no one can claim my name or phone number as confidential data… but that’s not how things work.
It is how things work legally. What you are confusing is the distinction between individual bits of information and a database: if a salesperson leaves and calls their old client, nobody reasonably expects them to forget about that relationship or be unable to look up a phone number.
If there’s an entire lead database, that might be a different story if it includes non-public data and the company can show that it’s treated as a valuable asset (limited access, confidentiality agreements, etc. ). If it’s something you could recreate with a few Google searches, you’ll have a hard time convincing a judge that there’s substantial value in its secrecy.
My list of your email is confidential data. The fact that I am talking to you is confidential. If you choose to disclose it, that’s your business, but a client list is absolutely confidential data.
Is it ok if you just memorize it and recreate it?
This is an invented crime, meant to protect the incumbents.
If I'm a waiter in a restaurant there should be nothing to stop me telling the customers that I'm going to a better restaurant and they should come and try it. Will the boss be annoyed? Yes. Should he be allowed to stop me? No.
In the real world there is no salesman who thinks of the clients as belonging to the company. They all know that sales relationships are personal. The contracts may say one thing, but the reality is different. The law ought to be to allow free association. Customers lose out when they are not offered better deals.
FWIW, I agree with the scenarios and examples using workers making minimum wage. Waitresses, etc.
On HN we’re talking about tech employees who make 5-10x the median US salary.
We can have stricter rules and stricter contracts for the 5% top paid employees. Obviously a waitress shouldn’t be sued for talking about another restaurant with a customer.
We're talking about employees making 5x median salary vs companies making how many times median company profit ?
In an ideal world companies would share profits with employees.
In an ideal world, employees would also share in the losses when companies aren’t profitable (forgo a paycheck).
…everyone wants the first scenario, but absolutely not the 2nd! When will people realize that one of the value props of working for a company (as opposed to starting your own) is you’re guaranteed a stable income regardless of whether profits are going up or down.
(You can say it’s not guaranteed because you can be fired. Fair. But the point still stands, it’s nice to have a stable paycheck that doesn’t wildly fluctuate up and down)
Making 5-10x because they are forced into arrangements that deprive them of 10-15x.
If a waitress shouldn't be sued, why should a dev or a PM? We should all be equal under the law, there shouldn't be a "oh well you make enough money" clause. If anything, freeing high-productivity workers is the bigger win for society, far outweighing the benefit from better restaurants.
You are thinking about stealing the rolodex. That would be probably theft. But personal relations and reputation is NOT company IP.
If you steal the rolodex, it's questionable for sure.
If you leverage your network and reputation, that's something that free market should never limit.
Agreed. I misspoke, should have said confidential data (like a Rolodex) rather than IP.
My email address is not your "IP".
IP protection is an entirely separate thing and has a huge body of case law around it already. Non compete and non solicitation do not allow employees to take IP with them, as evidenced by the many cases against tech employees who tried to do that.
And no, taking a client list with you is not how this works in consulting. You take the client you currently work for and have a relationship with and offer them a better deal to work with you independently. After that you’re on your own to solicit and win new clients.
What you’re advocating for is normalizing the stealing of company IP.
This is categorically untrue – if some past employer told you that, you might want to ask what their motives for lying to you were. Your knowledge of who you worked for is not corporate IP.
The actual legal standards vary from state to state but in some states it come down to three things: does that list have economic value on its own, would it be hard to recreate, and does the company make an effort to keep it secret? That probably won’t apply to your personal memory of who you worked for since that's highly unlikely to be an independently valuable resource - typically that would be a big list of non-public information like people who signed up to preorder a product, people with a certain need or interest, etc. – and it definitely wouldn’t include anything listed on their website, press releases, or someone’s C.V. If you dump the CRM on the way out, yes, you might be in trouble but there’s no legal standard expecting you to be mind-wiped on the way out.
No one is more afraid of the free market and competition than the biggest capitalists. They are always trying to pull up the ladders behind them that helped them get where they are.
They want a free market _for everyone else_. What's the point of being rich and well connected if you can't socialize your losses and keep your profits?
All of these contracts are time limited, FWIW. E.g. non-solicitation doesn't mean you can never work your your colleagues again. It protects against someone leaving and then immediately poaching all employees within 12 months. After 12 months you're welcome to poach as much as you'd like.
For me that doesn't change anything. You should be allowed to tell your customer to come with you to a new business, the next day.
Companies know perfectly well that most of that value of the relationship is gone if you have to wait a year, so they pretend that time limiting is somehow reasonable.
The free market actually needs to be free.
Say you join a startup. They get some early traction and they have 5 customers paying $5m/yr for a technology platform. Let’s say it took $20m in R&D and marketing to get the product built and to land those 5 multi-million dollar accounts.
Without a non-compete and without a strong IP clause, a handful of employees could very easily steal the IP and steal the client list, start a new company, offer the same product for half the price, and convince the 5 clients to come over to the new “half price” company. Putting the original company out of business. The new company employees are excited because they stuck it to the man by burying their prior employer. Fast forward 2 years, and the same stunt is pulled against the new company, and the cycle continues.
What happened was the stealing of IP and customers that cost $20m to acquire, but because you stole it you didnt have to pay that $20m in R&D and can offer the price for half off to get clients (whose contact and details have been stolen from the prior employer) to follow you to the next company.
Assuming you think this scenario is ethically wrong (maybe you don’t?), can you explain the type of contract the original company should have with their employees to disincentivize this scenario? If everything is left unchecked, there’s huge incentive and easy pathway to screw over employers for short-term gain.
Hell, if we take it to the extreme and get rid of NDAs, what’s stopping a random call center employee from selling a company’s client roster to the highest bidder?
Free market, yes. Unquestionably free market with no regulation, not going to work.
If the company is making something of actual value, it will be hard to replicate. Just as you can't recreate that McDonald's taste just because you worked there, most businesses have some sort of intrinsic IP that you can't steal. There will always be some risk that a team could leave and fail to recreate the thing elsewhere. In my line of business this happens all the time (quant trading). People think they know why their strat works and when they transplant it, it mysteriously doesn't work.
The solution to this is to compensate people so that they don't take the chance and leave. "I'm already making X here, why would I want to risk that?". This naturally distributes wealth a bit more evenly between the workers and the owners.
You also need to think about your scenario. If the employees are able to make the same thing at half the price to the customer, that is a HUGE gain for the customer. If another breakout crew does the same, that's half the gain again. The customer wins, but it can't go on forever, at some point it's not worth the breakout risk.
Free market, yes. Unquestionably free market with no regulation, not going to work.
I agree with what you’re saying, but non-competes are an example of free market not a counterexample. The employer is willing to give you x amount of compensation in return for your labor and for an agreement not to compete for some period of time when employment ends.
Your argument works with IP alone and without client lists. You very much want to put a company's client list in the same bag as IP but it just doesn't belong. Protecting one (arguably) allows people to invest in developing something that is easy to copy when it already exists. Protecting the other is just anti-competitive practice and should be banned.
>Assuming you think this scenario is ethically wrong (maybe you don’t?), can you explain the type of contract the original company should have with their employees to disincentivize this scenario? If everything is left unchecked, there’s huge incentive and easy pathway to screw over employers for short-term gain
"You can't use our IP if you leave, feel free to go to the clients and offer them your own product".
Without a non-compete and without a strong IP clause, a handful of employees could very easily steal the IP and steal the client list, start a new company, offer the same product for half the price, and convince the 5 clients to come over to the new “half price” company.
How would it be “the same product” without taking actual IP like source code or trade secrets for manufacturing? No company where the value is solely in a particular concept is going to last very long because a competitor can do the same thing. If you’ve discovered some novel physical process, chemical compound, or created a useful gene sequence, it’s unlikely that you could remember everything but what you want are patents.
I'm talking only about soliciting co-workers. It should be within the ability of legislators to ban only that - they are clearly distinguishable, as they have different contractual relationships. I don't really have an opinion about soliciting clients.
It's true that multiple people can quit at the same time, but non-solicitation clauses significantly impedes the process otherwise companies wouldn't bother to write the them. If you have worked for a shitty company, what delays quitting? Often team loyalty is a big part of that. I think it would massively speed up the decomposition of bad workplaces if entire teams could move in one go. It would be highly efficient for the acquiring company as they get a complete team that already works together, for only slightly more effort than hiring a single employee. It would also be huge disincentive to tolerating bad managers.
Non-solicitation clauses are typically mostly about client lists. Companies may get a bit grumpy if a bunch of employees leave to go work for a former manager elsewhere but AFAIK there's not much they can do about it. Who is to know who even initiated the reaching out assuming a bare minimum level of discretion?
When you reduce the cost of something by a large factor, it is often gamechanging. I think that being able to move a whole team openly could reduce the cost to the new employer by a factor of three or more, which would be a significant change in the employment market, and change employer behavior.
Here is how I see it working out:
Lets say that Foosoft is a rapidly expanding unicorn, and Microgle is a cash cow which is going nowhere, and the employees are being squeezed by bad managers brought in by private equity. Foosoft is wants to expand rapidly to take advantage of their huge opportunity, so the are setting up entire new teams. Right now, they have to do so at a cost of X per employee, so ~6X per team, which includes the cost of recruiter fees, time of interviewers, team-setup time, and the initial inefficiency as the team learns to work together. X is going to be a substantial fraction of 1 year salary. The cost is going to be pretty similar if a team migrates using the whisper route, as they won't all migrate across, the interview process is the same, there will be some new members, etc. X might be a bit smaller as you will have probably have fewer interviews as you found it easier to source candidates once your first hire made it in. But the your first hire might not have been from the team wanting to move.
Now instead suppose that the team from Microgle listed themselves on PoachMyTeam.com. Foosoft only has to check that the team is a good fit (it's a backend team, say, with capabilities they want). Then they interview the team lead and do group interviews of the team as a whole. Probably your interview process is 2X rather than 6X - you don't need to repeat everything for each candidate, because they already trust each other. Fundamentally, you don't need to check the capabilities of each employee individually, just the capabilities of the team. Also, X will be smaller because there will be less team setup, etc. So, a cost reduction of more than 3, at a guess. That degree of change is likely to change the employment market as a whole, at least in those areas where teams moving is likely to be practical.
But today, Microgle would sue PoachMyTeam.com for tortious interference. So PoachMyTeam.com cannot exist under current law. This is an economic friction caused by (private) regulation of the market.
As regards non-solicitation being mostly about clients, my most recent employment contract had a separate clause against employee solicitation as well as client solicitation.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
Yes, of course. Neither the employees nor the clients are the property of the consultancy. Maybe next time they provide a better service so employees and/or customers don't see a reason to go to a competitor.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
I've been part of 5x consultancies in my career now, so this is a very heated debate.
- First, if you "steal" a client roster, then this is very clearly a trade secret and sits under different terms ("IP")
- Second, if I can do the same job (e.g. that don't require access to trade secrets) then why do I need the consultancy's benefit anyway? If the consultancy's brand/operations don't provide enough value to its clients already then maybe they (the consultancy) are doing something wrong. It's a consultancy's job to create value for its clients, consultants and it's partners, otherwise it's just a body shop.
- Third, "is it really OK?" by whose definition? Are you saying ethically?
If they make the decision independently without being lobbied by a former employee, it's not in violation of non-solicit.
Why does it matter whether the employee is lobbied or not? The employee ultimately has free will.
If we believe that the free movement of jobs is a net benefit (both in terms of wage normalization and societal innovation) then aren't those things we would want as a society?
I don't see the problem with this.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
If the clients prefer to leave with the then 2 month-old employee, then the consultancy is doing something very wrong.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
If your company didn't pay you enough to keep you, nor did provide good environment ans support? absolutely yes.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
If those clients are willing to jump ship that fast, then yes. Realistically, that won't happen without a good justification.
If you can entice the customer base to leave so easily, it sounds to me like you're offering them a better product and should be allowed to.
If you join a consultancy group, and 2 months later quit with the client roster... is it really OK to poach all their clients to start your own consultancy?
Seems fine to me. If the only value the "company" brings to the table is a client list, maybe they should just be in the business of selling leads.
It is always cheaper to buy off a team that has developed internal knowledge and cohesion with higher salaries than invest in a few years of forming such a team. Same with a junior who have been mentored and trained. Regardless of whether the previous employer was shitty or not.
If you make companies unable to protect something, they will stop investing in building it. I don’t blame you, people almost never think about second order consequences for things they propose. But banning non-compete and non-solicitation will mean that companies will be much less willing to invest into their teams and non-senior employees.
The article doesn't address what I think is the most important aspect of noncompete agreements: compensation.
In France, and I believe in many other places as well, you can't have a noncompete without proper compensation. Compensation is relative to how it will affect the former employee career, it is usually less than a full wage, but it can be that if it makes finding a new job particularly difficult.
There have been a trend at one time of bullshit noncompete clauses that were too broad and didn't come with compensation, these are not enforceable. If they tried to sue the employee (they don't), they would be laughed off by the judge.
This is a problem in the tech industry but not on Wall Street.
The norm there is paid time off between jobs (“gardening leave”). Everyone knows it is part of the system and that a mid level or senior hire can’t start right away. They also buy out still vesting bonuses and the like.
It’s quite a civilized system and I think the law ought to leave it alone, while addressing abusive ones like we have in tech.
From my perspective it sounds civilized, but a friend of mine who sat out most of quarantine on gardening leave said he found it hard to support his family. You get your base salary, but not your bonuses, which are the majority of your pay in that industry. And since you can't get another job for the duration (or he couldn't, at any rate) it got a bit tougher than I would have assumed.
The first thing somebody in this sort of job should do is establish a 1-2 year savings buffer, right?
Yes that's basically what everyone does.
No, it's what everyone should do.
The signing bonus from your next job should make up for the loss of pay during garden leave. Many finance companies are willing to hire 12-18 months in advance if you are filling a real need.
This is true of all the situations I’m familiar with. I wonder if the other posters are talking about a different part of finance.
Gardening leave--especially if it's not even 100% base salary--isn't really a great answer especially to the degree that it normalizes non-competes. For a young unattached person who will use it to travel the world for a year on the cheap? Maybe. But others might be looking at easily a 50% total compensation cut and a year+ hole in mid-career employment. For most people, it's not a simple matter of "Great, I'll spend a year building a startup!"
It’s quite a civilized system and I think the law ought to leave it alone, (..)
Or codify it. Imho the better alternative. One should never assume that companies won't try to change the system to the detriment of the employee if they see a chance.
One thing I think is great about the finance industry is that the CEOs don’t pretend that humanity is split into two subspecies: executives and peons.
At other companies CEOs secure themselves giant equity packages to “retain the best talent and align shareholder interests” and then think they can motivate rank and file employees with t-shirts, “the mission,” and shoutouts during all hands.
In finance, CEOs acknowledge that everyone is there for the same reason—executives and regular employees alike. The numbers are definitely smaller but bonuses are bonuses and not employee of the month mugs.
To be honest, I find this really refreshing in a - to me - weird way, cause at least no one lies to themselves or the other. It reminds me of what people say about Oracle, that it only has one goal: To make money. No bullshit about mission or whatever. Why are we at Oracle? To make money. The end.
Maybe if more companies and their executives were so open with what they want (and maybe I'm cynical, but imho it is the only thing at least 99% of them want) things would be better.
If you (or others) haven't seen it you owe it to yourself to see the "Larry Ellison lawnmower" talk: https://youtu.be/-zRN7XLCRhc?si=SMpYPck-EJqe1uEv&t=35m00s
It's where I partially got it from - but thanks for the link. The whole conversation just reminded me of it.
Mark Fisher had an interesting comment on this, and this is more in the context of public/privatization but the point is relevant, calling it “market stalinism”. In Stalin era Russia, bureaucrats spent enormous amounts of time compiling reports and window dressing for their project (essentially advertising its success back to the Party before it was complete). As a result, projects would be well known but mismanaged, slow, broken, etc. but the glory of USSR would definitely be upheld. I’m always reminded of this when executives get on stage and do the Steve Jobs thing about how great we are for working nights and weekends for the “mission” while only they have a vested interest in us making a profit.
Where do you see this issue in tech? Certainly not CA.
NY, WA, other tech hubs in the US that aren’t California.
That said garden leave is not all sunshine and roses like OP describes. It’s common on Wall Street but a huge part of your normal compensation is performance bonuses - and typically garden leaves only cover base salary.
A typical garden leave doesn’t come close to full income replacement for the period. But it’s better than nothing - which is the status quo in tech.
FWIW American courts also tend to frown on non competes that do not compensate for forced unemployment and have generally sided with the worker. This is (yet another) way that employers deprive employees of their rights by using the expense of litigation against them. This is also why we need regulation around this - you should not have to fight this in court to have your basic rights asserted.
At least in software, my base salary is ~2/3 my comp right now (ignoring stock growth). If I could take say 50% base (so ~33% total) to quit working for 6 months - 1 year, you bet I'd take that deal. Put me on garden leave for as long as you want.
which is the status quo in tech
Even severance is usually not much. Typical is one week for year of service, minimum two weeks.
Given turnover in the industry, very few people are going to get 20 weeks severance.
NY, the subject of the article.
Garden leave means you get your low base salary but not any bonus, which is the bulk of a finance income.
Do finance firms pay the awarded bonus in full or vest it over time like most other business? If latter, I imagine you'd get your previously awarded bonus, you'd just stop accumulating bonuses to be paid in the future, which makes sense since you are going to be working elsewhere at that time and the new place's sign up should make up for the bonus payment ramp up.
It doesn’t _mean_ that.
It _can_ imply that if garden leave isn’t valued by workers in the negotiation stage of a position, but that also means it could be the bottom right corner of the prisoner’s dilemma.
Luckily one of the major reasons for the government to exist is to create regulation like this to make everyone pick the top left square of the prisoner’s dilemma so we all get a better outcome
Its a terrible system.
If we assume that the financial sector is good for society, then a productive element of it is idling causing inefficiencies leading to higher fees.
If the assumption is incorrect, then the financial sector is not a productive part of the economy. In this case the worker's vacation is irrelevant since it's just a manifestation of the parasitical nature of it.
Either way normal people are paying for this civilized system's largesse.
The truth is somewhere in between. The role of the financial sector is to match capital with projects needing capital needs. Since the 80s (?) this is an insignificantly small portion of modern finance - most of it is parasitical sloshing of funds around to either gather fees or launder money.
Do you believe that buffers are a terrible system? Do you think that any significant piece of software could run without a buffer?
If the answer is no, then you should reconsider thinking that garden leave is bad. It’s essentially a buffer that covers the switching cost for agents needing to decide which principal they work for.
If you removed garden leave you’d have a higher up front cost for rational actors who needed to account for the fact that they could lose their income stream at any moment if they were fired
When this legislation was originally introduced, an Albany area Jimmy Johns franchisee got attention for suing former minimum wage employees who took the secrets of sandwich assembly to a nearby Subway and local deli.
Timing was poor - during the budget season when the entire legislature was in town. The notion that a sandwich stop should be allowed to restrict the future employment is absurd on its face.
Yet there are fields where it makes sense. When I was an employee of the government, ethics laws limited my ability to leave and sell my services to the government in various ways. There are similar scenarios in other industries.
When I was an employee of the government, ethics laws limited my ability to leave and sell my services to the government in various ways. There are similar scenarios in other industries.
I think this is more about corruption control than non-compete.
Surely anyone looking at such a system from the outside sees the economic inefficiency for nebulous gain. Why not do away with it and let them start right away?
If it ain’t broke, why are you trying to fix it?
Good idea to ban them, then. No issue remains.
I don't think completely blanket banning noncompetes is a good idea either, there are some cases where they are justified. We just need rules to make sure that they serve their intending purpose (protecting company secrets) without negatively affecting employees.
The rule of thumb should be that the majority of employees under noncompete should be happy about it (because of the advantageous compensation). It is only a problem when it is not the case.
Not you can argue about the value of secrecy vs openness to society as a whole, but that's another debate.
We just need rules to make sure that they serve their intending purpose (protecting company secrets) without negatively affecting employees.
Every time there is a discussion of non-competes on HN there is always a bunch of confused people who can't grasp the difference between NCA, NDA and NSA. You don't need NCA to "protect company secrets" or ensure that people don't just steal company's clients or something. Non-competes are only needed to depress the wages by making it very hard for employees to change jobs, end of story.
NCCs are very well explained in [1] and USA has differences by states.
they would be laughed off by the judge.
Still useful for taking advantage of employees not in the know.
Sometimes I feel like corporations do things just because their lawyers are cargo culting and adding clauses because everyone else does rather than some logical reason.
My sister worked at Subway and had to sign a noncompete that she wouldn’t work at another sandwich shop for three years. Are they really afraid she’s going to steal their secrets of placing meat on bread?
The more cynical will certainly assume malice, that the company did this to keep you from leaving. It particularly at the time it was not hard at all to find new fast food workers, and I am a firm believer in Hanlon’s Razor and never assume malice when incompetence will do. I genuinely think the explanation could just be Subway’s lawyers were like “everyone else is doing noncompetes”.
Let's say your sister and her coworker form a union, and Subway fires them.
Now they also won't have the legal ability to simply open a new sandwich shop right next to Subway.
I.e. you're imagining that non-competes are there to protect proprietary know-how.
That's mostly true for some companies, but for others (e.g. Subway) it's a wedge guarding them against the collective action of their employees.
you're imagining that non-competes are there to protect proprietary know-how.
Legally speaking, that is often the case. Many states require a noncompete to have a “legitimate business reason”, and proprietary knowledge is the most common legitimate reason used.
I suspect judges in most states would invalidate a noncompete for a sandwich shop worker.
The legal purpose of these clauses is to keep high paid workers from stealing customer lists or business secrets. The legal system does tend to frown on them being used for rank and file.
Many employers just use them as an empty threat to manipulate people, because they know few people are going to hire a lawyer over it.
I mean, even from a practical perspective, noncompetes are pretty weak unless the employee is the kind of person who would make the news when they join a new company. You can always leave a company and tell them nothing about where you’re going. A subway franchise ain’t gonna hire some PI to figure out where a former front-line employee got a new job.
I suspect judges in most states would invalidate a noncompete for a sandwich shop worker.
Unless you have the monetary means to bring the issue to court (and see it through to the end), any clause like this will effectively be a law.
That’s not the case, very few civil legal disputes go to court, particularly if they are BS.
For a total BS claim, it usually doesn’t take more than calling their bluff. Or just ignoring it.
Employers usually just bet on people just following the language and not challenging it because they think it’s valid and they think they’ll have to go to court.
In reality, a business doesn’t want to spend tens of thousands of dollars on something their own lawyer says they’re going to lose.
Nobody is taking $12/hr unskilled employees to court over noncompetes. Lighting cash on fire is a more efficient and fun way to accomplish the same.
First, you're lucky to get $10/hr, no benefits. Of course, 29.5h a week, but required to have 60h schedule open.
And food service is horrifically abusive.
And yes, the noncompetes ARE enforced, because it's not about you - it's about keeping all the employees/slaves in line, and knowing there is no other place they can turn to working.
This whole thread is so laughable. As a former Subway employee, I worked there cause there was nowhere else. Pay was a laugh. And if you think there's legal services for the poverty masses, then you must be smoking something REALLY good.
Employers taking a random ex-employee and throwing them against a wall has a nice deterrence effect on the rest of their employees. They don't have to win, they just have to be unpleasant. Happens all the time.
... assuming a sandwich shop worker had the legal acumen to realize that and the financial resources to get it in front of a judge and/or to carry it through to completion... especially because there's probably also an arbitration clause that at least initially puts you in front of an arbitrator very much biased in the sandwich shop's favor.
Just having the piece of paper to wave around is valuable even if it's totally unenforceable.
Which is why, at a minimum, any lawyer who participates in drafting something like that should be removed from the profession. And most likely there should be criminal penalties for the corporate management involved.
Yeah, that’s what I meant by
Many employers just use them as an empty threat to manipulate people, because they know few people are going to hire a lawyer over it.
These noncompetes do work well as an empty threat.
Although I suspect the majority of sandwich shop workers or managers aren’t paying any attention to the language in their onboarding paperwork, and are just going through the motions.
I would like to see limits on this, but I’m not sure there’s a way to penalize lawyers for this, because they often are not the ones deciding who to hand these contracts to. Usually businesses have a lawyer draft up a general agreement, and then lazy business management just hands the same one to everyone from the VP to the janitor. That’s not really the lawyer’s doing.
it's a wedge guarding them
Anybody reading this from Westchester County, NY will join me in chuckling about how appropriate the term "wedge" is in a discussion about making sandwiches on long loaves of bread.
Is there a version of Hanlons Razor but instead of incompetence, it’s money?
I’m a firm believer in that. The clause was probably put in there so the lawyers could bill more hours.
I can easily imagine a legal firm noticing a drop in billable hours so they start reaching out to existing clients, throwing in a bit of fear, saying everyone is putting non-competes in their agreements you should too. Boom, all clients get billed extra that month, I wouldn’t call this incompetence, but greed
Is there a version of Hanlons Razor but instead of incompetence, it’s money?
For businesses, which aim to make money, isnt that simply competence? Or greed when taken to an extreme.
Basically “companies will act in their best interest.”
No, that's too reductive - the behaviour is not solely explained by a unidimensional scalar like competence because there are actions that a greedy unethical competent company would take that another non-greedy ethical company would not take - so theres more dimensions than just competence.
also, in case of the billable hours, the lawyers might do it due to monetary incentives, but subway might be malicious (or have other reasons to do it)
Malux razor: Never attribute to incompetence that which can be explained by Money.
Fleecing people for money is malicious though
Is there a version of Hanlons Razor but instead of incompetence, it’s money?
Cui bono.
I'm sure one can find plenty to say about this in the Ferengi Rules of Acquisition that probably sum up even our corporate insanity best. https://memory-alpha.fandom.com/wiki/Rules_of_Acquisition
Sometimes I feel like corporations do things just because their lawyers are cargo culting and adding clauses because everyone else does rather than some logical reason.
Not sure so much on the cargo culting aspect, but in essence, I am convinced that this phenomenon is effectively true.
If corporations were run entirely by lawyers, the likelihood that any corporation would take risks that would lead to innovation would be approaching zero. Of course, corporations without laws would run amok, but that's beside the point. I've worked at companies that were absolutely afraid to do anything that the legal department found troublesome, holding them back from risks that might have been worthwhile and wouldn't have been apocalyptic had anything gone wrong. It's a shame to see that happen, and I suppose that's why the current paradigm needs to keep generating startups in order to drive innovation. Though we really haven't been seeing much innovation as of late.
There may be some cargo culting of noncompetes, but it seems more likely that noncompetes are inherently in the best interest of the business from the point of view of the lawyers, and businesses see noncompetes as a sort of moat against competition. Both are fairly reasonable perspectives, though neither is necessarily true in reality, which is why businesses don't necessarily have to listen to their legal team on every decision.
The lawyers are largely copying & pasting. They come up with a template that works for most of their clients and then re-use it when a new one comes along.
I worked in Massachusetts (which allows non-competes) early on in my career, and at one point took my contract to a lawyer. He was like "This was written by a California law firm. It has clauses that are specific to California law." (One of them was that it specifically did not have a non-compete, carved out in the contract.)
Is it possible it’s just about power?
Non-competes make it harder to find a new job. Employers want it to be hard to find a new job, since that means it’s hard to leave your current job even if the pay/hours/whatever is poor.
Lawyers will attempt to put the most advantageous terms possible in any contract they write. It’s just what they do. It’s not malice or incompetence. It’s training.
So those supposedly smart people do not realize that said claim if followed is like semi slavery? Of course they do. They just do not give a flying fuck. Give them freedom and they will sell you for organs smiling all the while.
New York may ban noncompete employment agreements and Wall Street is not happy
I though capitalism (Wall Street) was about competition. /s
It's about voluntary contracts, too.
Agreements between parties of vastly unequal power and alternatives are not voluntary.
If they aren't voluntarily, they wouldn't be enforceable in court.
What you're trying to say is there's limited alternatives. (The most obvious alternative is to not take the job)
No. What I'm saying is "take a job with a non-compete or starve" is not a situation in which a worker can make a voluntary choice, "enforceable in court" be damned. Not to mention, such agreements are often not stated up front as part of the job description.
I hear what you’re saying, but it’s hyperbole. I think there’s zero percent of you starving over your unwillingness to sign a non-compete.
Pretending like the situation is that extreme isn’t helping anyone.
Why should I believe you? You don't offer an argument. It is entirely plausible that one could be faced with a situation of losing one's home, health insurance, ability to exist in modern life, and, oh, one's actual life due to unemployment. I know this because it happens. Non-competes, by definition, make this problem worse by reducing the number of jobs available to a person. What's your justification?
I’m not going to debate or justify non-competes. I’m also not advocating for them.
All I’m doing is calling you out that when you join a company, you’re voluntarily signing all of the contracts. It’s not some kind of involuntary act of slavery. A responsible adult is presented a contract and chooses to sign it. That’s the opposite of involuntary.
Your argument is it’s involuntary.
That’s what we were debating. I wasn’t debating the contents of the contract. I personally don’t see a major need for non-competes and is overkill in almost all cases.
I’m simply tired of the “I’m a victim!” mindset of blaming others for their own actions. It’s your fault if you signed a shitty employment contract. Next time read the fine print, or don’t sign it.
I think the issue here is what voluntary means.
It's not black or white. You don't have to be held at gunpoint for something to be involuntary, and nobody is ever so free of concerns that everything they do is entirely voluntary.
This is too simplified a position:
1. A company can usually go without hiring people than a worker can go without making mortgage payments or issuing rent. In the United States, that includes basic access to medical care.
2. Companies have large legal departments advising them on how to craft language and the boundaries of the law. Most workers don’t even want to pay a lawyer to review a contract knowing that they’ll almost always be told it’s standard and there are no exceptions.
3. People join a company when the relationship is good, and aren’t thinking about how it could be sour. This often includes verbal assurances about things like this which are not written into contracts, and a change in management which provides reason to leave also invalidates all of your assumption about who you entered into the agreement with. If you signed with “only a direct competitor” that probably seemed more reasonable at the time than when the new boss / acquiring company decides that since you work on software anyone else who works on software is a competitor. A lot of open source developers went through this with IP grabs which were agreed to cover only their new employer’s direct business but then a change in ownership meant that someone was trying to claim their hobby game or even non-software IP.
Yes, ideally everyone would know about this and refuse to deal with abusive companies but the reason we have laws is because that’s not how the works has ever worked. Providing clear boundaries is useful both because because society is healthier if even people who make minor mistakes or trust the wrong person are protected and because it levels the field for everyone. If the law says no non-competes, people don’t need to generate millions in revenue for lawyers telling them why company A is offering less than company B, and company C is not going to try to bully their existing employees into accepting a worse deal. It’s the same reason we say “your boss can’t demand sex” / “teachers can’t have sex with students” because that avoids having to individually litigate each case to decide whether some power gradient was crossed. Simple boundaries are enormously useful, and in this case there’s really no downside (New York would love it if banning non-competes devastated their economy into California’s).
Absolutely none of that is necessarily voluntary. You have missed the point entirely. A choice between "X or die" is not a choice. That is a very real scenario, which you have not even acknowledge. Instead, you're saying I should be an expert in contracts.
I am not making the situation "extreme," either. If anything, the situation is even more extreme than I am making it out to be.
Wall Street non-competes are only enforced if they pay you your base salary during the period. They can also opt to not do that and waive the non-compete, in which case you can work anywhere. I think it's ridiculous that Subway has non-competes, but with regards to the article I doubt anyone is forced to choose between working for a trading firm and starving. There also are some firms that do not do non-competes. So it's closer to voluntary than involuntary I'd say, though very few decisions are truly 100% personal choice.
In the USA fast food companies are requiring non competes for burger flippers.
I whole heartedly think that burger flippers should not have to sign a non-compete.
But HCE’s who deal with intellectual data (not burgers) all day long? Maybe, maybe not.
The point is it’s a choice to sign these contracts. Not every company makes you sign one. If it’s important to you, ask about it upfront in the interview process so it doesn’t turn into a “life or death” decision after you’ve accepted a verbal offer.
It can only be voluntary if everybody has an alternative job to go to.
While firms only hire if there is a profit to be made, and people have to earn to eat the 'no deal' stand off isn't an option.
Not like that! They mean competition in the sense of how much wage theft is possible to get away with
Non-competes shouldn't be a thing for most employees.
Unemployment in eg the US is fairly low. So you can pick companies which have less stringent non-competes (or non at all).
Jobs on offer are fewer than number of unemployed.
Therefore jobs are scarce.
Only when there is a vast surplus of jobs will competition do the work. Until then you need regulation.
And regulators that dont cite "low unemployment" when they raise interest rates.
Labor rights shouldn’t be governed by employment metrics.
Or we could not allow unconscionable contract terms.
Limiting yourself to voting with your wallet/feet, while corporations use every trick in the book, is like trying to win at chess using only pawns.
When I go back to the US, I pick states by which have limited non-competes.
God bless Lina Khan our based monopoly busting, employee supporting FTC queen.
The FTC isn't the org with much power over employee rights. That's the DoL.
It's not uncommon for various government orgs to overstep beyond their stated mission, goals, or purpose. Khan seems like the kind of person to abuse their power indeed.
She has not been very successful at it judging by her record
I've heard about a good compromise option existing in a country in Europe: noncompete agreements are not banned completely but are limited to last just half a year after the employee leaves the company. It can also last much longer in case the employer agrees to keep paying half the salary to the former employee.
Don't know about that but a compromise option always exists when the two parties are willing to compromise. E.g. in our country noncompetes are outlawed but if your company is willing to pay for your gardening leave for a year, then you might be willing not to compete with them for that time. Happened to my boss (at 100% salary).
Sounds like a terrible compromise to me.
Why do I need to spend 6 months without pay and then more time with only 50%?
In what universe is it a good compromise that fast food workers aren't allowed to work at another fast food restaurant for 6 months after they quit, without any compensation?
It incentivize companies to add it to their contract just because it makes it harder for employees to quit bad working conditions and low pays since they might not land a new job and be able to pay rent. It doesn't protect any sort of intellectual property, it's simply there to screw over the little guy.
The word "compromise" usually implies that both sides are getting something. What part of this would be a compromise?
Non-compete contracts should be banned unless the employee is compensated for the non-compete period. Period.
The employee should be over-compensated. If you were making $200k pre-tax at the job, the non-compete agreement should at a minimum require you to be paid $200k post-tax.
Yup. Put your money where your mouth is
If that person was so valuable, had so much knowledge, had so many contacts etc…prove it in the only way business owners really understand
I’m sure there are some people who wouldn’t mind 6+ months on 80% (or so) of pay during which they are are free to do whatever else they want
Wall Street isn't happy that employees will have more freedom in their choice of employer
"In other news, water continues to be wet."
Wall street should be half happy half sad. It is a wall street company poaching off another wall street company.
True. But the way The System works isn't WS v WS, it's WS v Everyone Else. WS doesn't want to waste time and energy hurting themselves. They know better. They behave more like starlings. No conspiracy per se, just mutual interests that align strategy, tactics, direction, etc.
Needs to be national policy. Non-competes compensated at full pay or they are illegal.
Let's get mandatory binding arbitration as well.
New Yorks leads the pack as usual. If you want to understand why continental European salaries are mostly low , don’t only look at the social security cost, but also at the labor law which is a middle aged indentured servitude heritage wrapped with worker rights bullshit : in France, 3 months notice period, up to 8 month of trial period, non competes with ridiculous comp. are very common for startups and Mid Sized businesses, same as non sollicitation, exclusivity clauses (generally all in a combo). Plus you get shunned if you job leave your master too quickly (ie less than 1 or 2 years depending on sector). And if you get fired be prepared for the Wild West of reference checking (nothing that can legally protect you from an ex bully who wants you to pay the price of daring leaving), loosing full health cover, and so on.
Does French law mandate trial periods or 3 month notice periods? You can usually negotiate those away. Reference checks or trial period but you should really not require both, that's an employer problem.
Europe pays lower than the US but pays better than other regions. There are many countries with low pay and poor labor rights. We should try to have high pay and better labor rights.
Yes the 3 months notice is legally enforced in France with a few cases where it can be waived - including both the employee ans employer agreeing to skip it.
Note that this notice goes both ways: when an employee resigns or is let go.
Sorry if this is a stupid question, how does a noncompete gets enforced anyway? Unless you’re a person legally required to make public your job, I don’t see how any private entities can trace your work history.
Business owners and managers talk. I've heard of unofficial (and very illegal) blacklisting being a thing in NYC in the past, for multiple industries.
Collusion between employers to ensure that non-competes are enforced sounds very plausible, given that it is legal.
I think that the existence of a non-compete may also be a liability for the new employer, and it's not solely a practice meant to remind labor of what their place is.
Companies and government agencies routinely hire PIs to follow people receiving disability benefits to gather evidence that might indicate they're not as disabled as they attest. You can bet that if they're willing to track people over disability checks, they're going to use those same tools to enforce non-competes.
Here's my stance on noncompetes: I'm fine with them as long as the employee is compensated sufficiently.
Wall Street firms will often have 12 month noncompetes but you get paid for that year. Details matter however. Like you might be paying for health insurance (COBRA). You won't be getting any bonus. Any bonus money in the fund gets removed and put into treasuries, which in some years may have a better performance so that's a mixed bag.
If Wall Street wants noncompetes, the employee should get paid 1.5 times the annual average total compensation they had for the previous 2, 3, 4 or 5 years, whichever is best for the employee.
the employee should get paid 1.5 times the annual average total compensation they had for the previous 2, 3, 4 or 5 years, whichever is best for the employee.
Wouldn't everyone quit after having two unusually good years back to back?
The company can choose not to enforce the noncompete and thus be off the hook.
I see this as an "all or nothing" type thing. When the employee quits, the company decides to enforce or not. If they enforce, they're on the hook for the entire noncompete period. No deciding after a month not to continue enforcement.
In Sweden all non-compete clauses that has been challenged by a court has been thrown out. Unless they have been backed by compensation. Too few cases has been tried to establish a floor for this compensation, but numbers thrown around indicate that you should be prepared to pay around 60-80% of the salary during the non-compete period.
On Wall Street it is typical to get full salary for the non-compete period, but in some cases that may be a modest fraction of total compensation including bonus/other incentives.
Non-competes have always been interesting:
"We are hiring you because you already know how to swing a hammer in our industry, but you may not use a hammer for any other company who may also have hired you for knowing how to swing a hammer"
They make sense where there are specific internal secrets, it's not just about IC skillset necessarily. But it's true they're definitely overused.
Would this law apply to a conpany headquartered in NY but incorporated in Delaware? Assuming the employee lives in a third state?
Usually, the legal rights of an employee are based on the location (city, state or country) that the employee is located in. (For example, if you're an Idaho company with employees in New York City, you need to pay those NYC employees at least the NYC minimum wage of $15/hr.)
What’s a New York noncompete look like? In australia as far as I can tell it discusses associated entities - I can’t go and work for my employers major client directly if I was involved with that client during my tenure, but if I’ve had no association, I think I can. There’s also caveats around ‘right to earn a living’ if your skillset or specialty limits you to people associated with your employer, but as far as I can tell you can go and work for a competing company to your former employer, assuming the competitor was not your employers client.
I’ve been under two. One prohibited working with any existing clients for a calendar year after my termination date. A second prohibited working in a similar role in the US for a year. Both applied to employment and not other actions one might do such as shorting the former employer’s stock.
i'll post one of my favorite related facts about noncompetes. Famously, California bans them, but this was not an intentional policy choice for the sake of entrepreneurship. It was done in the 19th century and almost by accident.
David Dudley Field II was a jurist who drafted a code of laws which was adopted by New York state. After this, motivated by his study of English common law, he made an updated code of laws which included a provision banning noncompete agreements.
This model code was not accepted by New York, and just floated around for a while, until it happened to be on hand when California was becoming a state, with nobody thinking much about noncompete agreements.
North Dakota also adopted the Field Code and also bans noncompetes.
https://www.restrictivecovenantreport.com/2013/01/north-dako...
Happy accident
Non-compete clauses are already extremely difficult to enforce. They're traditionally disfavored under common law; get one before a judge and it will frequently be struck out, or at minimum, sharply limited in scope. But it's not about winning an injunction or damages for the employers that use non-competes, it's about using the threat of a lawsuit to keep workers nice and biddable.
So the bill is well worth doing, just people stop writing unenforceable bs into contracts.
It shouldn’t be a black and white thing. Someone below mentioned a story of Subway (the sandwich chain) giving non competes. That seems wrong. On the flip side, a gender fund giving non competes to folks who see their strategies seems totally par for the course. Somehow the law should prevent one but not the other.
And I say that as someone who has a hedge fund non compete and was laid off and subject to that non compete for two years.
GOOD!
Noncompetes without a proper wage commensurate of the position is just slavery.
And after the US civil war, a whole lot of slaveowners were also really upset in losting their slaves... But even they got reparations for losing "property".
Non-competes should, at minimum, be banned for anyone not making in the top 10% of salaries.
Don't sign anything when leaving a company and never accept compensation. No contract, even non competes, is valid without consideration.
United States may ban slave ownership and slave owners not happy.
Non-competes can work out if the rules actually favor the workers. I had one while working for a HFT in Germany and would sign it again.
Evidently, Obama campaigned on promises to protect low-wage earners from employer exploitation using non-competes. Politicians seem to be more in favor of advancing non-compete protections only for this demographic.
Some good articles about non-compete politics in America and the de-fanging of the FTC federal initiative:
https://news.bloomberglaw.com/daily-labor-report/ftcs-noncom...
https://www.bloomberglaw.com/external/document/X3B1QI9O00000...
https://news.bloomberglaw.com/antitrust/ftc-expected-to-vote...
I'm always happy to sign a noncompete – and add a line about how the company will pay my full rate for the duration.
Quant firms at least are one of the few places where noncompetes can make sense. It's an extremely IP sensitive industry with stupendously high pay where the employee is going to someone probably competing very directly with you, for the same/similar opportunities. Actual code + NDAs banning literal reimplementations of stuff aren't that valuable, the knowledge and ideas will stay in the head of the employees.
The two main issues I have with them are that firms tend to give them to just about everybody (instead of just to folks working very directly with real IP), and they only pay base salary, not something closer to actual total compensation (often multiples of the base pay).
Having said that, the quant firm is relatively unimportant and not a good reason to prevent a total noncompete law. It's probably better to just ban them then try and make allowances that aren't full of loopholes.