A clause I frequently see (as one who performs a lot of contract work) is a restriction on accepting an offer of employment from the client of the consulting firm I'm contracting with. Whenever I see this clause, I redline it out and advise the consulting firm to fashion a buyout clause* with the client. I'm very firm that the consulting firm cannot restrict my employment opportunities.
* The buyout clause is between the client and consulting firm and roughly compensates the consulting firm for the lost profit of the rate diff over the remaining term of my contract with the consulting firm.
I've had a buyout clause used while consulting before. The company was ending their relationship with the contracting company and wanted to keep a handful of individuals.
The article covers this, but probably worth having it mentioned here too: Washington already had partially banned noncompete agreements.
They were banned for employees who made less the $127k/year or contractors who made less than $317k. Those numbers were adjusted annually for inflation.
The only time I see non-competes as reasonable is when someone sells a business. It seems fair to put a territory restriction on a seller so the new owner doesn't have to immediately start competing against the person they bought out.
Here in Sweden non-competes without a financial agreement is void. And those that offer some financial are probably OK, but haven't been tried extensively.
The non-competes I've signed have offered 60% of my base pay for six months (the length of the non-compete) if I cannot find a job because of the contract if the company exercise it.
Those sorts of agreements are generally still allowed with these anti non-compete laws. If there is a specific non-compete contract that is signed, with money being paid for it directly, that is fine. That is a normal contract where both sides trade something of value.
The types that are banned are ones that set the restriction as a part of a normal employment contract, where there is no specific compensation given for accepting the non-compete and where the employee can't decide to abandon the non-compete in return for not getting the extra money.
The problem is allowing companies to do contracts that their lawyers know are null and void (like the above) but the employee may not know.
Employees thinking they are subject to legal penalties/fight due to a non-enforceable non-compete gets the company 90% of what they want, anyway, and so to prevent that they should be strongly punished.
Right, the way it would work is that you are getting some sort of payment every month for not competing. If you choose to start competing, those payments stop. You can choose to stop the non-compete at any time, you are just giving up that income stream.
> So even if you sign that clause you are not bound by it.
Jimmy John's was making its low-level employees sign non-competes, for example. This was ridiculous on its face, and probably wouldn't hold up in court. However, the people affected by it were least able to take it to court.
Technically, restrictions on employees by their FORMER employer. In theory (if valid), they could retain power over you for a time AFTER you are no longer employed.
A similar thing is often done during dismissal: sign away your rights to sue for wrongful dismissal in return for severance. In my case, almost a year's worth of pay seemed like a reasonable severance, so I took it and didn't argue.
Not really. Individuals who can build a company are under no obligation to sell it to anyone placing unreasonable conditions on the sale. If I'm buying your company, I have a concern that you might pull of of the customers back (having started a new company) but the price I'm willing to offer you compensates you for the book of business you are selling to me. That's where non-solicitation clauses come in.
I think the operative principal here is that employees are at a disadvantage w/r to employers. Buyers and sellers are not presumed to be at any disadvantage w/r to each other.
I also see these as reasonable since they are part of the negotiation of selling the business. Non-competes as it relates to most ordinary employees in the US is typically a contract of adhesion: a surprise take it or leave it clause while signing an employment agreement, well after a job offer and salary negotiation.
That's how it works in California. I had a 3 year non-compete with VMware after we sold a business to them. It was restricted to the specific market and technology our business covered but didn't limit activities in other areas. It seemed completely fair to me.
Besides, competing would have meant doing exactly the same thing over again. What's the fun in that?
It is not unheard of that employees leave a company to start their own precisely because the company is not addressing something specific leaving a gap in services. The startup begins to gain traction to the point the company the employees left buys the startup. It's like this is the only way for the company to "do it right", yet it would have been cheaper if they'd just let the employees do the thing as employees in the first place
Often an acquisition of a company is for the set of customers. If I sell my lawn care business and then turn around and email all my former clients offering them lawn care via my new company, I’ve just undercut what I just sold.
Noncompete shouldn’t be so broad that I couldn’t move to another city and start a lawn care business there, but I shouldn’t be able to compete directly with the business I just sold using my insider information of that business.
There's also a big difference between starting a competing business like your example, and being barred from say working on "cloud infrastructure" because your previous employer also worked on "cloud infrastructure". It can be blurry for executives, but in general noncompetes seem to be used to push pay down more than for any legitimate business purpose.
> Often an acquisition of a company is for the set of customers.
That's a merger. You can, not having any business currently, buy yourself into one. In which case the acquisition is purely for the profits.
> I’ve just undercut what I just sold.
No you've just competed with them. If your prices are lower then you've undercut them. If their prices are artificially high then the market, a.k.a. those customers, are the ones to benefit.
> but I shouldn’t be able to compete directly with the business I just sold
Competition is _competition_. You didn't buy a market you bought an opportunity. You still have to compete against everyone else.
> I just sold using my insider information of that business.
Insider information? On a lawn care business that has no issued securities?
Purchases that wouldn't go through if they didn't reduce competition shouldn't happen anyway. Banning those kinds of restrictions would help with that.
I was just forced to sign one of these after already being employed. I, very clearly, pointed out that I didn't actually agree but that I needed a job. Often people don't see these things until it is too late to back out like at on-boarding or even later, as in my case. It is bad enough to have non-compete clauses, they are evil and should be banned, but then to sneak/force them after as if your employment is a TOS that can be changed at any time is beyond wrong.
If you really are a good place to work people will stay. If you really are paying enough for the value you provide, people will stay. If you aren't then people will leave, for the competition likely since that is the industry they know. Non-compete is really just a power play that enables companies to pay employees less and it is an abuse of power.
It’s not the noncompetes that’s the problem, it’s confidentiality agreements with extremely broad language.
Learn about the legal principle of “inevitable disclosure”. It’s the idea you can’t work for a competitor because you can’t help yourself but violate an NDA
I haven't heard much about it, but I am incredibly curious about how this is currently shaking out in the AI craze.
It seems these labs are revolving doors, and any kind of breakthrough knowledge would immediately make you incredibly valuable to other labs or incredibly valuable as a spinoff start-up. Never mind these researchers all knowing each other and certainly having more than a few common spaces (digital or IRL). And the excitement of working in a fresh field still littered with low hanging fruit.
I can't help but feel that a large part of the reason why the labs are neck and neck is because everyone is talking to everyone else.
I can't substantiate any of this though, it seems to have largely dodged anything besides internal conversation.
They're all in California where the law is very pro-employee. As long as you're not taking actual documents or code with you, there's nothing your former employer can do about what's in your head.
This is a huge part of how SV as a whole works. People figure out what works and point out how to do things better at their next roles. It's mostly a good thing. The main downside is that it exacerbates tendencies to cargo cult apply solutions for problems that come from a particular organizational scale to orgs without them.
Inevitably, it's just the need for lawyers to intervene in "common sense" negotiations. It's never legal to do X, Y, Z, but if the business has all the lawyers and the employee has non, then it doesn't really matter whats legal; it's whose willing to exhaust the cash to fight the issue.
Which of course, is why unions are what's needed to properly negotiate employee-employer relationships, the same way a strong government is needed to negotiate corporate-civil relationships.
Americans, however, have decided that "individual freedom" is _soooooo_ valuable, that it only exists for people with enough cash to defend it.
If you had asked me in 1995 what was the one thing[1] that Boston could change in order to compete with Silicon Valley I would have told you "Make non-compete agreements illegal" Companies in the Bay Area whined about it all the time but it kept the ecosystem vibrant and a lot of technology exists because of that. In the late 90's early '00s a big reason for a lot of 'high profile' people quitting their cushy job and setting out in a startup was because 'management' wouldn't allow them to move forward on an idea that they felt would "disrupt our own business." Those same people could quit, create a start up, and make that idea real anyway. So this is excellent progress for Washington State. I wonder how many ex-Microsoft employees this effects.
[1] I vacillated between this and California law giving ownership of what you worked on in your own time on your own equipment yours, except the latter was pretty effectively neutered by big corps defining their businesses more vaguely.
Massachusetts used to be one of the most favourable states for non-compete agreements, with strong legal protection and support, favouring companies. Not sure if that has changed since the last time I looked (been a few years).
Yes. At the time, non-compete agreements were legal (and commonplace) in Massachusetts. I haven't followed the Boston tech news for a decade so they may have changed that. But I had this exact conversation with Senator Ed Markey who was a congressman at the time. He was in the Bay Area and I was one of the people who were invited to a dinner he held on "Technology and Innovation."
Because Washington has a Constitutional provision requiring that no law shall take effect sooner than 90 days after the end of the session in which it is adopted [0] unless it is an emergency law passed with a 2/3 vote, and the common convention for most normal laws is to set the first January 1 certain to come after the 90-day period of the current session as the effective date so that "new law day" for non-emergency laws is consistent.
[0] Each state is different here, but a "90 days after end of session", or "90 days after passage" rule for the soonest a passed bill can go into effect, with exceptions for emergency bills with special rules including a supermajority requirement, are pretty common, as are conventions of setting a January 1 effective date in the legislation itself when the minimum is X days from end of session or passage.
Especially when WA’s ruling party regularly uses false ‘emergency’ declarations to make new laws become effective immediately and because this lets them make new legislation immune to voter referendums (yes they abuse this loophole all the time). They could do the same here. If they don’t, it’s a choice made on purpose.
Washington has a 2/3 threshold in both houses of the legislature to pass emergency legislation, and the majority party is short of a 2/3 supermajority in both houses, so it is actually impossible for them to unilaterally pass emergency bills. Also, emergency laws in Washington are not immune to initiative (repeal or amendment by subsequent laws passed by the voters), but are immune to referendum (popular veto by the voters before going into effect).
Where are you seeing that emergency clauses need a 2/3 majority in each house? I thought they require a simple majority.
Regardless, the ruling party has pretty close to a supermajority - over 60% in each house. And also keep in mind, some of the members of the other party are opposition in name only due to the districts where they compete. The share doesn’t really matter - the main issue is that it is overused. There shouldn’t be a hundred emergency clauses in each legislative session.
> Despite the name, the real reason for these supposed emergencies is not that the state faces some immediate threat. Legislation that includes an emergency clause can only be repealed using an initiative, which requires twice as many signatures as a referendum to put on the ballot for the voters to keep or reject. Referenda also face fewer legal challenges because they consist of a simple up or down vote on a piece of legislation.
It doesn’t change the fact that the abuse of these emergency clauses is anti democratic and an abuse of power
On the other hand it's a boon to those establishing new businesses. And a huge boon to employees. And a boon to the overall economy because it accelerates transfer of know-how out of older and more dysfunctional companies into newer and more nimble ones. This is what made Silicon Valley what it is, starting all the way back with the Traitorous Eight in 1957 and continuing today.
There are so many wannabe "New Silicon Valley" alternative areas that are unwilling to copy the non-compete ban, and subsequently fail to compete with the real Silicon Valley. It's a necessary ingredient in my opinion.
Previous owner can start the same business immediately and poach all the clients, reducing the value of the sold business to zero. Buyers obviously anticipate this and won't buy the business without the non-compete.
As the years go buy I'm gradually more and more in favor of restrictions to sell businesses. They tend to benefit two groups: the people running a successful business and the people running the even more successful businesses buying them.
They tend not to benefit the employees, the customers, the competitors and really anyone else besides a small number of people who are already very successful.
Not all businesses are wildly successful. Some are just successful enough to provide a single family with a middle class income. For some people, selling that is their only hope of retirement.
It's not like the seller never has an option to say no to the non-compete.
Then nobody creates businesses in your state and everyone there loses. What person in their right mind would invest their time and money into a business they wouldn't be able to sell?
It always baffles me how much resistance there is to banning noncompetes every time this is proposed, and how that resistance lives right alongside “we want to be the next Silicon Valley”, even though pretty much every analysis of “what’s Silicon Valley’s secret sauce” cites the unenforceability of noncompetes as one of the most important factors. But maybe the ship is turning very slowly.
Personally I think the way to go about this isn't to ban non-compete agreements but instead to get a couple of highly public cases where said non-compete is voided because the employee didn't receive anything of value for it. Once case law is clear that it requires 80% of the employees salary for the term of the lockup, companies will only require it where it makes sense rather than applying it willy-nilly due to the essentially free nature.
What's the actual steel man argument for why noncompetes are good? I've never really encountered one, just seen the corporate advocacy that they don't want to deal with high employee turnover.
Best I can do: Non-competes are (possibly) unenforceable anyway, so signing one maybe acts as a value signal for the employee? "I'd have to violate my non-compete, so in order to do that and permanently burn the bridge with my current company, you need to pay me $X + $Y."
Frankly I don't buy it, though, because it assumes too much about the rationality of all actors involved and the savviness of the employee during negotiations.
> What's the actual steel man argument for why noncompetes are good?
It probably depends on the kind of job.
If say Walmart tried to use a noncompete to stop cashiers from going to Target there probably is no reasonable argument in favor of that.
On the other when the employee is a top level executive who knows all the company's trade secrets and all their plans for the next year or so and they want to go to a direct competitor it is hard to see how they won't use that information at the competitor. Even if they scrupulously try to uphold any NDAs they are under and so don't consciously do it stuff will leak.
If the first company sues accusing the second company and/or ex-employee of using such information it can get pretty messy, and consumer judicial resources better used for other things.
A policy then of allowing noncompetes in this situation might overall be beneficial. Top level executives are generally well compensated and should be sufficiently sophisticated financially to understand the consequences of a noncompete and take that into account when deciding on taking the job so having to sit out 6-12 months before taking a directly competing job should not be a serious issue.
In theory, something like a technical job that requires extensive training. I always see reports about a lack of training for high tech trade / manufacturing jobs, as they require up to 2 years of training, but training slots are limited. You might get companies to pay the training if they could be assured the person would not run to a competitor. But even that should be agreed up front, with a limited term (eg we will train your two years, then pay you $X, and you will be subject to a noncompete for four years)
I am glad most places are getting rid of non-competes. But here is the best argument I've heard for them:
For many companies, a lot of their value is in their intellectual property. Non-competes exist not because the company will enforce it against employees (they might, but they usually don't), but more as a fig-leaf to potential investors down the line asking about the value of the intellectual property. The argument goes, if someone could easily leave the company with the knowledge earned and go to a competitor, then the investment wouldn't be as valuable.
> What's the actual steel man argument for why noncompetes are good?
It makes it possible to confidently buy a business that's mostly or all goodwill. Otherwise the previous owner can simply poach all the clients.
Also lots of jurisdictions allow non-competes as long as the employee is paid for the duration of the non-compete clause. Obvious win there: paid vacation or double up your salary by working for a non-competing firm.
Non-competes on employees without compensation are obviously bad.
Is there actually substantial resistance to this? Or just a few manufactured counter-arguments from news outlets trying to do a both-sides take on this?
Non-competes have been heavily limited or outright voided in California. That's an easy and obvious rebuttal to the Silicon Valley argument.
Yes. The US Chamber of Commerce is particularly noteworthy in their attempts to slow the deployment of this policy at scale. They of course act on behalf of their members as a reputational laundering operation, so their members do not have to engage in this lobbying directly (potentially exposing them to reputational risk).
> Less than 24 hours later, the U.S. Chamber of Commerce, Business Roundtable, the Texas Association of Business, and the Longview Chamber of Commerce filed a lawsuit against the FTC in the U.S. District Court for the Eastern District of Texas alleging that the consumer protection agency lacks the authority to issue rules that define unfair methods of competition, and instead, the FTC Act only allows it to bring cases challenging particular practices. The Chamber’s Complaint also contends that even if the FTC possessed such authority, the “noncompete rule would still be unlawful because noncompete agreements are not categorically unlawful under Section 5.” The lawsuit further argues that the rule is “impermissibly retroactive” and reflects an “arbitrary and capricious exercise” of the FTC’s power.
> The Chamber of Commerce is seeking an order “vacating and setting aside the noncompete rule in its entirety” and an order permanently enjoining the FTC from enforcing the rule. The plaintiffs are also seeking an order to delay the effective date and implementation of the noncompete ban until the conclusion of the case.
There's a lot of opposition to pretty much any nigh objectively good thing for the people. Just follow the money. It usually comes down to
1. lobbyists vying for a company who wants to keep power
2. the legislature having its own vested interest from relationship/deal/lobbying
3. the minority of constituents are the ones who constantly call in and go to townhalls, because they have the time, money, or energy to do so compared to someone who's at work during a townhall.
People in control of orgs and capital want to telegraph thought leadership via "we want to be the next Silicon Valley" without actually giving up control of workers or making the necessary system changes. For a parallel, see how Jamie Dimon says "AI could help bring about the 4 day work week." [1] Is JPMorgan Chase trying to move to a 4 day work week? No, of course not. Jamie likes to be important and have his proclamations disseminated, not actually make the change being used to chase clout and status (because once wealthy, there is nothing left to chase if one wants to chase something).
TLDR Talk is cheap, work and change is hard and painful (broadly speaking). Observe actions, not words.
Non-competes are almost always unenforceable. Never take money (although even then, they're still mostly useless), and just ignore them and no one is going to do anything. That was what my business law professor taught us. No court is going to enforce a non-compete if it means the person who cannot compete is going to be unable to support themselves. The only time it'll be enforced is if you're already independently wealthy.
In other words, a completely useless scare tactic.
The problem is it won't get as far as trial, if the old company gets wind of it early enough (and they often do). The old company will reach out to the new company and politely inform them they believe they have grounds for a noncompete suit. The new company will either indemnify the worker, or (far more often) drop them as not worth the hassle, and take their #2 choice.
The legislation needs to change. The situation as it stands is ripe for barratry and bullying.
You may not even get as far as an interview. More and more, I see job applications asking whether you are subject to non-competes, alongside asking about visa etc. I imagine answering yes will unceremoniously move your application to the reject pile.
It just means your start date is delayed. No different from interviewing a student whose graduation date is a year away or interviewing a foreigner who might require a few months of paperwork to get a work visa.
I know at least one person who joined a Michigan startup, moved over, got sued by non compete, and the new employer just didnt want any hassle and laid them off. This person had to leave country then.
The take home is dont take tech jobs in states where non-compete clauses are still legal.
Sue them back. Represent yourself. Get compensatory damages. They will lose unless you can support yourself. Do you think any state is going to let someone go on unemployment and withdraw from the public dole just because some private company wants to gain some competitive advantage. Lol
But I do agree in general, never take compensation upon leaving a company, for whatever reason. Then everything is certainly unenforceable.
As for leaving the country... even if a non-compete is found to be enforceable (due to you being self-sufficient, or sufficently compensated), then the scope cannot be country wide. It has to be limited to a particular reasonable geography and a particular reasonable field.
> No court is going to enforce a non-compete if it means the person who cannot compete is going to be unable to support themselves. The only time it'll be enforced is if you're already independently wealthy.
The first part is probably usually true, because places where non-competes are enforceable generally will not enforce them if they are overly broad.
But for tech workers there are almost always other jobs that the worker can qualify for and pay similarly to their old job but are not covered by the non-compete and then then non-competes do get enforced even though the worker is not independently wealthy.
You can sue the old company for that. You had a job that they are not allowing you to do. Courts don't like it when someone isn't allowed to support themselves, and so generally place narrow limits on what a non-compete tan cover. You should sue for the sake of the rest of us who might be next when this tactic is found to work.
Lawsuits take years and are very expensive in time and money. Years of litigation cost Epic billions in legal fees and lost revenue. It's much much worse if you don't start with millions.
I think it's reasonable to prevent your employee from working for your competitor at the same time they are working for you. Or even an employee creating a startup themselves with AI and then mailing all of your clients.
Not sure if this is meant sarcastically or not, but it is - it helps reduce transaction costs of changing employers. Anyone who has ever signed a contract with wide non-competes knows that it is hard for an individual to negotiate against it on an individual basis, but they are rarely enforced in practice, which leaves open individuals to worries about "maybe I'm one of the unlucky few?" These clauses then primarily only increased transaction costs, so eliminating them aids free exchange.
WA has bigger problems like crazy overspending at the state level and many cities, leading to a spiral of new taxes, even if they are unconstitutional (at the state level). This new noncompete law won’t be enough to make the state more attractive to workers and businesses. It has nothing to really offer above California.
The flip side should be considered as well. There should be some sort of protection for small startup companies. A big company should not be able to steal an innovative startup's technology by hiring away the employees that worked on the product. That used to happen a lot when Bill Gates was running Microsoft, for example.
Patents provide some protection, but it is flawed because a big company can put you out of business if you get into a patent war. An employee should be able to leave at any time and work for a competitor, but maybe should not do identical work, otherwise startups will have a hard time protecting their IP.
Companies need to put more care into who they trust, and maybe incentivize skin in the game. If leaving for a competitor means you lose equity, agency, ownership, or some intangible, that can outweigh bigger paychecks.
The market should be able to solve this problem without the government setting arbitrary rules, and people should be allowed to sign contracts that limit or restrict their freedom, so long as it involves informed consent from all parties.
If Microsoft wants to hire an AI expert for a million dollars a year, and restrict him from competing for 2 years after leaving Microsoft so as to avoid losing market advantage, that seems like a reasonable thing for Microsoft to want. If all Apple has to do to get all the Copilot secrets is hire the chief copilot engineer for 1.5 million, seems like that creates a toxic dynamic and all but guarantees acquihires and a near immediate turnaround in a startup to corporate pipeline for raiding IP.
Maybe we should be limiting businesses to doing business at a scale they can responsibly handle. If you can't get human customer service for your computer issues because Windows and Mac have scaled far beyond the number of users they could ever hope to handle, maybe that market needs regulation, and unless they scale customer service accordingly, they don't get to target a majority of the world's population as their customer base?
That'd certainly create jobs and opportunities for Linux and induce a revolution in software markets, and it'd limit the incentives for MS and Apple and big tech to do shitty things to suppress the markets overall.
The solution here in finance is garden leave, where people are contractually barred from competing with their former employer during a period for which they are compensated as if they were fully employed!
Small startups in California (where many, if not the majority, of tech startups are headquartered) do just fine without enforceable non-compete agreements.
It's also already unlawful to steal another company's assets when you leave. Besides, companies should file provisional patent applications as soon as they invent valuable proprietary technology to prevent the sort of subject matter leakage you mention.
This is not a mechanism to protect startups. This is a mechanism to protect the flow of ideas, whether the ideas are flowing from a big company to a startup or vice versa. Workers who find a big company bureaucratic should be able to launch a startup. Workers who find a small startup insufficiently resourceful should also join a big company to get resources.
No big company is going to bother poaching that way. They are either going to purchase the company outright or undercut them with their own competing product to kill it off through attrition. We're not in the 2010's anymore where people are banging at the door for singular SWE's.
acquhire practicies show that yes - sometimes people really ARE the company. However, i think for the average C# developer, or Epson printer specialist or wordpress or Bosch controller analyst, these arent really true.
A clause I frequently see (as one who performs a lot of contract work) is a restriction on accepting an offer of employment from the client of the consulting firm I'm contracting with. Whenever I see this clause, I redline it out and advise the consulting firm to fashion a buyout clause* with the client. I'm very firm that the consulting firm cannot restrict my employment opportunities.
* The buyout clause is between the client and consulting firm and roughly compensates the consulting firm for the lost profit of the rate diff over the remaining term of my contract with the consulting firm.
I've had a buyout clause used while consulting before. The company was ending their relationship with the contracting company and wanted to keep a handful of individuals.
wow, I've learned so much from your post, owe you big time!
The article covers this, but probably worth having it mentioned here too: Washington already had partially banned noncompete agreements.
They were banned for employees who made less the $127k/year or contractors who made less than $317k. Those numbers were adjusted annually for inflation.
Edit: less/more mixup fixed
Less than, not more than
The only time I see non-competes as reasonable is when someone sells a business. It seems fair to put a territory restriction on a seller so the new owner doesn't have to immediately start competing against the person they bought out.
Here in Sweden non-competes without a financial agreement is void. And those that offer some financial are probably OK, but haven't been tried extensively.
The non-competes I've signed have offered 60% of my base pay for six months (the length of the non-compete) if I cannot find a job because of the contract if the company exercise it.
They never have exercised it for me.
Those sorts of agreements are generally still allowed with these anti non-compete laws. If there is a specific non-compete contract that is signed, with money being paid for it directly, that is fine. That is a normal contract where both sides trade something of value.
The types that are banned are ones that set the restriction as a part of a normal employment contract, where there is no specific compensation given for accepting the non-compete and where the employee can't decide to abandon the non-compete in return for not getting the extra money.
Yeah, those contracts are not valid here as the right to livelihood will trump that contract.
So even if you sign that clause you are not bound by it.
The problem is allowing companies to do contracts that their lawyers know are null and void (like the above) but the employee may not know.
Employees thinking they are subject to legal penalties/fight due to a non-enforceable non-compete gets the company 90% of what they want, anyway, and so to prevent that they should be strongly punished.
Right, the way it would work is that you are getting some sort of payment every month for not competing. If you choose to start competing, those payments stop. You can choose to stop the non-compete at any time, you are just giving up that income stream.
> So even if you sign that clause you are not bound by it.
Jimmy John's was making its low-level employees sign non-competes, for example. This was ridiculous on its face, and probably wouldn't hold up in court. However, the people affected by it were least able to take it to court.
In New Zealand it has been like that for ever, but no one knew, and employers used them and employees abide.
Partly it was naked power.
Non-competes are restrictions on employees by their current employer. A non-compete agreement between a seller and buyer is perfectly fine.
Technically, restrictions on employees by their FORMER employer. In theory (if valid), they could retain power over you for a time AFTER you are no longer employed.
A similar thing is often done during dismissal: sign away your rights to sue for wrongful dismissal in return for severance. In my case, almost a year's worth of pay seemed like a reasonable severance, so I took it and didn't argue.
> A non-compete agreement between a seller and buyer is perfectly fine.
Well, it's up to market protection agencies to look at the specifics.
Not really. Individuals who can build a company are under no obligation to sell it to anyone placing unreasonable conditions on the sale. If I'm buying your company, I have a concern that you might pull of of the customers back (having started a new company) but the price I'm willing to offer you compensates you for the book of business you are selling to me. That's where non-solicitation clauses come in.
I think the operative principal here is that employees are at a disadvantage w/r to employers. Buyers and sellers are not presumed to be at any disadvantage w/r to each other.
I also see these as reasonable since they are part of the negotiation of selling the business. Non-competes as it relates to most ordinary employees in the US is typically a contract of adhesion: a surprise take it or leave it clause while signing an employment agreement, well after a job offer and salary negotiation.
That's how it works in California. I had a 3 year non-compete with VMware after we sold a business to them. It was restricted to the specific market and technology our business covered but didn't limit activities in other areas. It seemed completely fair to me.
Besides, competing would have meant doing exactly the same thing over again. What's the fun in that?
>Besides, competing would have meant doing exactly the same thing over again. What's the fun in that?
All of the baggage and tech debt gone! THIS TIME WE'LL DO IT RIGHT
It is not unheard of that employees leave a company to start their own precisely because the company is not addressing something specific leaving a gap in services. The startup begins to gain traction to the point the company the employees left buys the startup. It's like this is the only way for the company to "do it right", yet it would have been cheaper if they'd just let the employees do the thing as employees in the first place
PeopleSoft -> Workday
Apple -> NeXT
> it would have been cheaper if they'd just let the employees do the thing as employees in the first place
Keep in mind the company is probably not refusing to do things because of cost. Often it is because of risk.
A lot of people running businesses have terrible judgement when it comes to risk
Isn't that doable via stay on and holdback clauses?
I think every company with contracts like this should have a well furnished roof for these employees to hang out during the day
Why? They started one successful business. It seems good for society if they go on to start another.
Often an acquisition of a company is for the set of customers. If I sell my lawn care business and then turn around and email all my former clients offering them lawn care via my new company, I’ve just undercut what I just sold.
Noncompete shouldn’t be so broad that I couldn’t move to another city and start a lawn care business there, but I shouldn’t be able to compete directly with the business I just sold using my insider information of that business.
There's also a big difference between starting a competing business like your example, and being barred from say working on "cloud infrastructure" because your previous employer also worked on "cloud infrastructure". It can be blurry for executives, but in general noncompetes seem to be used to push pay down more than for any legitimate business purpose.
> Often an acquisition of a company is for the set of customers.
That's a merger. You can, not having any business currently, buy yourself into one. In which case the acquisition is purely for the profits.
> I’ve just undercut what I just sold.
No you've just competed with them. If your prices are lower then you've undercut them. If their prices are artificially high then the market, a.k.a. those customers, are the ones to benefit.
> but I shouldn’t be able to compete directly with the business I just sold
Competition is _competition_. You didn't buy a market you bought an opportunity. You still have to compete against everyone else.
> I just sold using my insider information of that business.
Insider information? On a lawn care business that has no issued securities?
Why would I buy a business if the person im buying it from is just going to create a new one to compete with me?
To have own the business?
Purchases that wouldn't go through if they didn't reduce competition shouldn't happen anyway. Banning those kinds of restrictions would help with that.
That is not even remotely the point OP is arguing.
I was just forced to sign one of these after already being employed. I, very clearly, pointed out that I didn't actually agree but that I needed a job. Often people don't see these things until it is too late to back out like at on-boarding or even later, as in my case. It is bad enough to have non-compete clauses, they are evil and should be banned, but then to sneak/force them after as if your employment is a TOS that can be changed at any time is beyond wrong.
If you really are a good place to work people will stay. If you really are paying enough for the value you provide, people will stay. If you aren't then people will leave, for the competition likely since that is the industry they know. Non-compete is really just a power play that enables companies to pay employees less and it is an abuse of power.
It’s not the noncompetes that’s the problem, it’s confidentiality agreements with extremely broad language.
Learn about the legal principle of “inevitable disclosure”. It’s the idea you can’t work for a competitor because you can’t help yourself but violate an NDA
I haven't heard much about it, but I am incredibly curious about how this is currently shaking out in the AI craze.
It seems these labs are revolving doors, and any kind of breakthrough knowledge would immediately make you incredibly valuable to other labs or incredibly valuable as a spinoff start-up. Never mind these researchers all knowing each other and certainly having more than a few common spaces (digital or IRL). And the excitement of working in a fresh field still littered with low hanging fruit.
I can't help but feel that a large part of the reason why the labs are neck and neck is because everyone is talking to everyone else.
I can't substantiate any of this though, it seems to have largely dodged anything besides internal conversation.
They're all in California where the law is very pro-employee. As long as you're not taking actual documents or code with you, there's nothing your former employer can do about what's in your head.
This is a huge part of how SV as a whole works. People figure out what works and point out how to do things better at their next roles. It's mostly a good thing. The main downside is that it exacerbates tendencies to cargo cult apply solutions for problems that come from a particular organizational scale to orgs without them.
Have fun trying that in CA.
Inevitably, it's just the need for lawyers to intervene in "common sense" negotiations. It's never legal to do X, Y, Z, but if the business has all the lawyers and the employee has non, then it doesn't really matter whats legal; it's whose willing to exhaust the cash to fight the issue.
Which of course, is why unions are what's needed to properly negotiate employee-employer relationships, the same way a strong government is needed to negotiate corporate-civil relationships.
Americans, however, have decided that "individual freedom" is _soooooo_ valuable, that it only exists for people with enough cash to defend it.
If you had asked me in 1995 what was the one thing[1] that Boston could change in order to compete with Silicon Valley I would have told you "Make non-compete agreements illegal" Companies in the Bay Area whined about it all the time but it kept the ecosystem vibrant and a lot of technology exists because of that. In the late 90's early '00s a big reason for a lot of 'high profile' people quitting their cushy job and setting out in a startup was because 'management' wouldn't allow them to move forward on an idea that they felt would "disrupt our own business." Those same people could quit, create a start up, and make that idea real anyway. So this is excellent progress for Washington State. I wonder how many ex-Microsoft employees this effects.
[1] I vacillated between this and California law giving ownership of what you worked on in your own time on your own equipment yours, except the latter was pretty effectively neutered by big corps defining their businesses more vaguely.
Wait, I'm confused. Do you mean Boston should have made non-compete agreements illegal?
Massachusetts used to be one of the most favourable states for non-compete agreements, with strong legal protection and support, favouring companies. Not sure if that has changed since the last time I looked (been a few years).
https://www.mass.gov/info-details/massachusetts-law-about-no...
Yes. At the time, non-compete agreements were legal (and commonplace) in Massachusetts. I haven't followed the Boston tech news for a decade so they may have changed that. But I had this exact conversation with Senator Ed Markey who was a congressman at the time. He was in the Bay Area and I was one of the people who were invited to a dinner he held on "Technology and Innovation."
Why wait until 2027, instead of making it effective immediately?
Because Washington has a Constitutional provision requiring that no law shall take effect sooner than 90 days after the end of the session in which it is adopted [0] unless it is an emergency law passed with a 2/3 vote, and the common convention for most normal laws is to set the first January 1 certain to come after the 90-day period of the current session as the effective date so that "new law day" for non-emergency laws is consistent.
[0] Each state is different here, but a "90 days after end of session", or "90 days after passage" rule for the soonest a passed bill can go into effect, with exceptions for emergency bills with special rules including a supermajority requirement, are pretty common, as are conventions of setting a January 1 effective date in the legislation itself when the minimum is X days from end of session or passage.
One of those is even enshrined as an amendment: https://constitution.congress.gov/constitution/amendment-27/
Especially when WA’s ruling party regularly uses false ‘emergency’ declarations to make new laws become effective immediately and because this lets them make new legislation immune to voter referendums (yes they abuse this loophole all the time). They could do the same here. If they don’t, it’s a choice made on purpose.
Washington has a 2/3 threshold in both houses of the legislature to pass emergency legislation, and the majority party is short of a 2/3 supermajority in both houses, so it is actually impossible for them to unilaterally pass emergency bills. Also, emergency laws in Washington are not immune to initiative (repeal or amendment by subsequent laws passed by the voters), but are immune to referendum (popular veto by the voters before going into effect).
Where are you seeing that emergency clauses need a 2/3 majority in each house? I thought they require a simple majority.
Regardless, the ruling party has pretty close to a supermajority - over 60% in each house. And also keep in mind, some of the members of the other party are opposition in name only due to the districts where they compete. The share doesn’t really matter - the main issue is that it is overused. There shouldn’t be a hundred emergency clauses in each legislative session.
As for the voters’ constitutional right to repeal - I’ve updated the terminology. From https://www.washingtonpolicy.org/publications/detail/time-to...
> Despite the name, the real reason for these supposed emergencies is not that the state faces some immediate threat. Legislation that includes an emergency clause can only be repealed using an initiative, which requires twice as many signatures as a referendum to put on the ballot for the voters to keep or reject. Referenda also face fewer legal challenges because they consist of a simple up or down vote on a piece of legislation.
It doesn’t change the fact that the abuse of these emergency clauses is anti democratic and an abuse of power
https://archive.ph/2026.03.27-223204/https://www.seattletime...
Big ups for pro-working class legislation
https://app.leg.wa.gov/RCW/default.aspx?cite=49.62
https://eig.org/state-noncompete-map/
This feels a tad heavy-handed and will make it tougher to sell a business without hard assets.
It should just be banned for employees or require a payout of (previous salary) * (length of non-compete).
On the other hand it's a boon to those establishing new businesses. And a huge boon to employees. And a boon to the overall economy because it accelerates transfer of know-how out of older and more dysfunctional companies into newer and more nimble ones. This is what made Silicon Valley what it is, starting all the way back with the Traitorous Eight in 1957 and continuing today.
There are so many wannabe "New Silicon Valley" alternative areas that are unwilling to copy the non-compete ban, and subsequently fail to compete with the real Silicon Valley. It's a necessary ingredient in my opinion.
Why would it affect selling a business?
Previous owner can start the same business immediately and poach all the clients, reducing the value of the sold business to zero. Buyers obviously anticipate this and won't buy the business without the non-compete.
That would violate a non-compete attached to the sale.
The posted article is literally about banning non-competes.
...for employees. For business owners there are different rules (IIRC > 1% ownership threshold).
As the years go buy I'm gradually more and more in favor of restrictions to sell businesses. They tend to benefit two groups: the people running a successful business and the people running the even more successful businesses buying them.
They tend not to benefit the employees, the customers, the competitors and really anyone else besides a small number of people who are already very successful.
Not all businesses are wildly successful. Some are just successful enough to provide a single family with a middle class income. For some people, selling that is their only hope of retirement.
It's not like the seller never has an option to say no to the non-compete.
Then nobody creates businesses in your state and everyone there loses. What person in their right mind would invest their time and money into a business they wouldn't be able to sell?
This is quite a stupid idea: you kill all innovative behavior if a creator can't decide to sell his creation.
Creators more invested in running their creation than selling it might do a better job.
All voluntary transactions benefits both buyer and seller.
This is as it should be!
And the government exists to safeguard the benefit of the broader public. Not all transactions are legal.
It always baffles me how much resistance there is to banning noncompetes every time this is proposed, and how that resistance lives right alongside “we want to be the next Silicon Valley”, even though pretty much every analysis of “what’s Silicon Valley’s secret sauce” cites the unenforceability of noncompetes as one of the most important factors. But maybe the ship is turning very slowly.
Personally I think the way to go about this isn't to ban non-compete agreements but instead to get a couple of highly public cases where said non-compete is voided because the employee didn't receive anything of value for it. Once case law is clear that it requires 80% of the employees salary for the term of the lockup, companies will only require it where it makes sense rather than applying it willy-nilly due to the essentially free nature.
What's the actual steel man argument for why noncompetes are good? I've never really encountered one, just seen the corporate advocacy that they don't want to deal with high employee turnover.
Best I can do: Non-competes are (possibly) unenforceable anyway, so signing one maybe acts as a value signal for the employee? "I'd have to violate my non-compete, so in order to do that and permanently burn the bridge with my current company, you need to pay me $X + $Y."
Frankly I don't buy it, though, because it assumes too much about the rationality of all actors involved and the savviness of the employee during negotiations.
> What's the actual steel man argument for why noncompetes are good?
It probably depends on the kind of job.
If say Walmart tried to use a noncompete to stop cashiers from going to Target there probably is no reasonable argument in favor of that.
On the other when the employee is a top level executive who knows all the company's trade secrets and all their plans for the next year or so and they want to go to a direct competitor it is hard to see how they won't use that information at the competitor. Even if they scrupulously try to uphold any NDAs they are under and so don't consciously do it stuff will leak.
If the first company sues accusing the second company and/or ex-employee of using such information it can get pretty messy, and consumer judicial resources better used for other things.
A policy then of allowing noncompetes in this situation might overall be beneficial. Top level executives are generally well compensated and should be sufficiently sophisticated financially to understand the consequences of a noncompete and take that into account when deciding on taking the job so having to sit out 6-12 months before taking a directly competing job should not be a serious issue.
In theory, something like a technical job that requires extensive training. I always see reports about a lack of training for high tech trade / manufacturing jobs, as they require up to 2 years of training, but training slots are limited. You might get companies to pay the training if they could be assured the person would not run to a competitor. But even that should be agreed up front, with a limited term (eg we will train your two years, then pay you $X, and you will be subject to a noncompete for four years)
A lot of training isn't accredited or transferrable and just a scam.
The place I work has[1] a thing where they'll pay for (some?) college classes, and it comes with a clawback if you leave too quickly after.
[1] well, as of when I last looked a few years ago
I am glad most places are getting rid of non-competes. But here is the best argument I've heard for them:
For many companies, a lot of their value is in their intellectual property. Non-competes exist not because the company will enforce it against employees (they might, but they usually don't), but more as a fig-leaf to potential investors down the line asking about the value of the intellectual property. The argument goes, if someone could easily leave the company with the knowledge earned and go to a competitor, then the investment wouldn't be as valuable.
Okay this I do buy, but that would only explain non-competes for startups, right?
> What's the actual steel man argument for why noncompetes are good?
It makes it possible to confidently buy a business that's mostly or all goodwill. Otherwise the previous owner can simply poach all the clients.
Also lots of jurisdictions allow non-competes as long as the employee is paid for the duration of the non-compete clause. Obvious win there: paid vacation or double up your salary by working for a non-competing firm.
Non-competes on employees without compensation are obviously bad.
Is there actually substantial resistance to this? Or just a few manufactured counter-arguments from news outlets trying to do a both-sides take on this?
Non-competes have been heavily limited or outright voided in California. That's an easy and obvious rebuttal to the Silicon Valley argument.
Yes. The US Chamber of Commerce is particularly noteworthy in their attempts to slow the deployment of this policy at scale. They of course act on behalf of their members as a reputational laundering operation, so their members do not have to engage in this lobbying directly (potentially exposing them to reputational risk).
U.S. Chamber of Commerce and business groups file lawsuit challenging FTC noncompete ban - https://www.fmglaw.com/employment-law-blog-us/u-s-chamber-of... - April 26th, 2024
> Less than 24 hours later, the U.S. Chamber of Commerce, Business Roundtable, the Texas Association of Business, and the Longview Chamber of Commerce filed a lawsuit against the FTC in the U.S. District Court for the Eastern District of Texas alleging that the consumer protection agency lacks the authority to issue rules that define unfair methods of competition, and instead, the FTC Act only allows it to bring cases challenging particular practices. The Chamber’s Complaint also contends that even if the FTC possessed such authority, the “noncompete rule would still be unlawful because noncompete agreements are not categorically unlawful under Section 5.” The lawsuit further argues that the rule is “impermissibly retroactive” and reflects an “arbitrary and capricious exercise” of the FTC’s power.
> The Chamber of Commerce is seeking an order “vacating and setting aside the noncompete rule in its entirety” and an order permanently enjoining the FTC from enforcing the rule. The plaintiffs are also seeking an order to delay the effective date and implementation of the noncompete ban until the conclusion of the case.
There's a lot of opposition to pretty much any nigh objectively good thing for the people. Just follow the money. It usually comes down to
1. lobbyists vying for a company who wants to keep power
2. the legislature having its own vested interest from relationship/deal/lobbying
3. the minority of constituents are the ones who constantly call in and go to townhalls, because they have the time, money, or energy to do so compared to someone who's at work during a townhall.
People in control of orgs and capital want to telegraph thought leadership via "we want to be the next Silicon Valley" without actually giving up control of workers or making the necessary system changes. For a parallel, see how Jamie Dimon says "AI could help bring about the 4 day work week." [1] Is JPMorgan Chase trying to move to a 4 day work week? No, of course not. Jamie likes to be important and have his proclamations disseminated, not actually make the change being used to chase clout and status (because once wealthy, there is nothing left to chase if one wants to chase something).
TLDR Talk is cheap, work and change is hard and painful (broadly speaking). Observe actions, not words.
[1] https://finance.yahoo.com/news/jpmorgan-ceo-jamie-dimon-says...
Related:
"CEO Said a Thing" Journalism - https://news.ycombinator.com/item?id=47577735 - March 2026
Non-competes are almost always unenforceable. Never take money (although even then, they're still mostly useless), and just ignore them and no one is going to do anything. That was what my business law professor taught us. No court is going to enforce a non-compete if it means the person who cannot compete is going to be unable to support themselves. The only time it'll be enforced is if you're already independently wealthy.
In other words, a completely useless scare tactic.
The problem is it won't get as far as trial, if the old company gets wind of it early enough (and they often do). The old company will reach out to the new company and politely inform them they believe they have grounds for a noncompete suit. The new company will either indemnify the worker, or (far more often) drop them as not worth the hassle, and take their #2 choice.
The legislation needs to change. The situation as it stands is ripe for barratry and bullying.
You may not even get as far as an interview. More and more, I see job applications asking whether you are subject to non-competes, alongside asking about visa etc. I imagine answering yes will unceremoniously move your application to the reject pile.
It just means your start date is delayed. No different from interviewing a student whose graduation date is a year away or interviewing a foreigner who might require a few months of paperwork to get a work visa.
I know at least one person who joined a Michigan startup, moved over, got sued by non compete, and the new employer just didnt want any hassle and laid them off. This person had to leave country then.
The take home is dont take tech jobs in states where non-compete clauses are still legal.
Sue them back. Represent yourself. Get compensatory damages. They will lose unless you can support yourself. Do you think any state is going to let someone go on unemployment and withdraw from the public dole just because some private company wants to gain some competitive advantage. Lol
But I do agree in general, never take compensation upon leaving a company, for whatever reason. Then everything is certainly unenforceable.
As for leaving the country... even if a non-compete is found to be enforceable (due to you being self-sufficient, or sufficently compensated), then the scope cannot be country wide. It has to be limited to a particular reasonable geography and a particular reasonable field.
> No court is going to enforce a non-compete if it means the person who cannot compete is going to be unable to support themselves. The only time it'll be enforced is if you're already independently wealthy.
The first part is probably usually true, because places where non-competes are enforceable generally will not enforce them if they are overly broad.
But for tech workers there are almost always other jobs that the worker can qualify for and pay similarly to their old job but are not covered by the non-compete and then then non-competes do get enforced even though the worker is not independently wealthy.
A fairly recent example [1].
[1] https://callaborlaw.com/blog/former-draftkings-employee-lose...
I don't think this is quite true. in my industry & city, noncompetes are very common and commonly enforced.
I lost a job because of one. In nyc. Company made some threats and the offer was pulled.
You can sue the old company for that. You had a job that they are not allowing you to do. Courts don't like it when someone isn't allowed to support themselves, and so generally place narrow limits on what a non-compete tan cover. You should sue for the sake of the rest of us who might be next when this tactic is found to work.
Lawsuits take years and are very expensive in time and money. Years of litigation cost Epic billions in legal fees and lost revenue. It's much much worse if you don't start with millions.
I think it's reasonable to prevent your employee from working for your competitor at the same time they are working for you. Or even an employee creating a startup themselves with AI and then mailing all of your clients.
A win for Adam Smith capitalism.
Not sure if this is meant sarcastically or not, but it is - it helps reduce transaction costs of changing employers. Anyone who has ever signed a contract with wide non-competes knows that it is hard for an individual to negotiate against it on an individual basis, but they are rarely enforced in practice, which leaves open individuals to worries about "maybe I'm one of the unlucky few?" These clauses then primarily only increased transaction costs, so eliminating them aids free exchange.
Not sarcastic. Anything that helps keep markets optimally competitive is good for capitalism.
WA has bigger problems like crazy overspending at the state level and many cities, leading to a spiral of new taxes, even if they are unconstitutional (at the state level). This new noncompete law won’t be enough to make the state more attractive to workers and businesses. It has nothing to really offer above California.
The flip side should be considered as well. There should be some sort of protection for small startup companies. A big company should not be able to steal an innovative startup's technology by hiring away the employees that worked on the product. That used to happen a lot when Bill Gates was running Microsoft, for example.
Patents provide some protection, but it is flawed because a big company can put you out of business if you get into a patent war. An employee should be able to leave at any time and work for a competitor, but maybe should not do identical work, otherwise startups will have a hard time protecting their IP.
Companies need to put more care into who they trust, and maybe incentivize skin in the game. If leaving for a competitor means you lose equity, agency, ownership, or some intangible, that can outweigh bigger paychecks.
The market should be able to solve this problem without the government setting arbitrary rules, and people should be allowed to sign contracts that limit or restrict their freedom, so long as it involves informed consent from all parties.
If Microsoft wants to hire an AI expert for a million dollars a year, and restrict him from competing for 2 years after leaving Microsoft so as to avoid losing market advantage, that seems like a reasonable thing for Microsoft to want. If all Apple has to do to get all the Copilot secrets is hire the chief copilot engineer for 1.5 million, seems like that creates a toxic dynamic and all but guarantees acquihires and a near immediate turnaround in a startup to corporate pipeline for raiding IP.
Maybe we should be limiting businesses to doing business at a scale they can responsibly handle. If you can't get human customer service for your computer issues because Windows and Mac have scaled far beyond the number of users they could ever hope to handle, maybe that market needs regulation, and unless they scale customer service accordingly, they don't get to target a majority of the world's population as their customer base?
That'd certainly create jobs and opportunities for Linux and induce a revolution in software markets, and it'd limit the incentives for MS and Apple and big tech to do shitty things to suppress the markets overall.
The solution here in finance is garden leave, where people are contractually barred from competing with their former employer during a period for which they are compensated as if they were fully employed!
A lot of politics is people pretending the solution space hasn't already been explored.
Small startups in California (where many, if not the majority, of tech startups are headquartered) do just fine without enforceable non-compete agreements.
It's also already unlawful to steal another company's assets when you leave. Besides, companies should file provisional patent applications as soon as they invent valuable proprietary technology to prevent the sort of subject matter leakage you mention.
This is not a mechanism to protect startups. This is a mechanism to protect the flow of ideas, whether the ideas are flowing from a big company to a startup or vice versa. Workers who find a big company bureaucratic should be able to launch a startup. Workers who find a small startup insufficiently resourceful should also join a big company to get resources.
Employers have plenty of leverage over workers already.
Every time a pro-worker bill passes, there's an endless scree of "But what about the corporations?". Wow it's tiring.
No big company is going to bother poaching that way. They are either going to purchase the company outright or undercut them with their own competing product to kill it off through attrition. We're not in the 2010's anymore where people are banging at the door for singular SWE's.
acquhire practicies show that yes - sometimes people really ARE the company. However, i think for the average C# developer, or Epson printer specialist or wordpress or Bosch controller analyst, these arent really true.