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.
> 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.
Employees don't hold ownership of that intellectual property, though. You're speaking almost in terms of a moral right; IP rights are legal rights of convention. An employee isn't entitled to them in the same way.
Non-competes and NDAs are literally the mechanisms that companies try to protect their trade secrets. Patents, copyrights, etc cover publically disclosed IP.
The OP was about how non-competes make sense in an IP-intensive field, like quant finance. The reason is that these contracts help protect the IP by explicitly stating their case. Your comment goes against the very foundation of IP law: creating reasonably fair commercial opportunities. If I can extort you because you hired me and I learned your secrets, I think that pushes the scales beyond "reasonable."
If you are making $10 million a year based on an employee's personal contribution to the company, and paying them $135,000, they are likely underpaid, and another company might gladly pay them $250,000 to add $10mm to their bottom line. But the non compete holds them in the job paying less. Their value to the company clearly allows them to pay $250k to that employee, but it's the non-compete that is allowing the company to profit an additional $120k. There's no case for non-compete beyond "excessive profit margins".
The short answer is "inevitable disclosure doctrine" that prevents you from working for a competitor if it's inevitable that you will disclose trade secrets. It's a sticky wicket for engineers.
However, this might be confusing different issues. My comment was specific to using NDAs/non-competes to protect trade secrets. This is different from merely using them to prevent poaching by competitors. In cases were there isn't inevitable disclosure, I think it's much less likely that a non-compete would be enforced in court.
I totally agree that if an employee adds $10M or $1M to the bottom line and you're paying him $100k, that's under compensation.
But there's a categorical difference between that situation and when an employee or dozens of employees who may be a break even or negative impact on profits have knowledge of a trade secret researched by a team of their predecessors that makes the company $100M.
I'm all about fair compensation and worker's rights, but a business shouldn't have to pay all those people $100M salaries.
It depends. Some jurisdictions blur the lines between NDAs and non-competes. For example, in many areas NDAs can also prevent you from working for a competitor due to "inevitable disclosure."
You are arguing with straw man since no one in this thread argued to bad NDAs. To me personally NDA seems to be a reasonable concept while NCA is just a wage depression tool.
The parent comment of the one I replied to was specifically referencing IP as a use case for NCA. You allude to “knowledge” of IP warranting higher pay. Besides, elsewhere it’s discussed how NDAs can act as de facto NCAs due to the inevitable disclose doctrine.
> Besides, elsewhere it’s discussed how NDAs can act as de facto NCAs due to the inevitable disclose doctrine.
And that is much better case than NCA since it would only apply in specific narrow cases and wouldn't prevent a McDonalds employee from working in fast food industry for a year, for example.
I don’t disagree, but considering HN is mostly tech-focused for the purposes of this discussion it’s can be a distinction without a difference. Note how the original thrust of this sub-thread is about tech-heavy IP being grounds for preventing employment with a competitor. Also elsewhere I’ve mentioned how some jurisdictions provide caveats, like refusing to enforce NCAs when an employee earns less than a certain threshold (eg $75k). That covers most of your McDonalds employees while still holding true to the intent of NCAs as it comes to IP heavy industries. Well-crafted laws don’t throw out the baby with the bath water
> I don’t disagree, but considering HN is mostly tech-focused for the purposes of this discussion it’s can be a distinction without a difference.
I disagree. Big tech companies often force employees to sign very broad non-competes ("You can't go to a company that competes with us in any market") which in case of such companies covers almost everything (which tech company doesn't compete with Amazon in some way?). Granted, as far as I know big tech rarely enforces non-competes in case of regular ICs, but I would still prefer NCAs to be unenforceable and let the quant firms argue in courts regarding inevitable disclosure for some specific narrow cases where it is applicable.
> Also elsewhere I’ve mentioned how some jurisdictions provide caveats, like refusing to enforce NCAs when an employee earns less than a certain threshold (eg $75k).
I don't see why salary makes a difference here. Some random FAANG IC also shouldn't be forced to sign a NCA.
> Well-crafted laws don’t throw out the baby with the bath water
What baby? SV "baby" seems to be doing just fine in Cali with unenforceable non-competes.
What you’ve highlighted is that you’re having a different discussion than the OP. That post specifically said there are use cases where NCAs protect IP. You highlighting when they are used elsewhere doesn’t negate that point. And there are significant cases on the news where an employee steals trade secrets and takes them to a competitor (see Levandowski among others). It comes across like you have an axe to grind rather than making a thoughtful point.
> That post specifically said there are use cases where NCAs protect IP. You highlighting when they are used elsewhere doesn’t negate that point.
I consider my position (employers can and should use other mechanisms to go after employees that _really_ stealing their IP instead of forcing NCAs on every random McDonalds employee or even junior tech IC) valid reply to position stated by OP. I stand by my words.
> And there are significant cases on the news where an employee steals trade secrets and takes them to a competitor (see Levandowski among others).
Levandowski example proves my point though since he did it in a state that doesn't enforce NCAs and Google found the way to go after him.
> It comes across like you have an axe to grind rather than making a thoughtful point.
It wasn't an ad hominem, it was illustrating how you're side-stepping the actual point being made to cry foul about something different.
To underscore it one more time, we both agree that there are other mechanisms like NDAs that protect IP. However, when used in conjunction with the inevitable disclosure doctrine, these prevent someone from being hired by a competitor. So they are doing the same thing as NCAs in the vein of the OP. If the end is the same (prevent hiring by a competitor to protect IP), your point is a pedantic distinction without a difference. If you disagree, you need to provide a rationale as to why an NDA + inevitable disclosure scenario shouldn't be allowed to prevent hiring by a competitor.
Levandowski's trial was settled before it concluded, so it doesn't really prove much in terms of legality, other than the term "trade secret" is nebulous and companies will use whatever is at their disposal to protect IP. One of the takeaways for many companies is that they need to rigorously pursue NDAs with their employees which, again, would have the same potential consequence as NCAs when inevitable disclose exists.
Your whole argument belies a misunderstanding of IP law.
"If an employee knows trade secrets, they should be paid not to move"
(except, knowledge doesn't equate to IP rights)
"Other mechanisms exist to protect IP"
(yes, except some of those mechanism also prevent being hired by competitors, so it doesn't really do much in terms of changing the outcome in the cases pertinent to this discussion)
"It's dumb to have McDonalds employees sign NCAs"
(smart legislators have already addressed this by refusing to enforce NCAs for lower-salaried employees who aren't at risk of exposing trade secrets)
Rinse and repeat, ad nauseum because you either aren't getting the distinction or don't want to understand it so you can 'stand by your words'.
> Levandowski's trial was settled before it concluded, so it doesn't really prove much in terms of legality, other than the term "trade secret" is nebulous and companies will use whatever is at their disposal to protect IP.
You are being obtuse. It obviously proves that NCA is not required to go after former employee that copied bunch of internal company docs with IP to his flash drive and brought it to direct competitor.
> would have the same potential consequence as NCAs when inevitable disclose exists.
Doesn't exist in Cali, same as NCAs.
> Your whole argument belies a misunderstanding of IP law.
I don't appreciate your ad hominems and overall patronizing tone. This is not reddit.
> except, knowledge doesn't equate to IP rights
Where did I said it does?
> yes, except some of those mechanism also prevent being hired by competitors, so it doesn't really do much in terms of changing the outcome in the cases pertinent to this discussion
Sure it does. NCAs are usually blanket poorly-defined "can't work for any potential competitor" bans. Would be hard to prove in court that Bob-the-senior-front-end that worked on Gmail interface enshittifaction in Google for 3 years could suddenly disclose some trade secrets to Amazon even if signed an NDA. For NCA they won't need to prove anything since the two companies are definitely directly competing.
> smart legislators have already addressed this by refusing to enforce NCAs for lower-salaried employees who aren't at risk of exposing trade secrets
What does it have to do with the salary? If McDonalds employee is promoted to shift manager or something and gets paid slightly past threshold they suddenly shouldn't be able to go work for Burger King? Doesn't make any sense to me.
All of this has already been covered in this discussion. It's tiresome to rehash it.
>It obviously proves that NCA is not required
Already stated: "Non-competes and NDAs are literally the mechanisms that companies try to protect their trade secrets."
To wit, look at what lawyers say are some takeaways from this case:
"Require employees to sign nondisclosure agreements (NDAs)."[1]
Now why would a lawyer say that? Because contracts are easier to uphold in court. But that's already been stated:
"The reason is that these contracts help protect the IP by explicitly stating their case."
And guess what happens when you combine an NDA with inevitable disclosure doctrine? A prohibition from working with a competitor. But that's already been covered here too:
"The short answer is "inevitable disclosure doctrine" that prevents you from working for a competitor if it's inevitable that you will disclose trade secrets. It's a sticky wicket for engineers."
>Doesn't exist in Cali, same as NCAs.
I'm sorry, I know HN tends to be in a bubble, but at no point did I claim California as the sole scope of my comments. Actually, I did the opposite by citing other states, like Illinois regarding their $75k threshold. Regardless, there are still provisions that provide similar relief in CA, like the UTSA.
>This is not reddit.
Ironically, it's your comment that goes against HN guidelines:
"Please don't post comments saying that HN is turning into Reddit. It's a semi-noob illusion, as old as the hills."[2]
>Where did I said it does?
Literally, your original comment I was replying to makes the claim that knowledge equates to deserving more pay:
>"If knowledge of some particular employees worth so much to the quant firms, then they should pay them not to leave accordingly."
We have mechanisms for determining who gets paid from that knowledge. It's an IP license.
>NCAs are usually blanket poorly-defined
I guess if your threshold is poorly defined contracts, then no contract law is relevant. But its a strawman to point to badly formed NCA as a rationale to ban them completely. I'm talking about good contracts, with a meaningful purpose to protect trade secrets. See any of the previous posts to this effect. If your claim is that bad NCAs should be banned, I'm with you. This, however, is not about that.
>What does it have to do with the salary?
As already discussed, contract law is completely about convention and can be changed:
"IP rights are legal rights of convention."
It's relevant because the convention used by IL is that an NCA for an employee below that threshold is "void and unenforceable." In other words, it's not a legal contract.
The fact that you railed against all that despite already being shown while it's wrong and resorting to statements like "it doesn't make sense to me" tells me this is more about you proselytizing than having a reasoned discussion.
You're suggesting that if an employee wants to change jobs, they should work in a field for which they have less expertise and thus get paid less. How is that reasonable?
That is not what I’m implying. You can work in a similar industry without taking trade secrets, except in the case of inevitable disclosure. For example, if you quit writing for Coke you can still go work for Pepsi without disclosing the Coke recipe.
Are you speaking towards the employee or towards the quant firm? If the employee has no standing to claim value, then why does the underlying business get to?
Because they own the trade secret. For example, they have the legal right to license a trade secret; an employee does not. It's about legal ownership of intellectual property.
As a corollary, you may read a patent and now have the knowledge of a product. But you don't have the same legal right to create and sell that product. That right is protected by the patent owner.
Of course, that line of thinking involves the inevitable follow up: when is something a “copy” vs a “genuine invention”. If company has a patent on making widget A, how different does a previous employee who leaves and makes widget B have to be before it’s not considered a violation?
I am no expert here but my understanding is that the case law around this is much more well trodden in patent land than it is for noncompetes
You're right, but there are some nuances that I would expect a good law to address. My presumption is that trade secrets would have to be covered by confidentiality agreements, which are distinct from noncompetes. The threshold for infringement of intellectual property is a "preponderance of evidence"; i.e., it's "more likely than not" or "greater than 50%" so it's not a terribly high threshold to prove compared to other sorts of law.
If it's truly patented (different from a trade secret), you can't produce it, even if your invention is slightly different. For example, if I hold a patent on a "car" and you make a "car with a radio," you still can't produce it because it infringes on my patent. You can't make your product without covering the totality of my claim. That's why people try to make patent claims as broad as possible.
That’s not a very good example. A patent is available to read specifically because the discoverer has entered an agreement with the government to share the relevant information in return for exclusive use for a set period of time.
If they had not patented whatever it is they had, anyone could replicate the information/item in question with no penalty.
>anyone could replicate the information/item in question with no penalty
Sure, I suppose someone could develop/copy something in parallel with no knowledge. But that's not really the case in the discussion here as it comes to former employees.
If you worked for Company A which uses a proprietary algorithm for trading and somehow created the same for Company B later, would you really expect a jury to think the two are unrelated? As stated above, the threshold is "more likely than not" that your work for Company B is related to knowing the trade secrets of Company A. If you had never worked for Company A, maybe, but again that's not the case here because a noncompete would never enter the picture.
> Sure, I suppose someone could develop/copy something in parallel with no knowledge.
I mean that’s a tad disingenuous as to how it worked before patents. Patents were meant to dissuade others from copying inventions for a certain set period. It was much rarer to see independent development of the same technology (not that it didn’t happen).
We agree that it's a rare edge case. That's why the rationale of IP protection works. Before patents, important knowledge was lost because people didn't want to divulge it because they had no IP protection. Back then, everything was a trade/state secret.
I guess I'm not seeing the point made. If you agree it wasn't developed in parallel, you copied it from your previous employer. If it was their IP, you likely committed a civil wrong, and they can sue you. I can only see your point if you don't believe IP exists.
u/akira2501 was providing a bad equivalency by saying both the company and employee has knowledge of a product, therefore either both (or neither) gets to claim it as property.
A patent is an example that shows why that is a bad principle. The point of a patent is to share knowledge, but it also gives claims of ownership (for a period) to only a specific party. So obviously "knowledge of a product/process" isn't the discriminator. The important portion of a patent that distinguishes what is owned is literally called its "claims." My point is that whether or not you have knowledge does not lay claim to ownership, contrary to u/akira2501's question/point.
Obviously companies think it is worth a lot for certain employees to be quiet, so they pay accordingly. There is no "should" going on here, there is only what the two parties agree to.
They should pay him whatever he would make going somewhere else. Expecting someone to not work in their career field for 1-5 years and not get compensated for that is silly.
LOL - you have stumbled upon the pay grades for security and executive management directly ! they absolutely are paid more to participate but stay quiet. It is a daily requirement.
That's the point. If it's covered by an NDA and the state declares NDAs unenforceable, there are no NDA-covered "secrets." I can get hired, learn all your secrets, and then sell my employment to your competitors. That system doesn't really work.
In practice, trade secrets are protected by other mechanisms. Patents are one of them because, by definition, patents are public knowledge so they are no longer secret.
To play devil's advocate here, this law would literally make that illegal. What keeps me from taking the money then leaving anyway? A signed contract is the only way, and banning non-competes means making that contract unenforceable.
Mid 6 to low 7 figs usually. They are usually one "tier" above SWEs i.e. an average new quant would make the same amount as an average mid-level NYC software engineer, in absolute monetary terms of total compensation. The high end firms like Jane Street and Two Sigma pay the equivalent, scaled to FAANG levels. Overall performance of the firm is a key factor in the compensation too.
For a large team, and finance, there is no amount of pay that could compare to the potential gain of creating your own firm to reimplement some specific idea you learned on the job.
The more likely response then would be to move the team somewhere that does allow non-competes?
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 judges start to throw out non-compete agreements that don’t have separate compensation (apart from usually salary/experience), then you will just see companies explicitly write their contracts such that that X dollars are explicitly for the non-compete agreement.
At least in some industries, however, there is a consumer protection/public policy argument against non-compete agreements, where: (1) there is no legitimate property interest to protect (e.g., the “trade secrets” held by the companies aren’t trade secrets at all because every company in the industry knows them), and (2) it is bad for consumers/against public policy to allow companies to use non-compete agreements to stifle competition where there is no legitimate property interest to protect.
Some states create salary thresholds. For example, Illinois law states they won't enforce non-competes for anyone making less that $75k or non-solicitation for anyone below $45k. However, companies are still protected by non-disclosure agreements for important trade secrets.
Now they don't have 6-24m non-competes anymore, but 6-24m notice periods. You're paid full salary (incl bonus) but you don't work ("gardening leave") and obviously can't work for a competitor (because you can have a non-compete while you're employed).
This seems like the correct and fair implementation of non-competes broadly. If companies want leavers out of the market, they should be required to pay garden leave. People have to make a living, and it’s unreasonable to expect them to change geographies and/or professions to do so.
Gardening leave leaves (pun intended :)) the possibility for the employee to leave with highly valuable acquired knowledge (trading strategies, algorightms, etc...) for a much higher salary and bonus than the gardening leave provides. Or maybe I am mis-understanding how gardening leave works? Thanks!
"Gardening leave" just means that during your notice period (or part of your notice period), you're not "working" in the sense of going to the office, but instead you're home ("tending your garden"). The idea is that during that time, you're not gaining new knowledge / IP, so by the time you actually start working your knowledge is several months out of date.
Few of my friends are in quant, but I have never heard anything like this. Can an employee just apply for notice period after a month of joining and be paid 6-24 month of salary?
I guess it depends where you are in your career. If you're really aiming at a five year time horizon, then I can see it making sense to stick around. But, if you're yonger a year or two fully-paid vacation sounds pretty tempting.
In the financial industry, you don’t get your bonus when you’re on garden leave. This is usually the majority of your pay, so while it’s definitely nice to be paid to do nothing (I’m on garden leave currently until next September), you’re not earning up to your potential.
You could work for a much higher bonus and salary. The way gardening leave has been described here is for people who are not looking to take their highly valuable knowledge somewhere else for higher bonus / salary.
> 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.
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 :)
If you’ve been successful enough at a quant firm that you want to try to set up your own firm, it’s not one year of base pay from garden leave that’s going to be providing your start-up capital.
But also, setting up a competitor is definitely violating noncompete. If you look at how actual firms started (basically all of them start from people leaving other firms) the founders waited out noncompetes. It would be a waste of money and potentially scare off investors by risking getting massively sued.
The things people normally do are like:
- go travelling, especially to places less well suited to short trips. Hard for people with partners who don’t want to stop working for a year or two.
- learn/train for something. Eg maybe requires a bunch of courses or maybe just a lot of time and effort.
- some combination of the above, eg mountaineering requires a certain amount of training/fitness as well as long trips
- some kind of civic/vocational thing where you’re applying professional skills from work but not IP, eg taking a more active role as a charity trustee
- spending more time with kids/other family
- working for some non-competitor like Google for a year.
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.
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.
> 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.
Even this doesn't work because its often the case that an employee leaves for a higher salary elsewhere. Instead of trying to add epicycles to a stupid system it makes more sense to shit can it. There are about 338 million people who would benefit whereas the people who truly have anything to gain from such a system could all attend an event together.
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.
> 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.
Non-competes should be regulated so the person is paid a full salary (or paid the equivalent of the last year's total comp) if the employer wants to enforce it, and have a max duration say 1 or 2 years. I don't see a problem if it's done like that.
> Non-competes should be regulated so the person is paid a full salary if the employer wants to enforce it, and have a max duration say 1 or 2 years. I don't see a problem if it's done like that.
That's just employment, so its effectively the status quo in places with a ban on noncompetes. You can absolutely hire someone as an employee, when their only job duty is not to compete with you. You can even contract such employment for a set term. The problem, of course, is that employers want noncompensated noncompetes and at-will, no-set-term employment.
> 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.
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.
Are quant firms positive sum for society? I can imagine that some trading leads to goods being priced more efficiently or w/e but I doubt the level of alpha these firms are chasing has positive externalities. If not, you should shouldn't really care about this hurting their industry.
You highlight a more general problem: the social/economic function of finance is to be a service industry to ensure there is liquidity available (that other people can use for their purposes).
What bugs me is that somehow society lionizes people in the money industries over those doing equivalent service jobs like gardening, lawyering, much less more important ones like garbage collection.
Worship of the rich is a sickness in society. Like I said, the value of banking is akin to the value of gardening, and worshipping the bankers just enables destructive distortions.
They are really not. The growth of financialization coincides with economic stagnation in U.S. If anything, the data shows the opposite. Finance sector is more or less a parasite on the productive economy.
I know this will not resonate with some, but on some level I do not really subscribe to the idea of intellectual property. My personal belief is that the brain is more like a radio receiver. The ideas are floating out there for anyone to pull down. The more sensitive among us are able better able to hear what is there and report it back to the rest of us. To claim ownership of an idea is to me like claiming ownership of the note A or the pythagorean theorem. Of course there should be some rewards for introducing novel ideas to the world but to me the real reward is the creative experience of bringing something into the world that was previously unknown.
In an ideal world, I do not think that hedge funds (or most fintech) would even exist. It sort of offends me that we would waste our civic resources legally enforcing ip rights. But I also understand that my position is far from universal.
This is an idealized notion (but one I wish everyone could adhere to). In reality, intellectual property rights were considered a necessity for societal progress. Before intellectual property rights, many ideas were lost because they were guarded too tightly. If that person died, those secrets were potentially lost forever and, presumably, society would be worse for it. So we developed IP rights as a way to share ideas in exchange for exclusive rights to them for some time. (This isn't discounting how these laws can be perverted to hurt the original intent).
Likewise, trade secrets are a mechanism to help foster better (and fairer) commercial practices under the guise that society will benefit. It's a pragmatic take rather than an idealistic one.
I think your viewpoint is great and poetic. However, since most people are not as mature as you, our societies are not as mature as you. Meaning that until this fact changes, I do not think it is realist to expect someone to give something for free when they could make billions with it.
You have to be a saint or already have everything you could ever dream of
The only way the someone can make 'billions' is because of the state-given and enforced monopoly on production. Without this required threat of state violence, your ideas start being worth much less in the actually competitive markets.
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".
I meant "free market" in the sense of open trades on an exchange. Except for exigent or criminal cases, it's very difficult to undo trades. The "That's not fair"-argument doesn't work except for exigent (circuit breaker halt) or criminal cases.
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).
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.
Sounds like you are, in "broad strokes", longing after 1870s or something. I think you forgot how crony (or crappy?) it was.
What I am saying, if you really want this "traditional capitalism", which never really existed, you need some mechanism of how to avoid rich getting richer and becoming cronies (as they always did). I don't think you have an idea what such a mechanism should be.
To clarify, crony capitalism is when "regulation" and "oversight" are euphemisms for thumb-on-the-scale rules that result in a less than level playing field. The winners? The cronies.
And back to my previous point about The Fed, etc. We're told that those are "for the greater good" (words) but - and to your point - the rich are not only getting riche (actions),the rate of that wealth transfer (to the top) is accelerating.
We can call it whatever you want. And I'm not saying I want anything. I was simply pointing out that the majority of those - at the top of the financial food chain (e.g., WS) - who advocate for "free markets" are full of shit. They're lying. So maybe to make you happy we shoukd just say: Less Bullshit Capitalism? Will that satisify you??
I think I understand what you're saying, but this has always been simply called "capitalism". The "fake" regulators are simply a response of people with power in the system to societal attempts to fix the most egregious flaws of liberalism (laissez-faire).
You seem to be similar to naive communists, who, in the face of communism turning totalitarian, tried to "save" the idea of planned economy (for instance) by claiming that totality isn't what they wanted. Ignoring the fact that the totality was put up to prevent bad behavior of people and companies, to which the planned economy led to.
Similarly, here you complain about natural consequences of laissez-faire capitalism, without admitting that the latter is the cause.
I am not saying that good ideas in capitalism (or communism) are unsalvageable. But then you need to detail the mechanism of how to prevent the natural course of action (empirically observed) to take place.
(My personal preference would be to replace free market for labor with worker democracy, while leaving most other things up to free market. Although such a system could hardly be called capitalism anymore.)
> I think I understand what you're saying, but this has always been simply called "capitalism".
Perhaps. But just because it's called that doesn't mean it is that. In fact, even crony capitalism is kinda a joke because it's such a perversion it's not even close to capitalism. Manipulation is the antithesis of free markets. Along the same lines, bails outs by defintion don't mean capitalism is a more successful paradigm. That just doesn't make sense.
My favorite way to reframe shameless newspeak is this: If your pet barked, would you still call it a cat? Of course not? So when there isn't a free market for miles, that's not capitalism.
My fav thing would be to see more co-ops. There's no reason why the more workers can't own a piece of the action.
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.
If they limited the vendor's (i.e., employee's) options, how is the being competitive?
And if the market colludes to handcuff vendors (to the benefit of the hiring companies) how is that being competitive?
Employment is already at will, and that is mutual to both parties. Why should one side be allowed to purposely disadvantage the other side? How is that being competitive?
I read a story in this article about a person being sued after they found another job after they were laid off.
There should be exemptions for non competes when it's the company firing or laying off the employee. When a company decides to do that, they need to be willing to bear the consequences of their decision.
> 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.
Maybe it should not be IP sensitive. It would be the interest of public to bring more competition to the quant landscape and make their profit margins lower through the competition.
Not only quants can have some good in-depth knowledge and ideas in those firms.
As a Software Developer in one of such companies, I do know a lot of sensitive details too.
And then, traders who use the software I write - they are very much connected to Quants, thus having lots of valuable ideas in their heads (both of their own and ones they got from Quants).
But for SW devs, the non-competitive agreements in Finance industry isn’t really the same kind of bondage as for Quants.
If Quant changes company - his options are very much limited to other companies doing trading, thus directly covered by non-competitive agreement.
If SW Dev changes the company - he can choose the company working in other industries not related to finance, and then he is free as a bird.
Transfer of intellectual property is already illegal. If a quant was aware of something amazing they could try to transfer it anyway - just without taking the employment. Yeah, it’s illegal. So non competes are about the person and the skills the person brings. And fuck that.
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
Importantly, even if noncompetes aren't enforced, trade secrets can still be grounds for litigation against a former employee. They can't just go from one employer to another and take all the secret sauce recipes with them.
Based on what? I honestly don’t know and most comments seem to be assuming that’s not the case.
And also in some ventures it might be pretty hard to litigate when everything is done behind closed doors. How would you know if a rival trading firm is using an algorithm influenced by yours or not?
Are you asking under what grounds are trade secrets enforced? In the U.S., that would be 18 U.S. Code Section 1832: Theft of Trade Secrets. The USC are passed by Congress so it's applicable in the entire nation. If you're asking what's the point, the idea is that it helps foster fair competition. Suppose a company founder has to dilute their ownership by taking on millions in investment to finally get a breakthrough. You don't want a system that allows an employee to immediately walk away and start a company of their own with that knowledge and completely undermining those who put in the money and effort for R&D.
But, maybe to your point, just because it's illegal doesn't mean it's easy to litigate. Much of the legal system is specifically to avoid litigation. Apropos to this discussion, even if a contract isn't enforceable, it only has to be perceived as having teeth to give it value. It's like when a baby elephant is tied to a stake and it grows to an adult still thinking that stake prevents it from leaving. All it takes is for an employee to think a non-compete has merit to keep them in place.
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
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.
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".
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.
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.
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.
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.
> if the knowledge of certain strategy is so important, the employee should be retained by paying them more and giving them better perks
This particular suggestion breaks down fast when you have multiple employees that need to collaborate. If you have a million dollar strategy, you can pay half a million to an employee as a retention bonus. But you can't pay half a million each to 8 employees.
I'd say it's the opposite, non-competes (or similar agreements) actually prevent monopolisation.
Otherwise, the biggest firms (e.g. Millenium, Citadel) could simply "buy out" any already-successful researcher, offering them more money (either in terms of % of profit, or - more importantly as it scales with size (for many strategies) - offering more capital to trade with.
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.
It makes sense for the owners. It doesn’t make sense for the public that Jim Simon’s alone becomes a multi-billionaire off exploiting the financial mistakes of ordinary people.
If it’s rooted in math none of the IP should be protected. The training and definition of axioms and viable algorithms should be an open human endeavor.
Letting capitalism dictate what math is public and private is pretty fucking draconian
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.
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.
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.
It’s really one and the same. If I’m a commercial banker, flipping to a competitor and presumably planning client relationships with forethought before the move.
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.
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!"
Yeah, I'd still argue that a MAD system where highly paid (and presumably skilled) people need to take a year or two off between jobs is pretty inefficient. But if everyone knows that's the way things work, no one can say they were unaware of the rules.
Well the reason that this system exists is that there is real valuable knowledge that gives these companies competitive advantages. The usefulness of that knowledge drops off precipitously over time.
So the starting point for the system is that we need a way for these highly paid and skilled people to take a year or two off between jobs.
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.
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
Non-compete + garden leave = important resources siphoned off the economy [1]
Remove non-competes, then there's no need for garden leave.
If an industry insists it needs non-competes, the dept. of labor could issue exceptions with strong penalties (x3 wages (incld. expected bonuses) for the duration of the non/
-compete, etc)
[1] an argument could be made that the more workers are put on garden leave the better it is for the economy, vis a vis less folks doing damage. Overall, I think the whole fintech industry is a waste of STEM talent. Those physics PhDs could be something beneficial instead, like being a magician at three year old birthday parties.
Sounds like a great incentive to quit the job and hang out for the duration of the non-compete. If I can make more money by working than not working, I know what I'm doing.
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
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’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.
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.
If you operate in a zero-sum game, like most trading in financial markets, there is no way you can pretend you are contributing to society. There is literally nothing else but the money that could be the goal of the organization. This does not mean that all organizations make no contribution to society. Nobody works at MSF, for example, just for the money.
Sure. But a for-profit startup developing AI on a blockchain for pet social media is not MSF.
Moreover even in MSF if the CEO is being paid based on a compensation consultant’s report of the market rate “in order to attract and retain the best talent to advance our mission” well then everyone else should be paid on the same principle.
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?
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.
In fields like software or quant finance, I imagine a lot? Investopedia says that 200 salary and 500+ total is "not uncommon" for a quant, and that even entry level is 120-150. At 120k, 1/3 pay puts you at the median personal income in the US, which I'd say is a pretty sweet deal. At 200, you're close to median household at 1/3.
People in this thread are saying you "only" get your base. If they really do get full base pay of 200k, that puts them in the 94th percentile to take a forced vacation.
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.
NCAs best use is when buying out a business, where the prior owner agrees to not create a competing business in a defined area for a period of time. This is effectively economically neutral, and also serves a sense of justice.
This justification can be extended a bit to people in executive management roles at corporations, but for regular employees? You either got their salary value out of them when they worked for you or you overpaid them. I don't see additional societal value to a non-compete except in edge cases where an employee quits within a short period after hiring - staying just long enough to gain skills without generating a corresponding amount of value for the company.
I'm not even sure how I feel about the executive management part.
Yeah, for direct/important enough competitors, I can see it. Senior enough management can't help but have knowledge of a lot of things that neither the public nor most rank-and-file employees don't--and act on it at a new place even if they're not sending confidential board meeting presentations around. On the other hand, execution ability and culture matter for a lot too.
Assuming they didn't hide the noncompete clause from the employee, and assuming there's not a binding minimum wage in effect, the necessary compensation is already going to be included. Unless you believe the employee is engaging in charity work on the behalf of the employer!
What's the point of a law requiring it? Unless it's an addition to a minimum wage law and only in effect for those being paid the minimum wage...
In this case, compensation is not a wage, it is to be paid after the employee has left the company but is still bound by the noncompete.
Also the employer may have the option of not activating the noncompete clause when the employee leaves the company, meaning the employee is free and no compensation is due.
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.
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.
I think states should regulate the employee relationship a little more than they do. There should be standard contracts and the idea that a job listing is for a standard contract. If they offer you a job, it's for that contract. If they want to deviate, they either have to state up front what the additional terms are and compensation for them, or negotiate it after the offer is accepted. Contracts are not fair if people can't start from an equal footing.
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.
"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"
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.
Even better would be if employment law violations carried with them 3x+ punitive awards instead of just being made whole (while also being required to minimize damages by, e.g., getting another job).
If this existed employers would be much more well behaved, if only because of the number of lawyers who would suddenly be willing to take on lawsuits without retainer.
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.
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?
Well, it didn't even come to my mind that a fast food worker might have a noncompete agreement. I thought this only is about engineers, scientists, managers etc - people who actually have knowledge which is reasonable to prevent from leaking to a competing company too quickly. Applied to a fast-food worker any noncompete agreement sounds really wild. Do fast-food companies actually require this? Sounds crazy.
It is happening, Walmart was doing it to their cashiers, and why shouldn't they? It's a huge boon to companies to make it difficult and expensive for people to quit their jobs in favor of something better, it means they can push wages down further, give worse working conditions, without needing to worry about people quitting.
Back when it was allowed, some companies would pay in fake company money called "scrip" that you could only use in their company store to buy food. They also owned the houses so you could only rent if you were an employee. Wanna quit your job? Good luck also losing your house and not having actual money to go anywhere else.
You gotta understand that if you have something that can be abused for profits, then it will be abused for profit. Even if a company is has a heart of gold and decides not to do this, they will be out-competed by companies who are willing to do evil things and thus be more profitable. Abuse will happen by logical necessity.
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).
Because I would never want to jump straight into a new job anyway, a good sabbatical seems a great idea if you can afford it (leaving an engineering/management job suggests you probably can). Being totally free from a job and still getting 50% of the salary for free also sounds like a dream - just move to a cheaper place and enjoy the life.
But that's not what you described. You talked about a 6 months non compete, and then potentially longer in exchange for 50% salary.
Not everybody wants/can move to a cheaper place.
Finally, as mentioned in any messages here, engineers are not the ones suffering the most from unfair non-compete. It's retail/restauration workers and more "vulnerable" demographics.
Your "compromise" comes out as completely disconnected from reality.
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.
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".
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.
A lot of sub-industries are also "where everyone knows your name" places. I used to be an IT industry analyst (a couple of the large firms in which were known--at least at the time--for being pretty hard-core on non-competes) and pretty much everyone knew what firms other people in their space worked for. You could never have gone to a different firm and had your prior employer not know.
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.
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.
I have no problem with non-competes as long as the company is willing to buy out the non-compete period, e.g. the maximum of current total compensation or competing offer comp, plus say a 100% premium to cover opportunity cost.
You might say "that makes non-competes unusable" to which I say, it means you'd only use them if you really thought it mattered, rather than as a tool for wage suppression.
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:
Washington does something like that. Non-competes can be valid but the employee has to be making $100k/year or more in 2020 dollars.
Also, if the employee is laid off then it is not enforceable unless the company pays the ex-employee during the term of the non-compete the difference between what they had been paying them and whatever the employee earns in whatever non-competing jobs they take during that time.
For consultants as opposed to employees to be enforceable the contractor has to be earning $250k (again in 2020 dollars).
The law also has something to say about employers that don't want to let employees have other jobs, or do contracting, or do self-employment. Employers can only prohibit that if the employee is making at least twice minimum wage, unless that other work could cause safety issues or interfere with the reasonable and normal scheduling expectations of the employer.
I get bullied by recruiters for applying to jobs if I already have one. Especially if I try to get contract positions. Large tech companies trying to turn the world into their farm. No thanks, I think that's disgusting and makes me feel like all of the employees don't deserve the positions they have.
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.)
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”.
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.
> 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.
... 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.
> 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.
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.
This is much more often going to be true because the dispute was never made in the first place, because of the risk it would entail to a low wage worker. They cannot afford—for reasons of time, money, health, education—to even threaten to take an employer to court.
Your argument sounds logical, but is unfortunately unaware of how real world pressures distort systems for recourse.
I’m aware that they are very useful as an empty threat.
However, the reality here is not likely that a sandwich shop employee would have to “threaten to take an employer to court”.
The most likely scenario is that the hiring manager doesn’t even realize that boilerplate is in their employment agreement. The second most likely is that the employer grumbles about the employee leaving and that’s as far as it goes.
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.
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.
EDIT: oh look, the -1 brigade of people who had silver spoons since birth. Just how many of you climbed from homelessness and menial jobs??
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.
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.
Am I really supposed to believe that corporate lawyers don't have personal agency? You can defend it however you want, but ultimately I believe that people are responsible for their actions.
> 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.
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
I always liked to phrase it as: "Never attribute to incompetence that which is adequately explained by incentives."
People like Hanlon's razor because it still lets them insult people they don't like. "incompetent" and "stupid" work about as well as "malicious" and "evil". I don't think anyone will ever give a name to a statement so...unsatisfying.
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)
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.)
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.
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.
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?
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.
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.
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.
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)
> 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.
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)
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.
> 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.
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.
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.
> 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.
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.
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.
> 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?
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.
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.
I don't think I've ever been in a circumstance where I would have had any interest in moving to another company with an entire team. I admittedly haven't moved jobs a lot but I don't really imagine it's especially common that everyone on a team would be ready to jump ship and come to terms doing the same type of job with a new employer, likely in a different location. I'm sure it happens but I can't believe it's the norm.
> 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.
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.
> 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.
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".
> 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.
> 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?
>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?
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?
If those clients are willing to jump ship that fast, then yes. Realistically, that won't happen without a good justification.
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.
Ok, the argument that giving employees more bargaining power vs their employers will somehow make the bargain they end up with poorer. This is not convincing, and nor is your unjustified patronising assumption about how much I have thought about this.
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.
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.
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.
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.
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).
That’s not true even if they are young, single and childless, have highly general skills, and live in a booming city, and the further you get away from that the less true it becomes. Many people live in an area where there are not that many options unless they want to move or deal with a worse commute, not everyone enjoys interviewing, and even those of us in high demand areas have been feeling some slack - I’ve heard more programmers talking about delays between jobs dragging out than any point since the 2009 bubble collapsed.
Again, my point wasn’t that the power is distributed 100:0 but that it varies a lot and only a small percentage of the workforce enjoys the odds being in their favor.
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.
The unemployment rate in the US is near record lows, so there are plenty of alternatives for most people. And: your government spent about 22.7% of GDP on social expenditures (in 2022, the latest year I have data for). See https://www.oecd.org/social/expenditure.htm
You have a hard time convincing anyone that the choice is "take this job or die" for most people.
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.
> Wall Street non-competes are only enforced if they pay you your base salary during the period.
You are mixing up gardening leave with non-competes. Typically, they have both.
(Eg for a recent job, I had six months of gardening leave, when they paid my base salary, and then another six months of non-compete.)
> [...] but with regards to the article I doubt anyone is forced to choose between working for a trading firm and starving.
Indeed! We don't need welfare for well-off folks. They can fend for themselves, and we can focus limited resources on the poor (and those who want the help).
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.
Unemployment is very low in eg the US at the moment. That suggests that workers have lots of alternatives, but employers don't. Are you arguing that employers don't voluntarily hire workers, but are somehow forced to?
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.