Too Many Workers Are Trapped By Non-Competes (bloomberg.com)

Why have wages been so slow to rise at a time when demand for workers has pushed the U.S. unemployment rate to its lowest point in nearly half a century? One answer: contracts that tie millions of unspecialized workers to their jobs. Bloomberg reports: In far too many cases, these so-called noncompetes are an unwarranted restriction on freedom to transact and a drag on growth. If Congress won't act to narrow their scope, states should take the lead. The desire to keep workers from defecting to rival employers is as old as employment itself. As far back as the 15th century, English masters, such as dyers or blacksmiths, made apprentices promise not to set up shop nearby. Courts often refused to uphold such agreements, viewing them as coercive. As a House of Lords decision put it in 1893, "There is obviously more freedom of contract between buyer and seller than between master and servant or between an employer and a person seeking employment."

More than a century later, the idea is back in vogue, as companies exploit the power that comes with increasing size and market concentration. In the U.S., new employees are commonly required to sign contracts that forbid them to work in the same industry for a given period. The practice makes sense for highly paid jobs involving big investments in training, and for staff with valuable proprietary knowledge. But it isn't being limited to those kinds of employees. A 2014 survey found that about two in five workers were or had at some point been bound in this way, including workers such as security guards and camp counselors. Some 12 percent of employees without a bachelor's degree and earning less than $40,000 a year were tied down.

Comments

Simple solution

[vakuona]

Companies should be forced to pay the full salary + benefits + average bonuses for the non-compete period. So if they don't want you working for a competitor for 12 months, then they should give you a full salary for 12 months while you are on gardening leave.

Re:Simple solution

[angel'o'sphere]

That is actually how it is done in Europe ...

Re:Simple solution

[hnjjz]

That's basically how it works in New York. You get paid the full salary during the non-compete period but not necessarily bonuses depending on the particular non-compete agreement.

Re:Simple solution

[bobbied]

Actually, this is pretty much required. You'd need to have some pretty special cases for a judge to enforce a non-compete that lacks compensation.

As such, non-competes are actually very good for the employees -- they are golden handcuffs.

Um.. Depends on the local jurisdiction's stance on non-competes. All that is required in some jurisdictions is that you be compensated to sign the agreement and "continued employment" can be sufficient compensation in some cases. I know it is in Kansas.

How do I know this? I got sued over a supposed non-compete violation by a past employer. Even though I didn't do what they claimed, had no money they could collect AND the agreement was significantly flawed, it's a painful and expensive experience to deal with civil law suits like this. Take my advice, don't go there if you can help it.

Re: Simple solution

[holophrastic]

Am I "one appointed by another to act in his place"? No. Well, I've appointed myself to read, write, and enforce contracts between my business, it's suppliers, and it's clients.

Ask a legal litigator (like my beloved), and they'll tell you that most of my contracts would never hold up in a courtroom.

Ask any small business owner, and you'll learn that business agreements aren't required to hold up in a courtroom. They'll never see a courtroom because fighting in a courtroom is more expensive than anything the other side wants. Instead, such agreements are meant to formalize what the two parties have already agreed.

I've been in-business for 25 years. I've written close to 100 agreements, and signed well over 100. I've never seen a courtroom. Only two relationships have gone sour, for a total of ~$3'000 that I've refunded. That's factored under close to three million dollars of revenue. So that's 0.1%.

I, and you too, would call that incredibly successful.

Incidentally, one of my tricks is to write such agreements in as much past-tense as is possible to make true. The more of the responsibilities that you can enact ahead of signing the agreement, the most stable the agreement is.

Granted, and certainly caveats, I'm not in an industry where lives can be lost, gross sums of money can vanish, or clients engage in criminal behaviour. Obviously those kinds of liabilities might depend on a legal system to contain them. I'm also not a large company responsible for a large number of employees.

Re:Simple solution

[AmiMoJo]

Sadly it's not, at least not everywhere in Europe.

Re:Simple solution

[Anonymous Coward]

And California! Non-competes were critical to the development of silicon valley, making California one of the largest economic powerhouses in the world.

This isn't bullshit. It's been studied.

https://www.forbes.com/sites/omribenshahar/2016/10/27/california-got-it-right-ban-the-non-compete-agreements/#4f3900243538

Massachusetts strangled it's fledgling tech industry in the cradle with noncompetes.

https://law.stanford.edu/index.php?webauth-document=publication/256234/doc/slspublic/NYULawReview-74-3-Gilson.pdf

Re:Simple solution

[bobbied]

Non-competes have nothing to do with "right to work" laws. Right to work simply makes employer/employee relationships "at will" for both sides. It also means that the employee cannot be forced to be a union member as a condition of employment. Non-compete agreements are not affected by any right to work laws that I know of.

Re:Simple solution

[ShanghaiBill]

And California! Non-competes were critical to the development of silicon valley, making California one of the largest economic powerhouses in the world.

This should be modded up. Non-competes are mostly illegal in California, which means people and ideas flow between companies. This has led to the most successful tech industry in the world, the highest salaries, and the biggest profits.

Non-competes are bad for employees, bad for companies (in aggregate they are a prisoner's dilemma), bad for the economy, and by retarding progress, bad for humanity.

Re:Simple solution

[Hognoxious]

It's nothing to do with stealing trade secrets. That's actionable whether there's a non-compete or not.

Re:Simple solution

[sfcat]

And California! Non-competes were critical to the development of silicon valley, making California one of the largest economic powerhouses in the world.

This should be modded up. Non-competes are mostly illegal in California, which means people and ideas flow between companies. This has led to the most successful tech industry in the world, the highest salaries, and the biggest profits.

Non-competes are bad for employees, bad for companies (in aggregate they are a prisoner's dilemma), bad for the economy, and by retarding progress, bad for humanity.

You are correct. Its also true that its an aspect of civil code and the CA civil code is huge and most companies have only the vaguest ideas of what the "rules of the road" are. Probably 50% of the CA employment contracts I've reviewed have at least 1 thing in them that violates CA civil code. I've also seen employment contracts without severance clauses which contain mistakes. What does this mean? The contract isn't worth the paper its printed on and even a layperson could get it thrown out of court against any lawyer. The point being, lawyers make mistakes as they are humans (at least they claim so). Also the law changes but businesses might not update their employment contracts. Its probably because these contracts are executed so rarely. Quite often there are cases where a company wants to execute something about an employment contract so they take it to a lawyer who delivers them bad news. Companies are cheap in really stupid ways all the time. This is just another way to be pennywise and pound foolish.

Re: They are not trapped, just stupid

[Shaitan]

It is generally left in the contract for the rare instances where they actually want to try to enforce it. It's one thing to go work for some other snow cone company, it is quite another to steal every aspect of a snow cone franchise and start a competitor on the same boardwalk with the same flavors. It is one thing to take the skills you developed in one tech company's support infrastructure and work for another, it is quite another to take exactly how the first company operated its support infrastructure and replicate it at their competitor.

Also it gives some leverage when you are a high touch service provider to prevent employees from defecting to the companies they are supporting so they can drop your employer.

Besides, the general idea is that poor negotiators and rule followers in other words passive people, get and deserve less in life. Merit.

Not about training, but often about customers

[DalM]

1) These kinds of contracts that are completely one sided toward the employer are unethical business practice and should be limited.

2) In many cases, it's not really about training, it's about poaching. Take, for example, service techs. Service techs are very often the front lines of a company's sales. They have the client's ear better than anyone else, and often clients like working with a company specifically because they like working with a particular service tech who is reliable and efficient and they trust. If Company B can poach that service tech, then they can often also poach a lot of potential clients. In reality, that's the primary reason why these contracts exist, companies don't want to lose employee investment to competitors, but the REALLY don't want to lose clients.

3) Rather than enslavement contracts, companies should handle this problem by making sure their employees are happy in their current jobs and are very difficult to poach.

Re:Not about training, but often about customers

[whoever57]

And that, friends, is a very good example of why you should not get legal advice from /..

Re:Not about training, but often about customers

[NormalVisual]

They are forcing you sign the NC contract under duress and that won't hold up in courts.

Perhaps, but even if it doesn't hold up in court, that's still likely thousands of dollars in legal fees that you're going to have to spend to find that out. You may or may not be able to recover it. To me, it's better to just not agree to it to begin with. If the employer wants me bad enough, they'll buckle. If not, without a separate sizable non-compete bonus to compensate for the headaches, it's not worth the risk.

I went through this many years back when my employer decided that they wanted to have everyone sign a new employee agreement that included a non-compete. I and one other guy redlined the appropriate parts, signed and dated it, and returned it. Of course management didn't like that, and significant pressure was applied to get us to sign the unmodified agreement over the next couple of weeks. Eventually the company relented and exempted us from the agreement. Lots of my co-workers were pissed because they realized they could have done the same instead of just accepting what the company dumped on them.

Not the cause of wage stagnation

[Comboman]

Non-competes are a problem, yes, but not the cause of wage stagnation. Job mobility is higher than it's ever been, despite the rash of non-compete contracts. Changing jobs (or threatening to) is often the only way to get a raise now, but it wasn't always this way. The main problem is that companies no longer value experience (except perhaps at hiring time but often not even then) and believe every employee with similar education is interchangeable.

Belgian Non-comptes

[houghi]

In Belgium (and probably the rest of Europe in some form or another) a non-compete clausule is possible. However it is limited to those who make serious money (thing CxO) if generic and pretty limiting when it is more specific to the function if not.

If you are working in a distribution center lifting boxes, it will be meaningless.
And if you have one, it will be said that the fine is e.g. 6 months pay. What many people do not know is that the fine is for the company to pay.

i.e. if I work at Microsoft as a webdeveloper on their website and I quit and go work for the postal service, I would be allowded to do so, as it is not the competition.
Not only that (here comes the kicker) the company I left must pay me 6 months as signed by them. The excuse that can be said is that I was unable to work for the competition and they pay me for that. See it as a sort of severance pay.

I used to work for a company where I had something like that in my contract. The day I was let go, the also retracted that part of the contract.

As always, if you are in a situation like this, consult a lawyer that is knowledgable with these kind of laws. The one who did your divorce will not know enough about this.

So to make it enforcable, they will need to pay. If you still went to the competition AND they have a problem with it, you wil loose your job as of immideately.

Again: IANAL, I just followed some courses concerning the matter. Contact a real one. If you take legal advice on /. you are legally an idiot.

States are going in the opposite direction

[brix]

10 years ago, non-competes were invalid under Georgia law. Then we had a referendum on a ballot to put them in. You'd think that normal people would vote against this, right? But here's how it was worded (from ballotpedia.org) on the November 2, 2010 ballot:

Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?

And 68% of the idiot voters fell for it.

Perhaps that's a little unfair to the voters. The wording was clearly insanely misleading; to the point where if I were challenging a non-compete in court, I'd probably start with attacking the validity of the ballot referendum as fraudulent (probably a hopeless avenue, I know).

Re:States are going in the opposite direction

[Registered Coward v2]

Unless you have an electorate that's researched the ballot measure extensively ahead of time, that language is going to fool anyone. Maybe there's a small group that were voting for it because they do want such laws as it benefits them, but that particular wording appears to have been crafted by the devil himself.

Welcome to ballot initiatives. They are written to get passed, and often do just the opposite of what was intended.

That's not the real reason these days

[holophrastic]

I don't agree that non-competes are what is currently stopping employees from jumping ships. I know plenty of friends not under any contractual loyalty, that could easily switch companies for higher salaries, but never will.

We live in a much different world than 25 years ago.

In the past, when you wanted more money out of your career, you wanted that more money for something real. Maybe you wanted to pay for a boat. Or a car. Or a wife. Or a child.

But these days, most of what people want in their l life is pretty cheap. Watch movies from home. Music collections cost nothing. Good speakers cost little. Cars are way cheaper, and alternative transportation is too -- zipcars, scooters, bike rentals, ride-sharing. Houses are cheaper in that mortgage interest rates are a tenth of what they used to be. Air travel is way cheaper and more accessible. Vacations are cheaper, especially with airbnb options.

In short, going through the effort to change jobs, and the risk that the salary won't actually be higher, and the risk that there might be a week without pay between jobs, isn't worth the actual pay increase at the end of the day -- no one with an existing job is missing out on any popular cultural opportunity.

If you already have all the music in the world, all the movies you want, all the knowledge on the internet you want, all the transportation that you need, and can afford your mortgage payments, well then who really cares to put in the work to get more money? What you want is more time to enjoy your stuff.

Hey, I'm in that position in a very different way. I've owned and operated my own small business for those same 25 years. I've amassed enough hobbies to fill a full year. I'm not looking for more work to make more money. I'm not even working full-time on the work that I have now. I'm desperately searching for more time to enjoy the hobbies that I have waiting for me -- most of which cost nearly zero dollars at this point -- I already own the toys/cars/instruments/hammocks/gardens/tvisions/computers/games, and it costs almost nothing to play with them all; but it costs a lot of time to play with any of them.

Come to California

[reanjr]

Come to California, where it's always sunny, and non-competes are laughed at by the courts.

Re:Come to California

[novakyu]

If your competitor does that, then drive them out of business by outcompeting them with higher-quality American workers. If you know someone who works in engineering, you will hear of a night-and-day difference between U.S.-educated engineers (at the top of their game, leaders in their field) and a lot of foreign engineers (need constant supervision, prone to mistakes).

If you are not working for an employer doing this already, then start up your own!

Re:check your state laws

[jred]

The way my old boss put it: "I have a lawyer on retainer, it doesn't cost me anything." He was known to *threaten* to enforce a non-compete and cause an ex-employee to lose the chance at a job. The hiring company didn't want to mess with it. Just because it isn't legally enforceable doesn't mean it isn't practicably enforceable.

I'm an American

[rsilvergun]

I'm trapped by our healthcare system. With the ACA under attack I can't risk leaving, and even is I could I'd be without healthcare for the 90 to 180 days most jobs make you wait for benefits. I'm not saying noncompetes don't suck, but I've got bigger fish to fry.

Re:No, they aren't.

[bobbied]

In general, non-competes for non-executive employees are not enforceable. I can't think of a single case where a noncompete against a developer has been upheld in court.

Oh, how wrong. I got sued over a non-compete and where it never went to court, just paying the legal fees alone about bankrupted me. They ARE enforceable in some jurisdictions if they are properly written and even if you think it would be stupid to sue over, that doesn't mean your former employer sees it the same way. My advice to you is to pay a LAWYER for advice if you intend to break a non-compete, no matter where you live or how bad the agreement seems. Understand what you are risking in your jurisdiction and don't take legal advice from Google or Slashdot posts, get a lawyer and pay them, then follow their advice.

Re:I have rarely

[jellomizer]

The biggest problem is how broad a non-compete can cover.
I can see the problems they can have if I worked for Microsoft on the Windows 10 Kernel team, and I went over to Apple to work on OS X Kernel. However If I Worked on Windows 10 Kernel, and went to Apple iOS Kernel development, the non-compete shouldn't be in play. Because Windows 10 doesn't directly compete against iOS because Microsoft has stopped their mobile device development. And Windows 10 primary market is Desktop.

A Non-Compete shouldn't be broad, but very particular.

COBRA isn't just unaffordable

[rsilvergun]

It can take months to get the paperwork done. Good friend tried to get it between jobs and by the time the paperwork came the new job's insurance kicked in. It was lucky they didn't need insurance at that time.

I changed my non-compete

[raymorris]

I had changes made to my non-compete clause when I was hired at my current job.

It said I couldn't work for or own another security company *while* working for my new employer. It just so happens that the company I worked for two companies prior, I still owned. I hadn't worked for the company in years, but I still owned it. We struck the ownership clause and put in a clause limiting my involvement in the old company to an advisory role.

The point of this being, it is a negotiation. Read the clauses and if something needs to be adjusted, perhaps be made more specific, bring it up and maybe propose some new wording. The company has a legitimate interest in you not taking their proprietary technology directly to their closest direct competitor, and you have a legitimate interest in being able to work in your field. Find some wording that protects both. Ideally, you can think about what kind of company you want to be working for in 5-10 years and what kind of worknyou want to be doing. You can keep that in mind while adjusting the contract as needed.

Re:I changed my non-compete

[Darinbob]

I have seen legal departments refuse to accept any changes in contracts or agreements. When a company reaches a certain size then it takes on a life of its own and it becomes too difficult to get approval to modify a boilerplate agreement. Even when approval is granted it requires going to up to the most senior management.

Re:No, they aren't.

[Anonymous Coward]

Oh, how wrong. I got sued over a non-compete and where it never went to court

You realize you didn't actually test its enforceability then, right? The phony IRS scam phone calls aren't enforceable, either, but that doesn't really matter when people hand over the money willingly.

Re:I have rarely

[Darinbob]

I knew a contractor that refused an "updated" contract that changed the non-compete agreements. It essentially covered anything to do with software or devices that used software. And the company wasn't even in the software business. Since he worked on multiple contracts he couldn't afford to agree to it. It was a boilerplate agreement and HR wouldn't budge, and legal wouldn't allow any changes to the boilerplate, even after the VP of R&D claimed that it was essential that they retain this contractor.