FTC has proposed banning non-compete agreements(regulations.gov)
regulations.gov
FTC has proposed banning non-compete agreements
https://www.regulations.gov/docket/FTC-2023-0007/document
76 comments
I knew a 23-year old customer success rep who had a non-compete enforced against her. She’d been with the company for less than a year and had no “trade secrets” or clients that she’d take with her. The company really tried to scare her too.
Without a ban, these are gonna get enforced in ridiculous situations.
Without a ban, these are gonna get enforced in ridiculous situations.
I’ve had an employer that forced me to sign one that was blatantly incompatible with state laws. I signed it knowing it meant nothing because I needed the job at the time.
Yeah I brought an employment contract to a lawyer once and they told me to sign it because most of it had been written with references to the laws of a different state (the company had moved HQ recently), making most of it unenforceable.
It feels like simple regulation could just be:
- non-competes must be paid at the max of your past 3 years earnings, including benefits.
- minimum $100k/year.
- maximum 12 months.
Assuming companies need to enforce them, they'll have a mechanism to (this is similar to what hedge funds do).
- non-competes must be paid at the max of your past 3 years earnings, including benefits.
- minimum $100k/year.
- maximum 12 months.
Assuming companies need to enforce them, they'll have a mechanism to (this is similar to what hedge funds do).
Skills + experience is the only way most people can put food on the table. That's a basic human right and should be non negotiable. If companies are too afraid of loosing their trade secrets that's what IP, NDAs and patents are for. I rejected offers after months of negotiations because of these bs poorly drafted and ridiculously broad non compete agreements. Many companies, particularly startups, don't even understand why they have them as it is usually the lawyers for the investors who draft them.
This is pretty much what was implemented in Finland starting last year.
If an employer wants to keep a non-compete clause in a contract, they are forced to pay their prior salary for the agreed period (max 12 months) after employment - regardless of where the employee chooses to work afterwards. If they go to a non-competitor, they can start immediately and get their new salary on top of the non-compete compensation.
Needless to say, nearly all non-compete clauses were systematically removed from existing employment contracts.
If an employer wants to keep a non-compete clause in a contract, they are forced to pay their prior salary for the agreed period (max 12 months) after employment - regardless of where the employee chooses to work afterwards. If they go to a non-competitor, they can start immediately and get their new salary on top of the non-compete compensation.
Needless to say, nearly all non-compete clauses were systematically removed from existing employment contracts.
Should be 2x or 3x as much. People change jobs to increase wages, this would still suppress wages and productivity.
I disagree. At most, we should allow it in limited circumstances where it would be on the company to prove why the non-compete is absolutely necessary. High tech chip manufacturing where the employee has a wealth of trade secrets in their head and taking it to a competitor would be disastrous – maybe. Reading a script at a call center or making a sandwich – hell no.
That's where I'd push back. If Subway is willing to pay someone $100k to not make sandwiches at a competitor, why stop them?
Because the person should still have a choice as to whether they want to accept the $100k or not.
In this hypothetical, they'd also have the choice not to work at Subway in the first place. But realistically, very few companies (especially fast food restaurants) would want a non-compete if they had to pay for it.
My broader point is that if we say that there may be places that a non compete makes sense, we can both allow that and give workers protections - especially workers with the least leverage to negotiate.
My broader point is that if we say that there may be places that a non compete makes sense, we can both allow that and give workers protections - especially workers with the least leverage to negotiate.
This hurts our economy, since we're not utilizing scarce talent.
There are a lot of productive things one can do on garden leave. The only thing you can't do is the thing you were doing before.
Continuing education, charity work, spending time with family, work in a non-competing field, etc.
Working one job but getting paid for two ain't that bad, as long as it is at the rate specified by the grandparent post.
Continuing education, charity work, spending time with family, work in a non-competing field, etc.
Working one job but getting paid for two ain't that bad, as long as it is at the rate specified by the grandparent post.
This comment paints a bike shed: non-competes affect some of the scarcest talent in the world, in the prime of their careers.
why advocate for allowing them? what's in it for workers?
fully paid vacation for as long as the company wants to enforce the non-compete? Or you get another job and get free double salary while working in a completely unrelated industry?
I think the parent comment was pretty clear that what's in it for workers is a bunch of money.
I think the parent comment was pretty clear that what's in it for workers is a bunch of money.
Having to take two years of time off of work can be really detrimental to some careers in some fields.
For as much as capitalists love free markets, they really hate the idea of employees selling their labor in a free market.
For as much as capitalists love free markets, they really hate the idea of employees selling their labor in a free market.
That's why you get paid, to compensate you for the detriment.
Employees should have the option to refuse the payment and go ahead and compete. Then it would be up to employers to make sure the offer is attractive enough that employees would want to take it. That's how a free market works.
Employees should have the option to refuse the payment and go ahead and compete. Then it would be up to employers to make sure the offer is attractive enough that employees would want to take it. That's how a free market works.
> Employees should have the option to refuse the payment and go ahead and compete.
Absolutely! But in reality NCs are mandatory parts of accepting employment to begin with, and it's a very broken power dynamic because I need this $150k job a hell of a lot more than my employer needs me as one additional person.
Additionally, a non-compete that only matches your existing salary isn't enough. There is a super strong compounding effect of
1. You haven't worked for two years, your value going back into the labor market could be much lower
2. Your income could have grown tremendously in those two years instead of forced to be the same
3. The net effect between 1 and 2 means you're not just behind the effect of 1 on its own, you're now actually super far behind
4. You now have two fewer years of your working life for your salary to compound
5. The savings you could have made in those years at a higher income level also aren't compounded as they would have been in your investment portfolio
Absolutely! But in reality NCs are mandatory parts of accepting employment to begin with, and it's a very broken power dynamic because I need this $150k job a hell of a lot more than my employer needs me as one additional person.
Additionally, a non-compete that only matches your existing salary isn't enough. There is a super strong compounding effect of
1. You haven't worked for two years, your value going back into the labor market could be much lower
2. Your income could have grown tremendously in those two years instead of forced to be the same
3. The net effect between 1 and 2 means you're not just behind the effect of 1 on its own, you're now actually super far behind
4. You now have two fewer years of your working life for your salary to compound
5. The savings you could have made in those years at a higher income level also aren't compounded as they would have been in your investment portfolio
You dont need non competes in order to do as you propose here though
Fully paid vacation is sometimes called garden-leave. In my country, you have to pay some salary during non-compete but it is nowhere near your full salary (1/10th in most cases).
1/10 of a salary for all but the upper echelon of worker compensation does not seem sufficient to put food on the table.
Normally high earning employees have non-compete clauses that are enforced.
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There are some jobs (for example as referenced elsewhere hedge funds) where employees have knowledge that could be directly damaging to their former employer if it were taken to a competitor.
For example, other Fund X has a huge short position in a company. The way that finance solves this is by paying employees to stay unemployed (and not take their potentially damaging information elsewhere).
There isn't really anything directly "in it" for workers, so paying them out for their time seems reasonable.
For example, other Fund X has a huge short position in a company. The way that finance solves this is by paying employees to stay unemployed (and not take their potentially damaging information elsewhere).
There isn't really anything directly "in it" for workers, so paying them out for their time seems reasonable.
So why not make it generally illegal except in very specific circumstances?
Or how about allow for knowledge of one firm being shared with the other being illegal since it’s proprietary (I think this is probably already the case).
That's very hard to police and prove. It's easier if you pay them to be unemployed for long enough for their knowledge to be less valuable. This is very common with businesses like hedge funds. But I agree non-compete should be narrowly allowed and only in situations like this that are more equitable.
Yeah I agree. Why even allow them at all?
I think allowing them but forcing companies to pay is a way to make them put their money where their mouth is. While I think removing them is good, removing them completely gives the opposing crowd something to yell about. If you allow them but then say, well you gotta pay to get the benefit, I think we'd quickly see them drop off, the proponents of non-competes would have little to no argument, and companies who really think they need them can just pay for them if they're so valuable to their business strategy.
If history's any indication, you can't give companies an inch. They'll take advantage of employee ignorance of the law, or do shady things with the payments under the logic that if the employee sues them for the money they can tie the case up in the legal system until they give up, or whatever other chicanery they can imagine to squirm out of having to pay.
- tied to inflation
Similar to what other countries do as well.
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Good. Noncompetes stifle innovation, entrepreneurship, and advancements in technology and ideas.
There are arguments to be made for quite the opposite. Think of non-competes as patents. What prevents an adversarial company or national state from sending recruits to a competitor?
I simply don't care. I don't want a law that penalizes everyone just so that a company has an advantage. All companies are on equal footing by getting rid of non-competes.
I'm in agreement with this and would also like to point out that Non-Disclosure Agreements can still exist in absence Non-Compete Agreements.
Pay people enough that they wouldn’t be incentivized to do this and they won’t. Instead we have trillion dollar corporations lobbying for laws to make free markets of labor illegal
The entirety of IP law. I don't have to think of non-competes as patents or a way of protecting trade secrets, because patents and trade secrets have their own separate (and quite potent) legal protections.
I'm sorry to see "I don't care" as the top response to your thoughtful comment.
We are better off if we can argue the merits of both sides of issues. Trying to ram one answer down everyone's throats is not productive and does not make for good conversation.
We are better off if we can argue the merits of both sides of issues. Trying to ram one answer down everyone's throats is not productive and does not make for good conversation.
Patents stifle innovation too.
NDAs and trade secrets still exist.
California has banned non competes for just over 150 years.
Any "bad for business" opposition to this rule would be interesting to see.
Any "bad for business" opposition to this rule would be interesting to see.
If this passes, California (especially the SF Bay Area) will lose one of its biggest advantages.
It’s already been losing it’s nice climate over the years.
It’s already been losing it’s nice climate over the years.
California has already said non-competes are unenforceable:
https://oag.ca.gov/news/press-releases/attorney-general-bont...
https://oag.ca.gov/news/press-releases/attorney-general-bont...
If I read them charitably, maybe it's a "CA has a competitive advantage by having saner labor protections", an advantage which would be lost (relatively) as everyone in the nation would get it.
…which … great!
…which … great!
The theory of California losing an advantage is that California’s stance on noncompetes is an advantage, that it would lose if it were the national rule.
That's their point. Non-competes being unenforceable is the biggest advantage California has over every other state that has been trying to set up their own "silicon valley" for the last N decades. If the law is forced on them, they might actually succeed.
Let me predict the next 3 years:
FTC will pass some watered down version of the law.
Big corporations will throw a fit and lobby Republican states to fight it.
Republican states' AGs will sue the government to block it.
Lower courts will side with the government.
Case will go up to the Supreme Court.
Law will be overturned in a 5-4 verdict.
FTC will pass some watered down version of the law.
Big corporations will throw a fit and lobby Republican states to fight it.
Republican states' AGs will sue the government to block it.
Lower courts will side with the government.
Case will go up to the Supreme Court.
Law will be overturned in a 5-4 verdict.
Just curious: assuming this passed, how would companies circumvent? While I think it's totally bullshit to have for most of jobs, I can see it's still "needed" for some niche professions.
They try to get charges pressed under the Economic Espionage Act, and may file civil suit as well against former employees they believe have taken or are using protected information, trade secrets or clients.
"Non-compete" agreements are the civilized version that keeps everyone out of courtrooms, though the obvious abuse of the concept is itself causing legal drama, having been applied as a blanket policy rather than judiciously for select positions.
"Non-compete" agreements are the civilized version that keeps everyone out of courtrooms, though the obvious abuse of the concept is itself causing legal drama, having been applied as a blanket policy rather than judiciously for select positions.
The finance industry does garden leave for example: https://en.m.wikipedia.org/wiki/Garden_leave
I think you should be able to take clients.
I want to see companies competing on product. An employee shouldn’t be able to take clients anywhere if the product isn’t better.
I want to see companies competing on product. An employee shouldn’t be able to take clients anywhere if the product isn’t better.
I agree, some may argue that knowing what a customer currently pays is inside information that gives you a unfair advantage when putting together a bid, but most of them also wouldn't hesitate to use a service like The Work Number[0] to low ball employees they hire in exactly the same manner.
[0]https://en.m.wikipedia.org/wiki/The_Work_Number
[0]https://en.m.wikipedia.org/wiki/The_Work_Number
So here's the part I am most confused about. Why is it the FTC regulating this? And I don't mean that in a "they shouldn't be doing this way" but more of a "how the hell did we get so dysfunctional that some random agency responsible for stocks and markets end up being the one having to implement this?" Why isn't the bearu of labor or anyone else getting involved it seems like at this point random beaurecrats are the ones having to address things because the legislative framework has completely broken down.
"The FTC enforces federal consumer protection laws that prevent fraud, deception and unfair business practices. The Commission also enforces federal antitrust laws that prohibit anticompetitive mergers and other business practices that could lead to higher prices, fewer choices, or less innovation."
https://www.ftc.gov/enforcement
"To foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights."
https://www.dol.gov/general/aboutdol
https://www.ftc.gov/enforcement
"To foster, promote, and develop the welfare of the wage earners, job seekers, and retirees of the United States; improve working conditions; advance opportunities for profitable employment; and assure work-related benefits and rights."
https://www.dol.gov/general/aboutdol
So it seems they have highly overlapping jurisdictions, question still stands though, why is the FTC particularly pushing this?
Isn't it generally a good idea to compartmentalize agencies so they are not stepping on each others toes? I know this is still a problem between the FBI, CIA, DEA, ATF, etc., we know these agencies in particular had a huge historical problem with secrecy amongst themselves, even on the same programs
Private corps are also not innocent of this, many companies are famously competing against each other internally, both in the literal sense by subsidiaries and like that org chart for MSFT.
Isn't it generally a good idea to compartmentalize agencies so they are not stepping on each others toes? I know this is still a problem between the FBI, CIA, DEA, ATF, etc., we know these agencies in particular had a huge historical problem with secrecy amongst themselves, even on the same programs
Private corps are also not innocent of this, many companies are famously competing against each other internally, both in the literal sense by subsidiaries and like that org chart for MSFT.
> some random agency responsible for stocks and markets end up being the one having to implement this
The FTC's mandate is not "stocks and markets." Are you thinking of the SEC?
The FTC's mandate is not "stocks and markets." Are you thinking of the SEC?
Good question, not worthy of the downvotes. I didnt know either and if you didnt ask that person that answered helpfully would not have done that
You don't see how non-competes can affect trade?
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It seems like random bureaucrats are the only people keeping the American government from completely imploding, because the legislators sure aren't doing their jobs.
While I agree with your sentiment that our legislative branch is very under-performing right now due mostly to two-party politics, all enforcement of law comes down to the executive and judicial branches, so this action in that context makes sense.
Is there not a way to use the common law system.
If the common view is that these agreements are an undue encroachment upon and individuals right to use their time as they see fit, then the cases would be thrown out and potentially some legislature will ultimately be put in place?
If the common view is that these agreements are an undue encroachment upon and individuals right to use their time as they see fit, then the cases would be thrown out and potentially some legislature will ultimately be put in place?
Noncompetes have already been thoroughly tested by the court systems in the states where they are legal.
When I left a job with one, I called a local lawyer specializing in employment law and they were able to tell me exactly what provisions a state court would and would not uphold.
When I left a job with one, I called a local lawyer specializing in employment law and they were able to tell me exactly what provisions a state court would and would not uphold.
My take is the opposite, after 40 years of the FTC being leashed by one 'pro business' administration after another, Biden's unleashed the dogs.
Scare quotes because leashing the FTC is really about allowing monopolies to rip off workers and consumers. Not about being pro business.
Scare quotes because leashing the FTC is really about allowing monopolies to rip off workers and consumers. Not about being pro business.
Work is the trade of labor for money.
Matt Stoller has written extensively on this topic:
- https://mattstoller.substack.com/p/antitrust-enforcers-to-ba...
- https://mattstoller.substack.com/p/non-compete-agreements-an...
- https://mattstoller.substack.com/p/antitrust-enforcers-to-ba...
- https://mattstoller.substack.com/p/non-compete-agreements-an...
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So FTC can, albeit rarely, do good things. Nice.
Hope this gets into effect immediately.
Hope this gets into effect immediately.
This still allows for noncompetes that prevent you from for example working at AWS, Azure, and Google Cloud at the same time.
Anyone know what this means for non disclosure agreements?
Unrelated. NCs have nothing to do with NDAs.
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Big discussion of this exact document 5 days ago: https://news.ycombinator.com/item?id=34931362
And several other discussions too: https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...