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The FTC plans to curtail the use of non-compete clauses

economist.com

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Re: The FTC plans to curtail the use of non-compete clauses

#91

Banning (most) non-competes is likely good policy, particularly agreements that do not provide for payment during the period of enforcement. But you also have to ask whether the FTC is the right part of government to make this decision. The States have 50 different approaches written into their laws on how to deal with non-competes. Some ban them entirely, while others curtail their scope or shift the burden to emplo…

From the Federal Trade Commission Act of 1914:

"Under this Act, the Commission is empowered, among other things, to (a) prevent unfair methods of competition, and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; (c) prescribe trade regulation rules defining with specificity acts or practices that are unfair or deceptive, and establishing requirements designed to prevent such acts or practices; (d) conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce; and (e) make reports and legislative recommendations to Congress."

Seems to me like the FTC is exactly the group to make this decision

Re: The FTC plans to curtail the use of non-compete clauses

#92
post #14

Earlier quoted context omitted.

> be on the hook for continued compensation at some proportion of the employee's former wage to actually exercise the privilege to deny the employee work in a specific field Yes. The proportion should be 100%, plus all benefits (401k, health, continued vesting of equity, etc). If you're being denied future employment then the employer can pay for it if it's that important to them. Possibly even more than 100% if they…

Ultimately that is still very anticompetitive, it just asks for more compensation to the worker but is still paying them to do nothing and hurting competition, a sure sign of a broken system (paying people to do nothing is usually a charged leveled at very broken bureaucracies).

This is already done at financial sectors in some countries, mostly to prevent immediate poaching of clients and transfers of strategies.

In six months everything will be out of date.

Re: The FTC plans to curtail the use of non-compete clauses

#93
post #38
post #6

In the instance this change doesn't go through it is important to be aware that non-competes don't survive hardship tests. There is an extreme burden on the employer to prove that there are appropriate jobs available to the former employee that wouldn't violate the non-compete or (and this is much more common for "serious" non-competes in the modern world) provide partial compensation to the employee for the term of…

>current chilling-effect bullshit of overly vague and broad non-competes that are never intended to see the inside of a courtroom I worked for a very small company for a number of years quite a while back. We basically wouldn't even look at someone who had a non-compete even if it "probably" wouldn't be an issue. The risk of having to fight some big tech company--who might also have been clients to some degree--was j…

At what point in the hiring process did this come up.

I assume you didn't ask to see new hires former contract and would you routinely ask, "are you subject to any non-competes?"

Re: The FTC plans to curtail the use of non-compete clauses

#94
post #81
post #63

Earlier quoted context omitted.

As someone who was there at the time, the reasons were complicated. The Route 128 computer industry was in pretty significant decline and nothing had really come in to replace them. And the metro itself saw an outflow of population until the late nineties. When Teradyne moved out of Boston that was probably the last significant tech company in the city proper at the time. And the whole biotech and pharma boom in Kend…

At the time of Web boom, I didn't understand some of the foot-dragging by West Coast tech companies, on setting up offices Cambridge/Boston, to get more of the talent fresh out of the universities, and the research university partnerships. But maybe they (correctly) thought that most of new grads would come to them. In the case of Google, I thought there might also have been a Stanford-vs.-MIT factor. MIT was known a…

Arguably, it took young college-educated professionals increasingly wanting to live in cities to make the change. Which in Cambridge/Boston's case led in part to the development of Kendall Square and the Seaport.

Before that, pretty much all the technology-related companies in MA were out in the suburbs and I can imagine new grads thinking if there were going to be out in a suburban office park anyway, why not be in California?

And, yes, historically there have been east coast vs. west coast stereotypes that doubtless have some basis in reality.

Re: The FTC plans to curtail the use of non-compete clauses

#95
post #61

Earlier quoted context omitted.

Huh? Why doesn’t this work? If you want to change jobs for any reason you can and if the employer wants to exercise the non-compete they have to pay you your best offer to not work , not to keep working for them.

Ehh, this seems like a hard deal to really get right, to the extent that it is sort of “fair” to the employee, the company could just offer that deal if they wanted. Which is to say, nothing prevents a company from offering that deal as an alternative, rather than attempting to force it through with a non-compete. But, the employee would have to consider the cost to them of basically pausing their career development…

I think they are talking about doing it in place of a non-compete, so you’re either

* not working due to noncompete and not getting paid for the duration of time

* not working due to noncompete and getting paid for the duration of time

The point is to make noncompetes a hassle and only worth it if you’re actually trying to protect something. The status quo is pretty poor if Subway’s “sandwich artists” are getting told to sign noncompetes without compensation. Companies aren’t really offering the latter if they don’t have to, because they’re more expensive; with the notable exception of finance.

Re: The FTC plans to curtail the use of non-compete clauses

#96
post #38

Earlier quoted context omitted.

>current chilling-effect bullshit of overly vague and broad non-competes that are never intended to see the inside of a courtroom I worked for a very small company for a number of years quite a while back. We basically wouldn't even look at someone who had a non-compete even if it "probably" wouldn't be an issue. The risk of having to fight some big tech company--who might also have been clients to some degree--was j…

At what point in the hiring process did this come up. I assume you didn't ask to see new hires former contract and would you routinely ask, "are you subject to any non-competes?"

As I recall, yes, our business office would routinely ask early in the process if they were subject to non-competes.

Re: The FTC plans to curtail the use of non-compete clauses

#97
post #69

Earlier quoted context omitted.

or, maybe if a company is scared of losing an employee, they should pay them market value. holding a grudge over them because you trained them and are trying to recoup your costs is idiotic and doesn't work. asking the government to subsidize corporate training is a non-starter. it is a corporation's job to both DEVELOP and RETAIN talent. Both. Companies would like very much to do neither--but putting in the effort i…

You say this like "this is the moral and right thing to do". If I could snap my fingers and make it happen, then I would. That's not how the world works though. Companies have a profit incentive. And that's a good thing. We want them to train employees in ways that will be productive and end up having them output something that is valuable. But that training can be expensive. What happens if everyone concludes that t…

Non-competes exist and that's already the situation. They're all over the place in basic retail, who I can assure you is not doing a lot of valuable training.

Re: The FTC plans to curtail the use of non-compete clauses

#98
post #6

In the instance this change doesn't go through it is important to be aware that non-competes don't survive hardship tests. There is an extreme burden on the employer to prove that there are appropriate jobs available to the former employee that wouldn't violate the non-compete or (and this is much more common for "serious" non-competes in the modern world) provide partial compensation to the employee for the term of…

I'm trying to think of why the powers that be want this too, and the only thing I can think of is to expand their hiring pool/make poaching legal. Maybe I'm too cynical.

It's good for workers regardless of any cynical take. Non-competes put more burden on workers than it does on companies.

Re: The FTC plans to curtail the use of non-compete clauses

#99

What changed to get the politicians on board with this?

I was writing a long comment up top about this, but instead I'll reply here. Person with a background in public policy, especially around poverty alleviation efforts. I think that the removal of non-compete clauses has to due to with employees who you normally (at least I wouldn't think) of being subject to non-compete clauses... namely, service industry workers. Apparently 1 in 6 are subject to non-compete clauses: https://thecounter.org/biden-targeting-non-compete-agreement... This industry has been 'suffering from' high vacancy rates since the start of the pandemic because the industry has low wages, minimal-to-non-existent benefits, generally no paid sick days, advanced notice of your work schedule isn't provided (thus it becomes difficult or impossible to attend college or work a second or third job), etc.

For a group of workers who are generally less able to afford legal remedies to situations such as non-compete clauses I can see how non-compete clauses are especially damaging to this group of workers. (I'll show some hard data points on non-compete clauses by pay and by education level obtained in a few paragraphs.)

If I had to guess I would say that non-compete clauses are being removed now because there's a "worker shortage": 1M dead from covid and of that some percentage (50%?) of that in the workforce; restricted immigration - legal and otherwise - for the last 3+ years and before that a decline in immigration due to the polices of the former guy). Why the quotation marks around worker shortage? Basically, the service industry businesses want workers but hardly anyone wants to work in the service industry because the pay's bad, there are often no benefits, in many states you don't know your schedule until the day of (which makes planning for childcare, attending college, etc. damn near impossible), etc.

So if I had to guess this is the federal government's way of attempting to address the "labor shortage" in the service industry across the United States as well as allow people in white collar jobs to switch into new roles. I would bet that most folks who fall under the 'knowledge worker' class of employment know that their company's non-compete clause is pretty much non-enforceable, but ask your average restaurant worker who is under such a clause and I bet that they believe that the non-compete clause _is_ enforceable.

From this report from 2015, it looks like ~18% of all US workers are under a non-compete clause in their current role, with ~15% of workers without a college degree being under a non-compete clause and roughly the same percentage of workers with an annual wage of https://home.treasury.gov/system/files/226/Non_Compete_Contr... In that same document on page 16 you'll note that California, Oklahoma and North Dakota have the 'least enforcement' of such clauses. I suspect that the oil and gas industry in OK and ND enjoys not paying for training of employees, so if your employee can be trained at a competitor and then jump to your place of employment, full trained / ready to work, that seems to be what those states are looking for. (Yep, large swaths of ND and OK have over 20% of that county's employees employed in the petroleum extraction industries: https://www.ers.usda.gov/data-products/chart-gallery/gallery... )

TL;DR: Fifteen to twenty percent of all Americans are currently working under non-compete clauses (with 1 in 6 food service industry workers being subject to non-compete clauses). Thousands of jobs are going unfilled in the service industry as well as in white collar, 'knowledge worker' domains. By removing the ability of employers to create and enforce non-compete clauses this should, in theory, 'free up' around 20% of the workforce to change jobs. In theory, most of these workers would be changing jobs for factors such as more flexible work schedule (advanced notice in the case of service industry workers; WFH for white-collar workers), benefits and sick days, and increased wages. My (admittedly cynical?) take on this is that by freeing up 20% of the workforce to switch jobs the federal (and state) governments are hoping that they can get away with any increased spending toward social services and instead can just tell people 'Well, go look for and get a better [paying] job! What's stopping you? Certainly not a non-compete!" Also, by allowing a 'great migration' into new roles the federal government can get a rough tally as to how many immigrants they'll need to let in via the skilled (H1B, NAFTA, etc.) and unskilled (EB3) visa programs; it's my opinion from looking at state- and federal-level labor statistics over the past 3+ years that the data is rather 'noisy' and by removing non-compete agreements it should make it easier to get a "closer to reality" tally of how many workers the US will 'need' to import to create and maintain full employment in various skilled and unskilled industries.

Re: The FTC plans to curtail the use of non-compete clauses

#100

Outside of trade secret level engineering, pharma and biotech, I've never seen a non-compete enforced because the employer was actually worried about real competitive advantage. I have seen plenty where some Junior Vice President got angry at someone for quitting, and decided to sue to make that person's life hell. I've made several hires (sales, marketing, engineering, even executive) where the JRVP calls and tries…

Trade secrets already get legal protections so the non-competes aren't relevant there anyway
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