New York may ban noncompete employment agreements and Wall Street is not happy
fortune.com
fortune.com
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.
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.
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."
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.
The proposal is just to ask firms to put money where their mouths are.
They should pay him 500k just because he knows a secret? even if he's making just 50k to the company?
If it did not provide value to tell the employee the secret then it follows that company would/should not tell the employee the secret.
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.
The more likely response then would be to move the team somewhere that does allow non-competes?
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.
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.
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).
E.g. I had 3m garden leave (paid, no bonus) and 3m non-compete (unpaid).
And after only a month their sign-on would be subject to claw back.
Like, why would you quite and semi-retire for 1-2 years when you can keep working for like 5 years and actually retire?
(I'm just LARPing, I have been out of the industry for a few years by now...)
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.
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.
Some would use that money and time to start a competing company :)
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.
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.
How do you establish what the person would have gotten paid?
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.
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.
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.
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.
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.
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.
You have to be a saint or already have everything you could ever dream of
Welcome to Crony Capitalism (which should not be confused with traditional capitalism).
Perhaps you mean liberalism, as an ideology of capitalism.
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.
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.
So many stories, start with thr traitorous 8
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.
In this specific industry tough one could argue that impeding progress is a good thing for the wider society.
Quant = quantitative analyst
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
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?
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.
I guess there’s a weak argument to make for the HF part of HFTs
Wouldn’t it make a whole lot more sense considering what kind of business they are in?
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.
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.
Letting capitalism dictate what math is public and private is pretty fucking draconian
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.
https://www.restrictivecovenantreport.com/2013/01/north-dako...
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.
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.
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.
I think this is more about corruption control than non-compete.
It’s a form of corruption.
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.
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
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.
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
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.
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.
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.
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.
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.
Even severance is usually not much. Typical is one week for year of service, minimum two weeks.
Given turnover in the industry, very few people are going to get 20 weeks severance.
Still useful for taking advantage of employees not in the know.
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.
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.
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.
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.
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...
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.
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.
Wouldn't everyone quit after having two unusually good years back to back?
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.
Therefore jobs are scarce.
Only when there is a vast surplus of jobs will competition do the work. Until then you need regulation.
If that person was so valuable, had so much knowledge, had so many contacts etc…prove it in the only way business owners really understand
"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"
What one company may consider a trade secret and whether it is can be another thing altogether.
Customer lists or sales processes for example definitely can fall under the proprietary category.
I hope the whole world will ban noncompete employment agreements. I always felt about them like I feel about WallHackers(.exe) in Counter Strike.
So the bill is well worth doing, just people stop writing unenforceable bs into contracts.
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.
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?
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.
It has happened although it's probably a "man bites dog" sort of thing that made it into the news.
I'm not sure it's good policy in general to discourage people from working--especially in the area they presumably have some expertise in.
Why do I need to spend 6 months without pay and then more time with only 50%?
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.
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.
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".
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.
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.
https://www.washingtonpost.com/business/2023/03/10/noncompet...
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.
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.
Some good articles about non-compete politics in America and the de-fanging of the FTC federal initiative:
https://news.bloomberglaw.com/daily-labor-report/ftcs-noncom...
https://www.bloomberglaw.com/external/document/X3B1QI9O00000...
https://news.bloomberglaw.com/antitrust/ftc-expected-to-vote...
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.
Kind of behavior seems like it should result in government intervention.
How? Collusion between companies? Threatening lawsuits against the employee or the new company?
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.
Now they also won't have the legal ability to simply open a new sandwich shop right next to Subway.
I.e. you're imagining that non-competes are there to protect proprietary know-how.
That's mostly true for some companies, but for others (e.g. Subway) it's a wedge guarding them against the collective action of their employees.
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.
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.
Unless you have the monetary means to bring the issue to court (and see it through to the end), any clause like this will effectively be a law.
No, but they might use The Work Number or a similar service.
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.
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.
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.
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
Cui bono.
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.
For businesses, which aim to make money, isnt that simply competence? Or greed when taken to an extreme.
Basically “companies will act in their best interest.”
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.)
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.
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.
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.
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.
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.
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.
If you steal the rolodex, it's questionable for sure.
If you leverage your network and reputation, that's something that free market should never limit.
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.
If the clients prefer to leave with the then 2 month-old employee, then the consultancy is doing something very wrong.
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.
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.
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.
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.
The free market actually needs to be free.
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.
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.
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.
>>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".
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.
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 your company didn't pay you enough to keep you, nor did provide good environment ans support? absolutely yes.
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 those clients are willing to jump ship that fast, then yes. Realistically, that won't happen without a good justification.
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.
"In other news, water continues to be wet."
Let's get mandatory binding arbitration as well.
I though capitalism (Wall Street) was about competition. /s
What you're trying to say is there's limited alternatives. (The most obvious alternative is to not take the job)
While firms only hire if there is a profit to be made, and people have to earn to eat the 'no deal' stand off isn't an option.