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Comment by dsr_ | Hacker News Reader

I've been asked to sign a post-employment non-compete agreement several times. I never have, because I ask for a simple stipulation: for the length of time you don't want me to work in this field, you need to pay me the same salary.

Everyone agrees that this is fair, and then never mentions the non-compete agreement again.

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I use something similar

"I'd be happy to sign a perpetual non-compete contract so long as it includes a clause that you'll continue to pay me at current salary (with a yearly cost of living increase pegged at inflation) as long as the contract is in effect. If you wish to cancel the non-compete after it takes effect, you agree to a six month notification and run-down period".

I'd need the six month period so I could move from my retirement home in Malta or Corsica or wherever and get a job again.

I like that. I'm making note of it.

If they make a point about it, say you'd be willing to negotiate on the six month notification clause.

Some of the jobs I've had or looked at made employment contingent on a non-compete. In those cases, saying something like this would mean finding another job.

Depending on your skills, your area of expertise, and your reputation, this may or may not be a big deal to you personally, but it's not an option for everyone. My last employer (when I was straight out of college) would have just shown me the door if I said something like this.

If wonder if companies with mandatory non-competes have lower salaries. They should.

Economic theory would suggest so. I suspect that, adjusting for everything else, it's a pretty small effect. Would be an interesting study though. I wonder if there's one there.

[EDIT: Duh. I misread the original post. Of course, the salary should be higher not lower to compensate for such a restriction--though I still suspect it would be small.]

What economic theory would suggest this? This non-compete appears to be an option, and would be priced as such.[1] I would guess that purchasing any additional assurance from an employee would cost the employer(s) more, perhaps in the form of salary, severance, or a signing bonus.

[1] http://en.wikipedia.org/wiki/Valuation_of_options

You're, of course, correct for the reason that you state.

You would expect them to have higher salaries, to compensate employees for the risk of being prohibited from working for N months after their employment terminates.

Higher initial salaries perhaps, but lower annual increases, since employees don't have as many jobs to switch to so there is less incentive for raises.

It appears that you are making the unstated assumptions that these employees have experience in exclusively non-transferable skills and that they had no knowledge of future changes in salary at the time they accepted the agreement. I find both of these claims to be dubious at best; if you have supporting evidence, please enlighten me.

In a good market, only more desperate candidates will go with non-compete positions. So lower salary argument makes sense

No; in a good market the employer who wants a non-compete would need to pay me up front for the time period that I wouldn’t be able to work after leaving her firm, plus a premium for the expected difference between my salary at that point and my salary at hiring, which would make the wage for positions with a non-compete significantly higher than those without.

You're making the error of deducing market conditions from price (or price from market conditions).

Market price is determined (in a well-functioning market) by the intersection of supply and demand. So the salary could go other way: higher, if a non-compete makes it harder for the employer to find employees willing to sign the clause, lower, if result is fewer alternatives and/or more desperate employees interested in the position.

I'd actually argue the second: that noncompetes raise employees' switching costs, and reduce their alternatives, so that a state in which noncompetes are valid and widely applied would tend to have depressed labor rates.

  > In those cases, saying something like this would mean 
  > finding another job.

Did you actually try it?

Czech republic and some other EU country actually have this in law. If employee with non-compete clause loses his job, employer has to pay his salary in full for duration of non compete. There are some exceptions such gross misconduct, voluntary redundancy etc..

Does the employer have an option to cancel the non-compete and not to pay the full salary?

I am not sure. If it is part of contract, it may require signing new contract by employee.

Surprised that Eu law doesn't restrict the use of non competes - must rember to ask about that as I am due a refesher course on employment law.

This is the legal position in New Zealand, not through an Act of Parliament, but as the result of various law court decisions. You cannot have a non-compete which prevents someone working for a living unless you pay compensation for that non-compete. Attempts to dodge the rules (claiming regular salary includes said compensation or a derisory amount) have been struck down.

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