Eli5: how exactly can companies enforce non-compete contracts? How is it their business what company you go to, and how would they even know?
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Lots of people talking about the legality of non competes and no one answering ops question. You don’t have to tell them where you are going. The only way they would find out is if you tell them or post about it on a place like LinkedIn. Unless your a high level manager or executive they likely aren’t going to even try to investigate where you went after leaving.
Having been on a team in the middle of a
non-compete negotiation, much of it is a voluntary contract.
The company will pay you X dollars for X time period, during that time we are paying you, you’re are not allowed to work for companies in the following industries.
The way they “enforce” it is if you breach your contract that they paid you for. So they can claw that compensation back and maybe also additional dollars.
Obviously, they can all be different, but judges and most state laws are VERY reluctant to enforce blanket non-compete’s that employees have to sign to work at a company. A paid contract though is very different.
Some people say this is why Silicon Valley became Silicon Valley, non-compete’s didn’t really work in CA because of their laws. But in a state like Massachusetts’ (where early on there was a big tech presence) they actually enforced them. Was a brain drain to Silicon Valley.
TLDR: They’re not, it’s pretty much just a scare tactic.
Pretty much the only time they are enforceable is when the company agrees to pay you during the period of your non-compete (Example they give you a 2 year severance, and stipulate you can’t work for a direct competitor for 2 years.)
And even then, you typically need to be in a highly technical trades and professions, say you develop a new technology for a company, they may have a non-compete clause to prevent you from quoting to go to a competitor and sharing the technology. Or say you’re a corporate lawyer and move to another firm and convince clients to follow you. But theres usually so many other legal avenues to prevent that from happening that the Non-compete is pretty much irrelevant.
The purpose of it, and “their business”, is that you don’t take business from them and give it to a competitor. It’s to prevent you from doing damage to the business after you leave. For say a shelf stocker moving from Walmart to target, it’s irrelevant.
But the executive in charge of supplier logistics moving from Walmart to target has the potential to use their connections to benefit target at a cost to Walmart. They could use insider knowledge to distrust Walmarts supply chain by underbidding on shipping contracts, etc. That level is where you will typically see non-competes which are actually enforceable.
As you’ve seen from the other answers, it varies widely.
The ones I’m most familiar with are professional contracts. Lawyers, doctors, veterinarians. I have passing familiarity with these contracts for sales positions, but I don’t typically get to read them.
The first thing to note is that the clause absolutely cannot prevent you from earning a living commensurate with your level of training and education. So a clause preventing a heart surgeon from opening their own practice anywhere in the country would be absolutely unenforceable. But preventing them for opening a practice within 150 miles of their current employer for the next two years certainly would be. Even going to work for a competing practice within 150 miles can be enforceable.
For sales positions, the usual provision is that you can’t contact anyone on (some subset of) their current client list.
The other area that is typically subject to a non-compete is if you have access to trade secrets. This is a lot more “iffy”. If you’ve been researching coal gasification for Shell, for example, does that mean that you can’t also research coal gasification for Exxon? Or only that you can’t research it using the same methods you were researching at Shell? Similarly, if you’ve been working on self-driving cars for Tesla, you can’t do self-driving cars for GM? I think that would get laughed out of court. (But I can’t guarantee it.) You can’t do it using the Tesla patents and software? That could very well fly.
Something that amazed me, one of my wife’s acquaintances in the UK couldn’t work anywhere for 2 years after he was let go. The term for this is “gardening leave”. He had to live for 2 whole years on only his salary, with no stock options. I don’t know what the arrangement was for annual bonuses.
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