I see that the FTC banned it and (from what I see) it seems like a good thing. Why?
In: Economics
Dishonest companies use non competes to lock employees into having to stay at the company.
The really bad ones would be something like “You cant work for any company that writes software that may compete with us in the future for 1 year globally”. That is obviously a terrible deal for the employee since they effectively cannot work for 1 year after leaving the company.
Where Non Competes are good are the ones I have signed in the past. When I was in IT contracting, I signed a Non Compete / Non Recruitment agreement that stated I could not work for a company I had been placed at by the contracting firm for 6 months after I stopped working for the contracting firm. I was free to work for any other company except one where I had worked as a contractor.
My current Non Compete is really an Anti Poaching agreement. I cannot solicit current customers or prospects that the company started working on in the 6 months prior to my leaving for 1 year. I can set up a company doing exactly what my company does, I just cant touch any of their customers for 1 year and there are lots of other customers to get in my industry.
Very narrow non competes are ok, not great but OK. Extremely broad non competes that are wielded like clubs are terrible. Sales, Recruitment, and high level executives are the only types of positions that should have Non Competes and those should be limited to Non Poaching agreements.
A non-compete clause in a contract binds,
An employee so they cannot find,
A similar job if they leave,
Restricting where they can achieve.
It’s banned, for it frees workers to grind.
The FTC’s ban lifts this heavy stone,
So workers can more freely roam.
It boosts competition, wages grow,
Opportunities start to overflow,
A good move, many experts have shown.
Lots of people have explained why they’re bad in high-skilled industries (they’re anticompetitive and limit the proper distribution of skilled laborers), but no one has explained where they might be good.
say you get hired to assemble bicycles as a contractor at walmart, where you get a 66% commission – so say walmart pays your company $15 to assemble the bicycle , and then you get $10 (which takes about 10-15 minutes by the way, as long as you don’t suck – i made bank at that job. It ended up being around $41/hour).
Once you finish training, both you and the person that you’re helping would be better off if they just hired you directly for 80% of that cost – so they pay you, directly, $12.50 to assemble the bicycle. They save $2.50 a bike and you earn an extra $2.50 a bike. Obviously both of you lose out on the company infrastructure (additional workers that can come in for busy times, support if things go wrong, liability insurance, etc.), but the savings are enough to make it worthwhile and you’re in the ass-end of nowhere and as such are the only person from the company that ever goes to that store anyway, so the support is a bit lacking regardless.
So obviously the company needs to stop you from just starting your own bike assembly business as soon as you’re done training and then directly competing with them and servicing their (now your) clients, so when you get hired you have to sign a noncompete agreement at the company promising that you won’t assemble bicycles for any other company for 2 years after the start of your employment. Now they know that in exchange for training you they will get at least 2 years of employment out of you. This means they are more willing to hire and train new workers, since they don’t need to worry about paying someone just to have them immediately leave and then undercut them as soon as their training is done.
Obviously this only makes sense in industries that are low-skilled labor and don’t require much in the way of capital, but do require someone to walk you through everything. Things like simple car or bike maintenance, house painting, powerwashing, yard work/landscaping, etc.
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However there is a better way – training/retention bonuses! Instead of offering paid training, the employer can give unpaid training along with a training bonus, with language that revokes that training bonus (requiring the employee to pay it back) if they leave before a certain time after training, and then provide a retention bonus for staying with the company for extra duration.
Non-compete clauses say that you can’t work for a company’s competitors after leaving or being fired from that job.
Why is it good?
Imagine you’re say, a guitar builder of 10 years. You studied luthiery after high school, you apprenticed, and you now hold a guitar building position in a guitar company. All you know is guitar building. You live, eat, and breathe guitar building.
You also sign a non-compete clause.
One day you decide to leave the company because you moved to a place that’s too far for a commute.
Congratulations, legally speaking you “can’t” be a guitar builder anymore. Because of the non-compete, you can’t work for another guitar company because they’re your previous job’s competitors. You also can’t make your own guitar building business because you’re not competing against your old job.
Now you’re back to zero.
You have to do something else unrelated to guitar building, the one thing that makes you a living. You’d have to do something unrelated like, I don’t know, customer support, and make sure it’s not for other guitar companies.
So as you can see, non-compete clauses are all about companies trying to keep ahead of other competitors by sacrificing the livelihood of the people who work for them.
Keeping expertise out by making manpower collateral damage as if “salting the earth”, not doing their jobs better, is what keeps these companies “ahead”.
The problems is that they are often abused. I could understand it if that non-compete comes associated with a huge compensation package that roughly makes up for the hassle of moving later or working in a different field. BUT, I have seen non-competes in the most absurd jobs. My wife is an SLP that makes an average wage and her boss made her sign a non compete. We didn’t really care because they are legally void in my state and good luck getting a state district court to enforce that shit (Colorado).
A non-compete clause limits an employees ability to find work with certain limitations such as duration of time and location. This only benefits the employer as it removes a person’s ability to find comparative work for better pay.
Not only that but it harms the economic interests of competing companies that are not even in direct contract as their potential hiring pool is smaller because of these non-compete clauses.
Basically it harms workers and competing companies only to the benefit of the one company which is worse overall economically.
Non compete comes in many variations, but the general agreements are that if an employer-employee relationship is terminated, then the employee cannot work in an identical role at another employer for a certain time frame and/or within a certain distance.
So an agreement can say “if an employee or employer severs relationship, then the employee agrees to not start employment as a mechanic for within 2 years and within 25 miles of any Firestone locations”.
The idea is that the employee could cause harm to an employer by poaching clients or other employees.
In reality, it only serves to limit pay and benefits to an employee. Because the employer can treat the employee like crap and pay crap, and the employee can’t quit and work in the same job for several years or have to commute very far away. Likewise, a national company may have a location every 25 miles, so an employee cannot move anywhere without being in that radius. So they can’t work.
It’s a big deal that it’s banned because now employees can quit and find another job easier for more pay and benefits.
Employees want to be able to quit their jobs and find other jobs without restrictions. Employers are worried about employees running off with the business’ customers or confidential information, or spending a lot of money to train an employee only to have them take that training and use it to help a competitor.
Where non-competes are legal (it varies by state), they usually have some limits. The big one is that the non-compete has to protect a “legitimate interest” of the employer and “I want to be able to lock my employees in” isn’t a legitimate interest. That means that in a court case about the non-compete, the employer would lose. The thing is, though, that employees don’t want the time and expense and uncertainty of a lawsuit. So, they’ll comply with non-competes that would get tossed out in court. And the employer gets that “lock-in” that they want.
Non compete means that you won’t take a job with a rival in the same industry. Which fucks workers who leave because it makes them unable to find work in the industry they have experience in.
The idea is that it protects companies from corporate espionage. But in reality it just fucks people over.
Very rarely are they ever actually enforced. Because a company would have to sue the ex worker.
But now they’re all unenforceable. Allowing people to seek employment within their fields without fear of repercussions.
TLDR: This is actually a big win for employees and a long time coming. Non-competes prevent you from competing with a former employer for a set period after you quit. These agreements are very one-sided in favor of a business, and arguably predatory behavior because companies don’t really give employees a choice but to sign it.
Non-compete clauses are one-sided agreements that put short term limits on what kind of work you can do after you leave a company (quit or are fired).
For example imagine you work in the IT field as a consultant that has a couple dozen clients. You may have a non-compete clause that prevents you from working for one of said clients for 6 months to a year.
This is to protect your employer from a client hiring you directly, or a skilled person leaving and taking all of their customers with them.
One the surface this seems fare enough, but these agreements are horribly one-sided and there are scenarios where a non-compete effectively makes you unemployable in your industry for a set period.
If for example you career is based on being an expert on a specific software product, and by design you have regular contact with all customers that run that particular product. If you quit you can’t work for any of them making you effectively unemployable. So what are you supposed to do for 6 months? work at a McDonalds?
Depending on where you live non-competes are often unenforceable because you can’t prevent a person from working and earning a living. You can however make their lives difficult, and even sue them or their employer depending on the contract. It is however a bit of a grey area. There’s numerous ways to get around a non-compete.
Alternatives include NDAs forbidding people from taking trade secrets with them to new employers, or gardening leave.
In Formula 1 for example many senior people have gardening leave clauses in their contracts. If you quit and have say 6 months left on your contract, the team you work for may put you on gardening leave. This is effectively a suspension, you still work for the team and collect a paycheck but you just stay home until your contract runs out. This is to prevent you from working for a competitor and taking the latest secrets with you for that period.
This is more fair to the employee than a non-compete because at least in this case you are still getting paid! Your employer has to pay **you** for the privilege of keeping you off the market.
For these reasons many countries are starting to make non-competes straight up illegal, which is good news for a lot of employees with said clauses because they often act like a pair of handcuffs, forcing you to stay for an employer that underpays you or treats you badly, and preventing you from joining a competitor for a better paying job.
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