I see that the FTC banned it and (from what I see) it seems like a good thing. Why?
In: Economics
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).
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”.
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.
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.
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.
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