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Non-compete clauses

gabeygoat

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I've always thought these were mostly unfair in most (though not all) cases. Anyway, came up today with this medical non-compete. Medicine is so weird in the US, where it's so privatized that patient health is so often secondary to profit.
 
I've always thought these were mostly unfair in most (though not all) cases. Anyway, came up today with this medical non-compete. Medicine is so weird in the US, where it's so privatized that patient health is so often secondary to profit.

States vary in whether, and to what extent, they allow non-compete clauses.

Back in the 80's the company I worked in suddenly asked tech employees to sign non-compete agreements. This was because the company was looking at going public and likely the potential underwriters noticed they didn't have them and were pushing them to do it. I was not amused and proceeded to make it clear to other employees that there was no effing way I was going to sign it. At the time I was manager of R&D so had some clout. Within a week the company decided not to pursue it and retracted the request from everyone. I suffered no repercussions.

Funny thing is that a couple years later the state of California made such agreements void except for unusual circumstances such as for the owners of a business when selling the business.
 
Non-competes would be fine, if the company continued to pay your a salary for the duration plus retraining.

The way it is, it's just a very nasty type of wage theft.
 
Employers in Ontario, Canada Employers are not permitted to issue non-compete agreements to their employees in Ontario.

It's against the law.
 
In the UK they are difficult to have enforced especially if they attempt to be wide ranging, they are normally struck down on the grounds of if I recall correctly "restriction to trade". And even their limited use are being looked at. There was a recentish consultation that ended with (all from memory) it being proposed to limit them to 3 months and the employer will have to compensate the ex-employee for the enforcement period.
 
Perhaps a little insight into the issues:

https://onlinelibrary.wiley.com/doi/full/10.3982/ECTA18128
Abstract
I study regulation of noncompete employment contracts, assessing the trade-off between restricting worker mobility and encouraging firm investment. I develop an on-the-job search model in which firms and workers sign dynamic wage contracts with noncompete clauses and firms invest in their workers' general human capital. Employers use noncompete clauses to enforce buyout payments when their workers depart, ultimately extracting rent from future employers. This rent extraction is socially excessive, and restrictions on these clauses can improve efficiency. The optimal regulation policy is characterized. In an application to the managerial labor market using a novel contract data set, I find the optimal policy to be quantitatively close to a ban.

Noncompete employment contracts, agreements that prohibit employees from joining competing firms for some duration, are prevalent in the U.S. labor market. About 64% of executives in publicly listed firms have signed noncompete contracts. Moreover, these arrangements have permeated into broader labor markets. A survey by Prescott, Bishara, and Starr (2016) indicates that about 30 million workers (roughly 18% of the entire workforce) are subject to such constraints. The anticompetitive effects of such contracts are concerning: restricted labor mobility precludes the reallocation of workers to more productive employment and inhibits the entry of new firms.1 Employers, conversely, argue that noncompete contracts offer the protection they need to carry out investments. The disagreement over the merits of noncompete contracts has manifested itself in the disparate legal landscape across the country: many states take a permissive stance; others, notably California, ban noncompete contracts altogether. Recent attempts and progress in legal reform have aimed to emulate the California noncompete law, promoting a more mobile labor market.

I also find this argument against non-compete clauses to be compelling:
https://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html
Non competes agreements (NCAs) are dangerous in my view because they put firms into a prisoner’s dilemma: Non competes benefit firms but harm industries by reducing innovation.
[...]
Silicon Valley could not operate if non-compete agreements were enforced. Silicon Valley is a hyper-mobile workforce. Moreover, it’s precisely in the circulation of workers that Silicon Valley has one of its advantages the diffusion of new ideas. The key to Silicon Valley and much innovation today is the diffusion, the combination, the integration of different sorts of knowledge and worker mobility has been a big part of this. Not just worker mobility between firms in Silicon Valley but also immigrants, circulation between different countries, university-firm partnerships and so forth.

Firms who come to Silicon Valley know that they cannot use NCA to protect their innovations but they come anyway because the opportunity to learn from other people exceeds the costs of other people learning from you. Thus, worker mobility and the inability to protect IP by restricting mobility is bad for an individual firm but good for the industry as a whole, good for innovation, good for workers and good for consumers.
 
In the UK they are difficult to have enforced especially if they attempt to be wide ranging, they are normally struck down on the grounds of if I recall correctly "restriction to trade". And even their limited use are being looked at. There was a recentish consultation that ended with (all from memory) it being proposed to limit them to 3 months and the employer will have to compensate the ex-employee for the enforcement period.

'Restraint of trade', I think.

Anyway, they make sense in some cases. At the place I worked (an airline) people in the planning departments were covered by contract terms about working for competitors without a significant break between jobs. Higher up the management chain, iirc, you got several months 'gardening leave'.
 
I've always thought these were mostly unfair in most (though not all) cases. Anyway, came up today with this medical non-compete. Medicine is so weird in the US, where it's so privatized that patient health is so often secondary to profit.

This isn't even the worst think hospitals do to reduce competition, some states have a thing called "certificate of need" to start a new medical practice you basically need the existing providers to agree to more competition.
https://en.wikipedia.org/wiki/Certificate_of_need

That being said, I don't see a problem with a limited no compete clause for executives and in some cases research scientists, for most jobs, like doctors, shouldn't exist.
 
Meanwhile in South Korea, doctors go on strike to protest a government plan to train more doctors to address a shortage of doctors.

South Korean doctors strike in protest of plans to add more physicians

Pretty common for people to try to limit the number of people competing in their profession. WRT doctors: ever wonder why doctors in the US need to a get an 4 year undergrad degree before they can even start their medical education?

They really do seem like the villains in this case.

Yep.
 
'Restraint of trade', I think.

Anyway, they make sense in some cases. At the place I worked (an airline) people in the planning departments were covered by contract terms about working for competitors without a significant break between jobs. Higher up the management chain, iirc, you got several months 'gardening leave'.

That's the phrase, couldn't think of it for my life this morning.
 
'Restraint of trade', I think.

Anyway, they make sense in some cases. At the place I worked (an airline) people in the planning departments were covered by contract terms about working for competitors without a significant break between jobs. Higher up the management chain, iirc, you got several months 'gardening leave'.

Gardening clauses are very rare in the US outside the C-suite. I would be completely behind a move towards such paid non-competes.

Most of the justification for non-compete clauses can be more directly addressed by confidentiality and non-disclosure agreements.
 
Most of the justification for non-compete clauses can be more directly addressed by confidentiality and non-disclosure agreements.

The argument I've seen is that non-disclosure agreements can be much harder to enforce (in the sense that it's harder to demonstrate that the information was actually disclosed).
 
Employers in Ontario, Canada Employers are not permitted to issue non-compete agreements to their employees in Ontario.

It's against the law.

That's a nice change since I last had to worry about such a thing. The law came into effect on October 25, 2021.

I do note however that:
The ESA does not prohibit non-compete agreements that were entered into before October 25, 2021. However, employees may have greater rights under the common law. If you have questions about the enforceability of a non-compete agreement that was entered into before October 25, 2021, please talk to a lawyer.

I was aware of one consulting firm here in Toronto that used to threaten everyone who quit with legal action if they joined another firm. When I had occasion to work with their one-time personnel manager when she joined the company I was working for, she told me they never actually did so as, if it went to court, the judge would declare the agreement unenforceable.
 
Yeah I've had to sign non-competition; and agreed it's hard to enforce. Just basically a way of not taking your clients with you if you choose to leave, with whom you which you have a had a long and trusting relationship.
 
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The argument I've seen is that non-disclosure agreements can be much harder to enforce (in the sense that it's harder to demonstrate that the information was actually disclosed).

This is certainly true. But it is much easier now than it was in the past with digital communication. Everybody says way more than they should in email and text.
 
This is certainly true. But it is much easier now than it was in the past with digital communication. Everybody says way more than they should in email and text.

Yeah, that makes sense. Anyway, I'm definitely not the one to defend non-compete clauses.
 
At a former employer of mine they tried including contract terms forbidding us from going to work for a client without a twelve month cooling-off period. This was unpopular, even more so when our CEO announced his retirement and in the same message mentioned that he’d accepted non-exec director positions at two of our biggest clients.
 
At a former employer of mine they tried including contract terms forbidding us from going to work for a client without a twelve month cooling-off period. This was unpopular, even more so when our CEO announced his retirement and in the same message mentioned that he’d accepted non-exec director positions at two of our biggest clients.

I think the fact that senior bods tend to jump around a lot is why they have never been a big feature of UK law nor contracts.
 
My mate in the algorithmic trading ‘industry’ got 9 months’ paid gardening leave about 10 years ago, which is the longest I’ve heard of. He has also had a couple of 3 month periods and one 6. Sadly my wife, also in the financial field but not as gambly, hasn’t yet had any gardening leave when changing banks.

ETA: she has to agree to a bond of the equivalent of more than £50k when she signs a contract, which prevents her leaving within 3 years (well, it doesn’t, her new employer pays it for her), and whenever she moves from one bank to another, the receiving bank has to pay the equivalent of £20k into a mutual training fund.
 
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