Apr 23 2024

Good riddance to non-competes

I love that the FTC just banned non-competes, as everyone expected they would. Normally, I’m in favor of small government and fewer regulations, but this is one where I think the government has a legitimate interest in setting up guardrails to a free market.

We started off at Return Path years ago with a standard and fairly benign non-compete because they were standard. But once California banned them and then we started doing business internationally in countries where they were illegal or not customary, we realized it was unfair to treat some employees different than others, so we got rid of them entirely and reverted to the common denominator. We don’t have them at Bolster.

Restricting employees in terms of where they can go work when they leave you is unfair and immoral, in my view. Just because you train an employee and invest in them doesn’t mean you own them. That investment was an exchange for the work that person did for you. There is no such thing as indentured servitude in this country. If you want to keep your employees from leaving you, treat them well and pay them well.

The pendulum has swung way too far on this one, and it was high time for a correction. When the Wall Street Journal says that “Sales staff, engineers, doctors and salon workers are among the most common types of workers affected by litigation of noncompete clauses…in 2022” that makes me sick to my stomach.

Making sure former employees can’t specifically harm you after they leave is a different story.

Some restrictive covenants for a limited period of time for former employees are totally fair. Customer and employee non-solicits for a year – no problem. Non-disclosure of confidential information, trade secrets, and know-how – gotcha. But “you can’t go work at that company because they compete with us” doesn’t work for me.

There are some limited circumstances where non-competes are fair, moral, and make sense. They are more or less relegated to very senior and/or highly specialized people who make a ton of money and large equity stakes in companies who can’t to go to competitor and perform any job at their level without pulling over customer relationships, employee relationships, and know-how and trade secrets. That’s why people at hedge funds and investment banks have “garden leave” where the incoming firm has to pay them to sit on the sidelines for a year before joining. Hopefully those exclusions will remain allowable when all is said and done here.

But by and large, I say good riddance to non-competes. They’re about as American as the metric system and hereditary dictatorships.