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I'm surprised to see this one in here alongside all the others. On the one hand, I agree that on the first-order a non-compete will distort labor markets, but on the other hand an absence of non-compete distorts incentives for training, trade secrets, and customer sharing. A company doesn't want to hire someone, spend time and resources teach them all the best techniques for doing a job effectively, and then have that person immediately leave and take all that training somewhere else or strike out on their own. Similarly, a company doesn't want to give someone a bunch of infrastructure and marketing and accumulate a bunch of clients and then spin off into a private business, carrying those clients with them.
Now, I don't think we have an obligation to do things just because they make companies happy, not at all. But the incentive structure means that if companies can't curtail these behaviors via non-competes they will curtail them in other ways. Companies will guard their secrets more carefully, will shuffle customers around so they can't get too attached to any one employee, and do other inefficient things that create economic friction.
Simple line to draw: non competes can't be enforced unless the employees total average compensation over two of the preceding 3 years (or the entirety of the employment period if less) is greater than 10x the federal poverty line for a household of two. That puts it for 2024 at 200k. Beyond that simply enforcing existing common law restrictions on geographic and temporal scope will be sufficient.
I don't really have a problem with non competes for executives, managers, major salesmen, top engineers. Make them spend six months or a year on vacation, no big deal.
But I once took what amounted to a retail job and they wanted me to sign an unlimited non compete. For a job where I made $50k! That's awful. No working man should face that kind of restriction on earning a livelihood.
That's a reasonable take. My gut response was "well if the terms are bad just don't sign it", but for working class people that's not really an option, especially if this becomes the norm and people get used to signing it. And this allows companies to have their noncompetes if it's important, but they have to pay for it so won't do it just because they can.
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There’s surely another easier way to prevent the “train an employee at great cost, then they get poached by a competitor for slightly higher pay”, namely very high signing bonuses that only fully vest after several years. So sure, you can jump after your year of training, but then you need to pay back the $100,000 (or whatever amount acts as enough of an incentive) we gave you when you joined.
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I could be wrong, this is just guessing, but I strongly suspect the social benefits of banning noncompetes are much higher than the social benefits of allowing them. Thinking first in the case of high human capital occupations, no noncompetes allows employees to freely move on to better-paying (and thus more productive) occupations, take knowledge with them, and start their own companies. These are the exact things that are critical to the existence of competitive markets - being able to choose a job that pays better and start new companies in niches that would be profitable is exactly what pushes prices down to efficient levels. And 'a new startup' is such a risky thing to do that having a noncompete hanging over your head could disrupt a lot of innovation. California, notably, has banned noncompetes for a long time, and also contains Silicon Valley. Some argue that was important to SV's growth - idk.
"On the other hand - an absence of non-compete distorts incentives for training, trade secrets, and customer sharing". In the specific case of programmers, I don't see noncompetes significantly reducing the extent to which people are trained. In the course of doing your job, you need to learn about what you're doing and what the rest of the company is doing, and you learn by doing. "Trade secrets" - having a high quality team and existing features and customers is more than enough moat to be profitable for a while, and anything more than that (compare to, like, stronger software IP) would, intuitively, reduce surplus by reducing competition. And empirically, tech seem to innovate a ton despite the existing California noncompete bans. "Customer sharing" - for most jobs, this isn't a big issue. It is for some - and for those, you could imagine a noncompete ban that carved those out - but even then, isn't 'an employee taking customers with them' the exact kind of thing that enables those customers to switch to a better product?
At a high level, the issue is that, despite the theory that anything that two parties agree to will be beneficial to both of them and efficient, rational agents and all - in practice employers have tremendous power in negotiations with employees for a whole host of reasons, and can use this power to insert clauses like noncompetes that employees just accept because 'everyone does that'. This is (one of) the reasons why there's a lot of regulation around the employer-employee relationship.
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Then they should pay the workers a wage that keeps them happily working there. Or at the very least non-competes should pay out severance/salaries for the duration they're kept out of the market.
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The market already has solutions to this problem, they're just normally used for highly skilled staff like programmers. One very common structure is to issue stock options that only vesting after a certain period (like 4 years), which strongly incentives workers to stay with the current firm until vesting. Another common structure in the academic market is that university's will purchase a house for a professor with a 0 interest rate loan that gets forgiven over the period of 10-20 years. But if the employee leaves early, then the loan reverts to a standard (or even much higher than standard) interest rate.
The problem with this is that the employee doesn't just get screwed if he leaves for better pay, he also gets screwed if he leaves for reasons such as being mistreated by his employer. Remember owing your life to the company store?
I don't currently have it at hand, but I read something at some point saying that mining towns, etc. were actually not that bad. They couldn't be too exploitative or you have unhappy workers and a bad reputation, and you can't hire people.
That assumes that the worker has options for jobs other than to go to work for the company. Company towns didn't have a lot of competition for jobs
But they can move. And they'd have to attract workers from somewhere to start the company town.
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I mean I think there’s room for reform here. There are jobs where you do have substantial access to proprietary information, client data, and strategic planning. These jobs I think it’s perfectly reasonable to have non-compete clauses for. And along the same time if your job is to be the public facing representative of your company, I think it reasonable to expect that they keep their public profiles business friendly. But in both cases I think it should be on the business to show that the person’s role is one that requires restrictions. If they can’t show that the job has significant reach into proprietary or strategic information that would cause harm if it became widely known, then they shouldn’t get to restrict the employee. If the person isn’t the public face of the company, the company shouldn’t be able to restrict free expression of legal ideas online. To me, the issue is a balancing act between the rights of the employees to live as they please and to seek opportunities in the market against the company’s need to protect its data and strategic interests.
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Doesn't this happen with tech visas when the employee returns to his or her native country where it the NDA cannot even be enforced?
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That argument is fully general. It's also true that if companies can't commit fraud they will do inefficient things that create economic friction. However, it's still worthwhile to make fraud illegal.
Well the possibility arises in all scenarios, but the outcome differs as a matter of weighing the two sides. Which causes more economic harm, the inefficiencies caused by fraud or the inefficiencies caused by behaviors in the absence of fraud? My understanding is that fraud is way worse than the work-arounds, so it should be banned.
Which causes more economic harm, the inefficiencies caused by non-competes, or the inefficiencies caused by the work-arounds? In genuinely don't know, I'm by no means an expert, so maybe it is the case that non-competes are worse than the work-arounds. But I don't think the magnitude of the inefficiencies caused by non-competes are anywhere near the inefficiences caused by fraud, so I don't think it tips the balance away from the default of legality.
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