American Job Non-Compete Clauses

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There’s a simple solution to this problem:

It takes the form of non-compete clauses in job contracts.

One might expect these to be used for chief executives, client relationship managers or top researchers – the clauses restrict their ability to jump straight over to a competitor, taking crucial business knowledge and contacts with them.

But the contracts have spread throughout the economy to a terrifying extent.

This chart shows it may be becoming more regular – almost one-quarter of young workers may be barred from competing, compared to just over one-in-six for older staff.

American job contracts all too often contain a non-compete clause. This does indeed reduce labour mobility at cost to the economy as a whole.

OK, what’s the solution?

Courts typically only enforce non-compete clauses in the UK when a “genuine business interest” is under threat, and common law rejects restraints on workers’ rights to practice their trade.

American common law is very similar to UK – no, that’s not the reason it’s called common – so that underlying principle is still there. All that needs to happen is that courts enforce that idea.

As, in fact, they largely do.

That is, sure, the clauses shouldn’t be there in the contracts in the first place but as they’re, at those lower levels, entirely unenforceable they don’t matter all that much.

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BlokeInTejasjghSteve FleischerEsteban Recent comment authors
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Esteban
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Esteban

It’s been a while since I retired, but my last employer, a large widely known business, had all employees sign them. Employees were completely free to go work anywhere else they wanted, but were restricted from luring away the clients they personally worked with or other staff. And those restrictions could be evaded fairly easily if both parties so desired. In exchange for signing the agreement the staff were given severance payment guarantees that were 100% enforceable.

jgh
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jgh

How on earth can a contract prevent somebody taking skills and knowledge with them? We don’t have the technology to wipe people’s memories – at least, not while keeping them alive.

BlokeInTejas
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BlokeInTejas

US law, if I remember correctly, allows you to leave with that general collection of Stuff you were bound to learn how to do while doing your job (there’s a word for that sort of knowledge that I’ve misplaced).

What you’re NOT allowed to export to your new employer is specific business info – product plans, market strategies, customers, pricing, the neat new trick in the microarchitecture to get the branch prediction improved by 50%, and so forth. Plus, employees names. And often, you mustn’t recruit folk you knew.

Not enormously burdensome for folk with ethics.

jgh
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jgh

I learned this great trick to do an 8-bit rotate when only 9-bit rotates are available while in job A. I’m not allowed to use it in job B? That’s….. brain-melting.

BlokeInTejas
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BlokeInTejas

Nah. The law’s not that stupid. It’s **biznis** related stuff above all. The great new trick would be something that was previously unknown, and effective, and was a significant competitive advantage. My view is that it’d apply in a case like out of order execution: if Tomasulu hadn’t published his algorithm for out of order execution, and there wasn’t a patent filed (etc), then he’d have been in trouble had he gone to Amdahl. On the other hand, if you’d come up with a neat method of renaming the registers – different from published AND the company classed it internally… Read more »

Steve Fleischer
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Steve Fleischer

Yes, those contracts are unenforceable, but…

I have used them to punish an employee who burned bridges on the way out.

Using corporate resources, I have sued, forcing the defendant to hire a lawyer. Plus his new employer doesn’t want to be caught in the middle, so he is typically let go (more trouble than he is worth).

Then we settle with each side agreeing to pay legal our own legal expenses (he is so relieved that he accepts the c. $5,000 hit).

“Pour encourager les autres”.

Sends a clear message to the troops.