This is a big deal! Non-competes are a major factor in the finance sector. In tech circles, this mainly impacts HFT firms and prop shops employing software people.
There's a well-trodden path in NYC from HFT/Prop #1 -> Big Tech, for duration of a non-compete -> HFT/Prop #2, that can be shortened by one node.
Yes this is great but the way non-competes are enforced for many in the industry this won't have a huge impact because of the way deferred compensation is structured. Most people when they leave are bound to two separate forms of non-competes.
The first is what is being invalidated here, which is a contractual non-compete. The second is a non-compete clause that is a function of your deferred compensation. Here the firm pays a portion of your bonus into the fund that vests over time. Often times a condition of the vesting is that you can leave, but if you do anything competitive for a 1-2 year period following the end of employment with the firm, that deferred comp will be clawed back. For most people this is the most important. It is common for a new fund to offer the employee a make-whole agreement where they will transfer your marked to market deferred comp into the new fund knowing that your prior employer will zero out your deferred comp. This will now in theory allow employees to switch employers that are competitive and start immediately with zero downside as long as the new employer makes the employee's deferred comp whole.
Where this is the worst is for new entrepreneurs leaving these funds that want to start on their own. Even if their contractual NC is no longer valid, there is not a new employer to make their deferred comp whole. Also even in CA where NC's are in theory non-enforceable, I know multiple people whose new employers did not want to test the water with very litigious firms and had people sit out the full NC. Also what this does not address is non-association clauses which are just as restrictive and non-competitive.
Lastly NC structures in this industry change every year and vary significantly across firms so you can't paint with too broad of a brunsh. But all in all I love this change. There is a lot of passion and talent that is forced to sit idle because of NC's.
> The second is a non-compete clause that is a function of your deferred compensation.
Over the decades, I've learned that deferred compensation is such a double-edged sword that I no longer take it into consideration at all when I'm considering a job.
My primary compensation has to be satisfactory assuming I'll never get a dime beyond that. If I end up getting deferred income, gravy! But if I don't, I'm still fairly compensated -- so no loss.
This is a GREAT point, but hard to do in practice when deferred can be several multiples of base. I know many people who internalize large sign on bonuses and deferred comp as though they already earned the income. They are psychologically unable to accept writing this amount of money off, and force themselves to stick in situations that are at times not healthy or at least sub-optimal. Often times this is called life, and you deal with it because it is putting food on the table and providing above and beyond for your family. However a lot of times it would be better to just find something that makes you happier which is easier if you don't factor in deferred comp when thinking through personal finances.
So let's say you strip it down to the bare minimum. If an employer said I will pay you X times your a salary to not start a competitor for 2 years, should that be legal?
> I will pay you X times your a salary to not start a competitor for 2 years, should that be legal?
What about joining an existing competitor? How is "competitor" defined? Is it competition if someone left Apple's iWork team to join Microsoft's Office team? Or just left Apple to join Microsoft even if it's in a non-competing, or even a team that's actually beneficial to Apple's bottom-line (e.g. Azure, as iCloud runs on Azure+AWS+GCP)?
...these difficulties in nailing down "competition" is what leads to overly broad and ultimately unconscionable noncompete agreements.
Ultimately I wouldn't trust an employer to define it for me - so if I were in that position I'd tell them I'd treat a noncompete as a gardening-leave clause and require 200% my final TC for the same time period (so 4x my salary for 2 years) - if my ability to compete with the company is really worth that much then they'll gladly have no problems paying it - and if they don't, then they're clearly a company that wants to exert undue interference (i.e. punishment?) on former employees for no good reason and I'd interview somewhere else.
Nah. Any society probably suffers when people are legally limited in doing something they're trained to do.
On a philosophical level, I'm not sure it's good to allow people to sign away any kind of freedom, including the economic liberty to start your own company. Competition is also very important for capitalism to work for people who don't own capital...
Why not? If they want to buy your time & experience, and don't even require you to show up in the office but just do nothing - what's wrong with that? If the competitor wanted, they could counter with X+2 times and win.
Why would society want to prevent the employee from freely entering into such an agreement? I don’t see sufficient upside to warrant the restraint on freedom that making this illegal would impose.
“You’re allowed the pursuit of happiness, but not in this particular way.”
I mean money is money and its all a negotiation tactic.
For example I've never had deferred comp til my previous firm.
Every time I moved I asked for a signing bonus and they told me to get out.
This time I mention "Well I have some deferred comp I'd be foregoing".. verbally give them a number, and now they are offering me a sign on bonus, cash, in first paycheck 33% above what I was losing in deferred.
Hilariously they didn't even ask for documentation..
Another place sounded like they were going to to through the documentation on prevFirm deferral and put me in some form of deferred comp equivalent with a worse vesting schedule, but again, money I have never had anyone offer me before.
This: <<the way deferred compensation is structured>>
A tiny fraction of the industry qualifies for "deferred compensation". I guess about 1-2%. It is wildly overstated in the media. A huge number of people work their entire career on Wall Street as software developers and are 100% cash comp. Even if "deferred comp", it is RSUs, not cash. And the RSUs are no strings attached -- no clawback -- because the average Joe Blow has no chance to commit any real financial crime from their seat.
It's even worse - you aren't allowed to work with anyone that you previously worked with for the duration of the clause.
I worked at an NYC based hedge fund until April 2022, and am not allowed to work with anyone that I've worked with at the fund until April 2024, regardless of when they left. This applies even if we don't work on anything competitive to the fund, or even related to finance.
Does this apply to working with them in, say, a lobbyist's office? In certain, narrow circumstances I think this would conflict with various laws governing the right to free association and petition. And if you were both elected/appointed to office in the same legislative or executive body I presume the sovereign political interest would trump this clause.
Non-compete (and non-association) clauses aren't government regulation, it's agreements you make when accepting the job. Your first amendment rights aren't infringed by work dress codes either. You aren't at risk of criminal penalty, just whatever civil penalty is specified in the contract.
Not that that means they're necessarily okay, it's just unrelated.
This is why I wasn't citing the first amendment. It is not the only such law that exists. Even if it was I wouldn't have cited it because of the US Constitution's contracts clause. Some contract terms are unenforceable though, at least under certain circumstances. I just wonder how these things balance out in edge cases.
I don't know about the law of the United States, but here in New Zealand a contract purporting to interfere with the right of a citizen to stand for election to Parliament would be void as contrary to public policy (Peters v Collinge [1993] 2 NZLR 554), and there are various common law precedents on similar matters going all the way back to 1785. I would guess that a contract that purported to bind one of the parties not to vote in an election would be void in the United States, right? And probably one requiring the person not to stand for election too. Whether that extends all the way to a contract preventing someone from working in a politics-adjacent area like lobbying is questionable, of course, but it's worth bearing in mind...
Yeah, these are crazy.
I had a 3 month non compete (paid, it's great if you time it in summer).
BUT also a 5 year non-solicitation clause. The language is strict such that even if I & coworkerX move elsewhere, if I solicit coworkerX in that 5 year loopback they threaten to go after me.
So are these agreements legal in the sense that they'd stand up in court? No not really.. but you don't want to risk it.
All firms in the industry enforce similar clauses and defacto respect each others, such as to keep the facade up.
I had a firm make me a very generous offer and ask if I could get my PAID non-compete waived at old fund.
I asked - well you are asking me to ask to get my 3 months paid time off waived, can you offer me something in return.. like you'll pay me for 1 month and I'll start 2 months earlier?
They said absolutely not, they don't want to be seen as soliciting me to violate my contract with old fund.
You cannot work with a former colleague for an explicit duration in an economic capacity for a fixed period of time. This may or may not be dependent on the nature of the work being conscidered competitive (I have seen both). I have only seen these clauses referenced in deferred comp, not contractual non-competes.
Your analysis is not likely correct. The bill appears to be aimed quite generally at restrictive covenants, outlawing any contract restraining a covered individual's employment.
This would void any agreement predicating the terms and conditions of deferred compensation on employment restraints.
It would also likely defeat any gardening schemes since contracts could no longer prohibit a covered individual from practicing their profession.
(I am not an expert on NY Law and it is possible that I am wrong and this bill isn't really intended to cover finance or tech professionals making solid money.)
> Also even in CA where NC's are in theory non-enforceable, I know multiple people whose new employers did not want to test the water with very litigious firms and had people sit out the full NC.
It's a known effect that not working can take a physical toll on some people (i.e. the mortality effect of retirement - https://www.nber.org/bah/2018no1/mortality-effects-retiremen... ). I'm sure no one would ever do it, but I wonder if an employee would win if they sued both the old and new employer as co-conspirators to violate California's non-compete prohibition, citing the not-working health toll as their standing to sue.
It comes up durring hiring processes. Pretty common to have someone ask, "Have you entered into any legal agreement that would prohibit you from working with us or have any conflict of interest? If so please explain."
It is not lying if the question is "Have you entered into any legal agreement that would prohibit..." when in California that agreement is void. That means there is nothing that would prohibit you.
For anyone who hasn't signed an employment contract in California, it'll have the boilerplate noncompete they use everywhere but it will also have an addendum page that says basically "the noncompete back on page x doesn't apply to you so ignore it".
i’ve never heard of the second form of non-compete. how would the former employer even know? how is that legal? any amount of compensation that is finalised upon leaving the company (e.g. RSUs) should be yours to own, period. that’s akin to saying they can legally demand your paycheques back because they didnt like the company you went to.
In this arrangement you don’t yet own the deferred compensation when you leave the company. It does not belong to you. Instead your contract with the company might say “we will set aside an amount of money (which isn’t yet yours) and portion it out to you for 1-2 years after you leave, conditional on you not joining a competing firm in that period. If you join a competing firm, we will stop paying you.” Alternatively, the company will just pay you your full salary (plus maybe a fraction of what you used to get in bonus) for this period.
Essentially you’re being paid an income not to work for the competition. Most people take this deal as it tends to be pretty good — think several hundred thousand dollars for you to take an extended holiday or work on personal projects.
If you do take a competing offer during the non-compete period, the company might also use legal action against you, which is another story entirely and one whose threat most people would prefer to avoid.
New York is also the financial hub of the country. Removing non-competes creates a culture where employees can readily jump ship from their companies and form their startups w/o recourse. Not sure if that Silicon Valley culture makes sense in the financial sector.
> There's a well-trodden path in NYC from HFT/Prop #1 -> Big Tech, for duration of a non-compete -> HFT/Prop #2, that can be shortened by one node.
I've seen some folks do HFT/Prop #1 -> HFT/Prop #2 in London/Singapore.
In finance though, don’t people usually get a cushy 6 month paid “gardening leave” when they switch? So I’m not sure how much non-competes help if employees are already being offered contracts and $$$ to not compete. This law won’t make “gardening leave” any cushier?
>In finance though, don’t people usually get a cushy 6 month paid “gardening leave” when they switch?
Getting paid your salary for a couple of months (three is more common than six, in my experience) when most of your earnings might typically be in bonuses is less cushy than you might think.
At least in NYC - the non-competes that I know of are for way longer than a couple months. Most of the guys I know with non-competes are at least six months with many being a year or two... They're not getting paid peanuts either. They're still getting very good paychecks.
That sounds like it applies to a miniscule amount of workers, while many more workers are forced to sign non-competes but get no special treatment (or cash) from their employer for bearing that burden.
Not really. It's widely understood that NY won't enforce a non-compete if its not paid. It's very common in the hedge fund world to get paid your salary for a year to do nothing, even for junior developers. It depends on if the company really wants to hold you out or not. They will release you from the non-compete if they don't want to pay.
On the other hand, in the hedge fund world, bonuses are a big part of comp but generally only base pay is paid out, so in reality you might be say 150K to 250K while your comp in expectation is much, much higher. For a junior dev maybe your bonus is .3x to .6x base but for someone senior, your bonus might be 1x to 5x base or more depending on where you sit in the organization. Therefore sitting out still costs you a lot of money.
I am not a lawyer but it strikes me that such a threat (of action which the employer is not legally entitled to take) would probably violate a law or two. This wouldn't help the employee unless they went to court or the NLRB with it, but if some employee eventually did the court/NLRB may require things from the employer to prevent such incidents in the future.
I don’t think Walmart cashiers are saddled with non compete. You might have a good point here, but you will fail to get it across if you frame it in such ludicrous, obviously false way.
This article is just NYTimes grasping at straws, trying to conjure a narrative that’s completely foreign to 99.999% low wage workers.
Non-compete clauses are not “concerningly common”, these are in fact so rare that NYT couldn’t even point out to a single example of non-compete actually affecting low-wage workers: their leading example of Jimmy Johns is not something that ever been enforced, and I seriously doubt that any worker there is even aware of this clause in the contract (low wage workers don’t read these anyway).
This is data from a longitudinal survey of which the respondents were 32-38 years old when in the 2017/2018 survey.
Scroll down to Table 1 and Chart 2 and it looks as though non-compete agreements affect about 1 in 11 people who make approximately minimum wage (presuming these self-reports are accurate), and increase in frequency from there.
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Non-competes for job creators can indirectly impact low-wage workers by preventing a job-providing business from opening in their area.
And while trickle-down economics isn't that powerful of a force, it does exist. When non-competes suppress higher-level wages this has a knock-on effect on lower wages, and a side-effect of reducing the discretionary income the higher wage people can spend into the lower-wage economy.
Finance uniquely has little in the way of IP protection. There are strong incentives to keep a former team member out of the market for a year if they have your secret sauce.
As I understand it, yes, but being <some long duration> "out of the game" is a large opportunity cost if your intent is to go right back into finance. So the gardening leave is often not the best decision, career-wise, unless you're planning to exit finance altogether.
IMO, it's healthier for the overall industry/market if talent can move more freely. As one example, it makes it much more challenging for toxic cultures to persist in their current form, if the Sword of Damocles (NCA) isn't hanging above the off-ramp.
Garden leave probably won't be a thing anymore. The main reason it existed was to prevent lawsuits related to non-competes and loss of income. Basically they didn't want the non-competes challenged.
Now that that doesn't matter, they may just not offer it at all.
Or it might go the other way, where they offer you a year of salary and bonus to keep you away from competitors.
You are wrong, the proposed law bans both paid and unpaid non-competes. The point of gardening leave is that it’s mandatory and not voluntary. Making it voluntary defeats the purpose because anyone who wants their career to keep progressing is going to turn it down even if you offer to pay them.
>If enacted, the provisions of S6748 would prevent employers from entering into or maintaining non-competition agreements with workers, including independent contractors, absent a “good faith basis” to believe that a non-compete agreement is enforceable. The bill does not expand upon what constitutes a “good faith basis.”
"When you signed on, in good faith, you agreed to a 6 month paid notice period."
It depends. I personally once saw an offer where 'gardening leave' was only included if the employer chose to let you go, i.e. not if you chose to leave. And it wasn't for 6 months, IIRC it was at least a year.
And of course it didn't included any bonus, which is typically the larger portion of total comp in these situations.
The point of gardening leave is that it is mandatory, not voluntary. People are not going to choose to put their career on pause when they could be working, even if you pay them.
The proposed law will ban mandatory non competes, even if they are paid.
The proposed law bans voluntary non-competes as well as mandatory. It states that employers may not even accept such covenants. It is an absolute ban on employment restraints.
If everybody knows it’s the deal, which is apparently the case in NY finance, it’s a non issue.
In fact not having a gardening leave might be more suspicious, as it means you’re so useless and out of the loop your previous employer doesn’t think there’s anything you could be carrying over.
It's not usually a deal breaker because of how common it is, but it does matter. You are going to be disadvantaged against someone who can start sooner. I fully support this legislation. Non-competes are anti-competitive, period.
This doesn't seem like as big of an issue as you make it sound from my anecdotal experience. The finance guys I know in NYC don't have this issue? It's such a common part of the work that hiring people this far out in advance is quite common...
Garden leave and notice periods are, to some degree, a coordination issue. "You have to give us and we have to give you three months notification of termination of employment" works (mostly) fine when everyone does it and they know it's just the way things are. It's harder when you're that problem candidate who can't start for three months when that isn't the norm.
That is completely normal. College hires are either returning interns from the previous summer or else mostly recruited in the fall to start after they graduate in the summer, so almost all new grad hiring takes place 6-12 months out anyway.
Focusing narrowly on New York City (proper) and State -- ignoring New Jersey and Connecticut: For all software developers employed by (a) HFT/prop shop or (b) major ibanks (Morgan Stanley, Citigroup, BAML, etc.), what is the ratio? I guess it is (a) 1% vs (b) 99%.
I do not agree with this phrase: <<major factor in the finance sector>>
In reality, most software devs work under an ibank contract that looks like:
(a) x months of notice is required before leaving your job. The firm may optionally grant you gardening leave -- don't come to office, but we pay you, and you cannot take another job.
(b) You cannot hire away teammates for one year.
There are no rules about why type of firm you can work for after leaving. To me, this is not a traditional "non-compete" contract. Also, before anyone gets too jumpy on HN, this type of contract has existed on Wall Street for more than 15 years. It is tried and tested in the courts.
The rules may be different for managing directors, but they are (at max) 2-5% of the population.
I don't know if the finance sector would consider this a big problem, but if it turned out to be a big problem, wouldn't they just be able to bypass it by opening up specific offices in, say, NJ or CT? A ton of firms are already located in CT.
Not to take away from that but I feel like the cases of them being enforced against, like, hairdressers and sandwich shop employees who can by no stretch of the imagination be said to have valuable proprietary information (and aren't earning that much in the first place) is much more egregious.
What will actually happen is NY will become less attractive to HFT/Prop firms and people jumping in and out of these firms will see lower sign-on bonuses
There's a well-trodden path in NYC from HFT/Prop #1 -> Big Tech, for duration of a non-compete -> HFT/Prop #2, that can be shortened by one node.