Non-compete clauses in employment contracts commonly prevent an employee from working for a competitor after leaving their job. Employers claim this is necessary to protect trade secrets. In reality, non-compete clauses are merely tools used to unfairly suppress market rates for employee compensation.

Note: I’m not a lawyer, I write software. Hire a lawyer if you need legal advice.

Anatomy

Non-compete clauses in employment contracts prevent the employee from working at a competitor. This can be limited to the duration of your employment, or can extend for a period of time after leaving your job.

Here’s an example of non-compete language from one of my job offers:

In consideration for my employment with the Company and other valuable consideration, I agree that, during the period of my Relationship with the Company and for a period of twelve (12) months thereafter, I will not, directly or indirectly, engage in, be employed by, perform services for, participate in the ownership, management, control or operation of, or otherwise be connected with, any Competing Business, in a capacity that is the same as or similar to the capacity in which I performed services for the Company.

[…]

“Competing Business” means any business whose efforts are in competition with the efforts of the Company, and/or any parent, subsidiary or affiliate of the Company. A Competing Business includes any business whose efforts involve any research and development, products or services in competition with products or services which are, during the Relationship, either (a) produced, marketed or otherwise commercially exploited by the Company (including any parent, subsidiary, or affiliate) or (b) in actual or demonstrably anticipated research or development by the Company (including any parent, subsidiary or affiliate).

Employees who violate these agreements are often sued by their former employers. If your former employer sues you to enforce a non-compete agreement, you can be prevented from working at a new job and/or be forced to pay your old employer court-awarded damages.

Quitting is market feedback

As workers, our most important leverage in negotiating compensation for our labor is our ability to quit and obtain a better deal with a different employer. In a functional labor market, employees who quit also improve conditions for those who stay. Employers become motivated to improve working conditions to prevent further departures. In turn, this leads to increased wages.

Employees with non-compete clauses often think twice about changing jobs. Regardless of whether an employer actually sues to enforce a non-compete, the fear of a lawsuit is often enough for employees to reconsider taking a new job. When workers are less able to leave and find a better deal for their labor, companies unfairly benefit by being able to pay less than what a functional labor market would otherwise compel them to offer.

I am not the only one that recognizes this:

Lower employee mobility means lower wages

Companies are well aware that reducing employee’s ability to change jobs results in lower employee wages.

In the 2000s, several large tech companies including Google, Apple, Adobe, eBay were found to have illegal agreements not to hire each others’ employees. Wages of over 64,000 employees at the affected companies were estimated to be depressed by a collective $3 billion.

The emperor has no clothes

Employers routinely claim non-compete clauses are needed to protect proprietary information and trade secrets. This is a complete fabrication, proven by California’s continued existence.

California has rendered all non-compete clauses in employment contracts unenforceable since 1872. Employers in California can’t successfully sue former employees who leave for a new job at a competitor. Employers have tried various legal trickery to maneuver around California’s ban on non-competes, and have failed in every case.

If workers’ ability to leave for a competitor was truly a disaster for employers, then no companies would hire employees in California. Last I checked, all sorts of companies still hire and locate their headquarters in California.

Companies can and do protect proprietary information and trade secrets by requiring employees to sign non-disclosure agreements (NDAs). A reasonable NDA is a business tool that serves a valid purpose.

I am altering the deal

I have received offer letters multiple times during my career which reference additional employment terms that weren’t provided with the initial offer letter.

Employment contracts can have sweeping terms and effects. It’s important to read everything in full before signing an offer. I always ask for a copy of the full offer terms before considering a job offer.

In one case, I was provided with a copy of the additional terms of my offer. These terms had a non-compete clause that ended with employment, which I had no issue with. I electronically signed my offer letter, and asked for the signing link for the additional terms. I was told I would sign on my first day.

On my first day, I was presented with a contract to sign that had a non-compete lasting a full year after employment. I refused to sign, and spent a month going back and forth with the company’s legal department while I was working at the new job. Instead of ramping up on the job, I spent that month living with the uncertainty of whether I would still have the job at all. I hired a lawyer and ultimately reached a compromise with the employer, but I will never allow this to happen to me again.

Data shows my experience isn’t uncommon. Of all workers who have signed non-competes with their employers, most weren’t presented with the full non-compete clause in their initial offer terms.

Pray I don’t alter it further

Who does your employer compete with? Many non-compete clauses don’t specifically say. Who your employer considers to be a competitor may surprise you. The list of companies your employer competes with can also change over time.

I had a non-compete clause in my employment agreement when I worked for Zillow. When I signed my offer, I generally understood the non-compete to mean I couldn’t quit to go work for Redfin. During one all-company meeting, leadership mentioned Airbnb as a competitor to Zillow. In my mind, Zillow and Airbnb were sufficiently different that my non-compete wouldn’t prevent me from quitting at Zillow to work for Airbnb. But, in that moment, I realized there were more companies than I thought where quitting for a new job could put me in legal jeopardy.

My non-compete language at Zillow applied to all elements of Zillow’s business, not just the specific area I worked on. When Zillow started getting into the home-flipping business, my non-compete would have applied if I left for any company that bought and sold homes even though my work had nothing to do with that element of Zillow’s business. Zillow had expanded the effective application of my non-compete clause without changing a single word of my contract.

No more

I no longer sign non-compete agreements that are effective after the end of employment. Employers are strongest at attracting and retaining talent when they do so based on the merits of their compensation and working conditions. The tech industry job market is as hot as its ever been, which gives workers leverage. As workers, we should not tolerate restrictions on our ability to obtain the best price and terms for our labor.