Noncompete Agreements Have Become ‘Ubiquitous’

Discussion in 'Wall St. News' started by dealmaker, Dec 11, 2019.

  1. dealmaker

    dealmaker

    Noncompete Agreements Have Become ‘Ubiquitous’ in Financial Services and Elsewhere


    Roughly half of U.S. companies require at least some employees to sign contracts banning them from working for a competitor, according to the Economic Policy Institute.

    December 10, 2019

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    Non compete agreements have long been used by hedge funds and other asset management firms to keep key executives and portfolio managers from leaving and taking their best ideas elsewhere. Now these employment provisions are widespread in finance and other industries, according to a report released Tuesday by the Economic Policy Institute.

    In a survey of private-sector U.S. employers, 49.4 percent said that they required at least some employees to sign a non compete agreement — a clause banning individuals from working for or starting a competing business within a certain period of time after leaving their current jobs. Nearly a third of respondents reported that all their employees were required to enter into non compete agreements.

    These figures suggest that the use of non compete agreements is “ubiquitous” and “growing,” according to the report, authored by Cornell University professor Alexander Colvin and Heidi Shierholz, policy director at the Economic Policy Institute. Based on the survey results, they estimated that somewhere between 27.8 percent and 46.5 percent of private-sector workers are now subject to non competes.

    Finance, insurance, and real estate companies were among the biggest users of non-compete contracts, according to the report. The survey found that about 58 percent of these companies made at least some employees subject to non compete agreements, while 35.5 percent indicated that all employees were required to sign them.

    Hedge fund firms Brevan Howard and Citadel have engaged in legal battles with former employees over non compete clauses.Institutional Investor reported in 2015 that Brevan Howard co-founder Chris Rokos had engaged in litigation against the firm to overturn an agreement preventing him from starting his own hedge funds for five years following his departure. They settled their disagreement.

    The Wall Street Journal reported in 2009 that Citadel had asked a judge to temporarily shut down the high-frequency trading firm founded by former employees who had left earlier that year.

    Video: Economist
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    [IIDeep Dive:Non-compete Agreements May Get Tougher to Enforce]

    Investment professionals such as those employed by hedge funds are typically highly educated and well compensated. The average portfolio manager at a U.S. hedge fund expected to make around $1.4 million in 2018, according to II’s All-America Buy-Side Compensation survey.

    However, the Economic Policy Institute study found that non compete agreements are not limited to the most highly paid and skilled workers.

    Among companies that typically employed workers with “some high school” education, 20 percent required all employees to sign non compete agreements, while 32 percent reported that at least some employees where subject to non competes. For companies that typically employed workers with a high school diploma, these figures rose to 27.1 percent and 43.9 percent, respectively.

    Non compete agreements were also found to be in use at companies that paid average wages below $13 an hour. Among these companies, 29 percent said all employees were subject to non compete clauses, while 37.9 percent said some employees were.

    “Non competes limit competition among businesses and stifle workers’ wage growth — given that changing jobs is where workers often get a raise,” Colvin said in the Economic Policy Institute’s statement on the report. “The rise of non competes is likely an important contributor to stagnant wages and declining job mobility in the United States in recent years.”

    https://www.institutionalinvestor.c...biquitous in Financial Services and Elsewhere
     
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  2. gaussian

    gaussian

    They're also virtually unenforceable. If I recall correctly, in California they are illegal unless you are selling a business, and a lot of businesses base their practice on California law. It is a shame the American Rule basically enables employers to sue their employees into bankruptcy despite the likely unenforceable nature of many of these contracts.

    It used to be common in tech to be forced to sign non-competes. I'm not a lawyer, but I remember the explanation for their falling out is there were a lot of cases of software engineers suing the company that made them sign. The reason being, if your only line of work is XYZ where XYZ is specialized, it is unreasonable to enforce a non-compete that effectively locks an employee out of gainful employment. Software engineers in general have so many options available to them dropping a non-compete on one in a final interview will likely have them going to your competitor anyway.

    NDAs are more enforceable (but even those have their problems).
     
    Last edited: Dec 11, 2019
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  3. 2rosy

    2rosy

    if you get sued you will need to pay a lawyer and will lose the money you're paid while you sit out. it's usually not worth trying to get out of a non-compete.
     
  4. interdim

    interdim

    I'm sure their are exceptions but in the majority of the cases non-competes are not enforceable. A company attorney may try to bully or intimidate you but that's usually what it comes down to. I speak from experience from dealing with one of those high flying attorney's from Chicago who tried to do that to me and a friend of mine. Both of us left the firm we working for and started our own firm. We both knew that firm would eventually fold and it did. You have a right to go to work in your field. But as with anything in the business world you better consult an attorney before signing any documents, but most don't because they want the job or they want to get the 'deal'.