Revisiting the idea of noncompete clauses

Posted by Q McCallum on 2023-01-09

The FTC recently proposed a rule to ban noncompete clauses in employment contracts.

I’m hardly an employment attorney – I’m not an attorney at all, to be clear – but I feel this is a step in the right direction.

In my view, noncompete clauses harm:

  • employees – by artifically limiting their opportunities to change jobs
  • employers – because if new employees are unable to join from other companies, they can’t bring fresh ideas into the company
  • the wider job market – by drying up liquidity and slowing the spread of industry best practices

That said, I recognize that certain employees carry some “secret sauce” in their heads. A company may not want them taking that knowledge to a competitor. That’s why I’m a fan the " garden leave" approach that is pretty much standard on Wall Street. In short:

  • The company decides how long you have to wait before you can start your job at a competitor … but
  • … the company also has to keep paying you for the time you’re contractually unable to work for that competitor.

This approach puts the burden of the noncompete on the company, where it belongs.

I wrote a short piece on this several years ago. Given the FTC’s proposal, this seems a good time to dust it off for a re-read:

“Planting a Seed: Setting a New Direction for Tech Noncompetes”