5 ms·

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 struc

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 Even if their contractual NC is no longer valid, there is not a new employer to make their deferred comp whole.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.

hamandcheese 3y ago
> Also what this does not address is non-association clauses which are just as restrictive and non-competitive. I've never heard of a non-association clause, could you explain it? Is this the same as a non-solicitation clause?
- detroitcoder 3y ago
  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.
- jonluca 3y ago
  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.
  - anonymouskimmer 3y ago
    > 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.
    - Spooky23 3y ago
      It probably makes it worse as you need to disclose that you are a lobbyist and often who you meet with.
    - delecti 3y ago
      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.
      - anonymouskimmer 3y ago
        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.
      - 3y ago
anonymouskimmer 3y ago
> 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-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.
- JohnFen 3y ago
  > 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. How did those new employers learn about the noncompete?
  - anonymouskimmer 3y ago
    The GP comment made this statement, not mine.
    - JohnFen 3y ago
      Oops, sorry
      - anonymouskimmer 3y ago
        Turned out to be okay. I enjoyed reading the back and forth. :)
  - detroitcoder 3y ago
    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."
JohnFen 3y ago
> 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.
- detroitcoder 3y ago
  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.
  - s1artibartfast 3y ago
    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?
    - smsm42 3y ago
      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.
      - throwway120385 3y ago
        Depending on how it's written they can bar you from performing your skillset and experience, leading to atrophy.
kanbara 3y ago
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. totally insane— america needs more labour rights.
- hollowcelery 3y ago
  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.
- HWR_14 3y ago
  In the UK and other places this is also common. They are just agreeing to pay you for another couple of years to not work for a competitor.
throwaway2037 3y ago
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.
erosenbe0 3y ago
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.)

hamandcheese 3y ago

> Also what this does not address is non-association clauses which are just as restrictive and non-competitive. I've never heard of a non-association clause, could you explain it? Is this the same as a non-solicitation clause?

detroitcoder 3y ago
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.
jonluca 3y ago
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.
- anonymouskimmer 3y ago
  > 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.
  - Spooky23 3y ago
    It probably makes it worse as you need to disclose that you are a lobbyist and often who you meet with.
  - delecti 3y ago
    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.
    - anonymouskimmer 3y ago
      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.
    - 3y ago

anonymouskimmer 3y ago

> 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-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.

JohnFen 3y ago
> 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. How did those new employers learn about the noncompete?
- anonymouskimmer 3y ago
  The GP comment made this statement, not mine.
  - JohnFen 3y ago
    Oops, sorry
    - anonymouskimmer 3y ago
      Turned out to be okay. I enjoyed reading the back and forth. :)
- detroitcoder 3y ago
  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."

JohnFen 3y ago

> 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.

detroitcoder 3y ago
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.
- s1artibartfast 3y ago
  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?
  - smsm42 3y ago
    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.
    - throwway120385 3y ago
      Depending on how it's written they can bar you from performing your skillset and experience, leading to atrophy.

kanbara 3y ago

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. totally insane— america needs more labour rights.

hollowcelery 3y ago
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.
HWR_14 3y ago
In the UK and other places this is also common. They are just agreeing to pay you for another couple of years to not work for a competitor.

throwaway2037 3y ago

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.

erosenbe0 3y ago

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.)