8 ms·

A California hedge fund bulldozed state labor laws, imposed harshest noncompetes

107 points by LastNevadan 3y ago

pinewurst 3y ago
https://archive.ph/Qh5Wq https://archive.ph/Qh5Wq
toomuchtodo 3y ago
The Voleon Group, Berkeley, CA https://voleon.com/ https://voleon.com/ https://en.wikipedia.org/wiki/The_Voleon_Group https://en.wikipedia.org/wiki/The_Voleon_Group
User23 3y ago
My understanding is that merely proposing an illegal noncompete in California creates a cause to sue, but I’ve never heard of that being acted on.
- lazide 3y ago
  The just passed law would make it a civil violation (which if documented would be a slam dunk) to propose such a clause it looks like. Here is the text of the bill [https://legiscan.com/CA/text/SB699/2023 https://legiscan.com/CA/text/SB699/2023] The previous section of the B&P code (16600) can be found at [https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=BPC&division=7.&title=&part=2.&chapter=&article= https://leginfo.legislature.ca.gov/faces/codes_displayexpand...] specifically [https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600 https://leginfo.legislature.ca.gov/faces/codes_displaySectio....] which makes it illegal to restrain anyone from trade (which includes non-compete). No civil violations, but if you suffered an injury due to such a clause, then you could probably sue over it. Just way less clear, and also way less clear you could get things like attorneys costs - which the new law makes a thing. It also adds a section making any such contract signed elsewhere unenforceable in California (how that would play out in Federal Court still TBD. Seems unlikely to go well though). [https://www.littler.com/publication-press/publication/california-reaches-across-state-lines-invalidate-employee-non-compete https://www.littler.com/publication-press/publication/califo...]
  - OkayPhysicist 3y ago
    Seems like it would be a pretty fun little hustle to create a tiny law firm specializing in racking up some legal fees while suing companies being stupid enough to include such illegal noncompete clauses. The actual damages payouts probably wouldn't be great (as, at best, you've got the employee's salary over the period of their unemployment due to thinking the noncompete was binding), but for a trivial amount of work ("Your honor, here's the employer's signature, here's the illegal noncompete clause, No further arguments"), it could be a half decent cash flow for the lawyers. Not sure if it's legal to kick back legal fees to your client, but if so, that might work.
- surfacing_vol 3y ago
  Right, I thought that got buried a bit in the article. It doesn't matter if the non-compete is paid or not or if it's 18 days or 18 months long. It shouldn't be enforceable. The exceptions I'm aware of are: * Voleon could claim that Delaware law applies. They'd have a tough case since they have literally no presence in the state - they're just a Delaware LP (like most hedge fund management companies). But, as the article noted, this works only if the employee had an attorney review the agreement. And even if that did happen, recent cases in Delaware suggest that Delaware might still rule that California law applies: https://www.mofo.com/resources/insights/230331-delaware-cases-stricter-review-sale-business-non-competes https://www.mofo.com/resources/insights/230331-delaware-case... * If Voleon pays its employees through a K-1, basically giving them shadow equity, then you could argue that the employees are LLC members or limited partners and that the non-compete is enforceable. But Voleon doesn't do that. * Really, Voleon seems to be putting most of its weight on the (totally bogus) argument that the non-compete is voluntary. Telling that the spokesperson wouldn't say how many employees, particularly at higher comp levels, actually chose not to sign.
j7ake 3y ago
Checking voleons website some of their standard roles pay 150-190k, don’t know how they expect someone to accept that job with non competes like that.
- emidln 3y ago
  I've black lined a lot of clauses in employee agreements like the one in the article. When questioned by the company I tell them I cannot agree to such terms at the salary being offered and generally propose what I consider to be an outlandish number as salary plus paid PTO in exchange for it. Typically, the company just signs. Sometimes they tell me to eff off. Only once has someone paid me what I thought was an absurd rate to not work for their competitor. My current non-compete is in the finance industry and uses paid salary during garden leave as a way of avoiding non-compete laws. Nobody esp cares whether it is legal since its a year or two paid vacation.
  - blitzar 3y ago
    > My current non-compete is in the finance industry and uses paid salary during garden leave as a way of avoiding non-compete laws More often than not they will quite happily waive the non-compete and the pay - a sensible arrangement for all concerned.
    - renewiltord 3y ago
      Yes, this happens often enough but for those who it doesn't, the salary isn't really enough. You'll drop from almost a million to a few hundred k.
      - emidln 3y ago
        We're told from the start to live within our salary and investment returns. If you make $200k base, usually make about $1m TC and choose to spent all of your cash every year, I don't feel esp bad for you. The operative word from VR is variable. Leaving, not negotiating a sign-on bonus with the new firm, and getting your garden leave enforced isnt much different than a bad year wiping out your VR, except you have to make your own mistakes at every turn to put yourself in that situation.
sna1l 3y ago
> In 2017, The Wall Street Journal reported on the difficulties faced by the firm. At that point, Voleon had an annualized return since inception of 10.5%, below the S&P 500 index return of 10.7% over the same period. One of the problems encountered was that financial markets were chaotic, and machine learning systems were best applied where patterns were more repeating in nature. In addition, patterns that are found can be easily made redundant after investors notice them and take advantage on them. Gary Smith writes that patterns discovered by the algorithms are often simply coincidences rather than actual correlations.[2][3][7] > In 2018, Voleon had a return of 14% during a market turndown where the S&P 500 index dropped 6.2%. However, in 2019, its returns dropped to 7%, below the returns of its hedge fund peers of 9.2%. In 2020, Voleon's flagship fund lost 9%.[6][8] Given their returns, how do they have 7.6 billion AUM?
- infecto 3y ago
  Not defending this fund or any other hedge and I do not know the defined purpose of this fund but they generally exist to hedge your risks and are not there to beat the S&P500. Thats why they exist for accredited investors and not your regular investor saving for retirement.
  - JackFr 3y ago
    Im pretty sure they exist to beat the market. They are called “hedge funds” because, as opposed to other stock funds they were allowed to take short positions while mutual funds could not, and so they could hedge some of their risk.
    - ITB 3y ago
      If a hedge fund returns a bit under SP500 on average but is more predictable and always has a positive return, it will definitely be desirable.
      - CPLX 3y ago
        Even if it’s not predictable and is occasionally negative it’s still really valuable if it’s totally uncorrelated.
WarOnPrivacy 3y ago
This exchange was clarifying to me. In a statement to Insider, a Voleon spokesman said: "Like most hedge funds, in order to protect its most sensitive intellectual property, Voleon requests that select employees sign noncompetition agreements. Voleon's non-compete agreements are not a condition of employment. Those who sign it will receive a paid garden leave. Those who haven't signed it remain employed at Voleon, but may not receive access to the most sensitive intellectual property." The Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce. They described the firm's noncompetes as a de facto condition of employment and said the firm was taking measures to restrict employees from joining competitors as recently as this year.
auntienomen 3y ago
This is one of the few sad side effects of CA's noncompete laws: it's very hard to run a business like Voleon where there's genuinely valuable IP. It's why we have like 2 quant hedge funds here, despite all the available engineering talent
- alright2565 3y ago
  That's not it at all. The problem is that Voleon is being dishonest around their non-compete agreements. A Voleon spokesman: > Those who sign it will receive a paid garden leave. Voleon ex-employees: > Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce. According to a Voleon ex-employee, which also matches my understanding of this industry: > They will defend that noncompete by saying more and more firms have two years. The trick is: And yes, they pay you something when they make you sit out of your career.
  - auntienomen 3y ago
    You've missed my point. I'm not commenting on Voleon's non competes. I'm commenting on the fact that CA's noncompete laws make it challenging to run a business like Voleon.
    - norir 3y ago
      I personally don't really believe this kind of business is good for society so to me this is a more feature than a bug. Obsessive guarding of IP secrets seems to be correlated with paranoid and selfish antisocial behavior, which is essentially how the financial industry appears from the outside in spite of their lofty rhetoric about their contributions to society.
      - auntienomen 3y ago
        The largest stream of charitable donations in California come from the most IP-paranoid hedge fund I know of. If you have negative opinions of the finance industry in general, I can't do much but remind you that it's a large and varied industry and that your opinions are priors you should expose to relevant data.
thelastgallon 3y ago
Does this make their entire employment contract unenforceable? And invalidate any claims of IP against their employees (past/present)? Like, in Silicon Valley? https://www.youtube.com/watch?v=LOmbOfJLTKc https://www.youtube.com/watch?v=LOmbOfJLTKc
- derf_ 3y ago
  No, because all real employment contracts (and most other contracts, besides) will have a Severability clause that says if anything in it is found to be unlawful or unenforceable, then the contract will be modified to the minimum extent required to fix the problem (meaning any unrelated provision will remain in full force).
  - gamblor956 3y ago
    https://www.hcamag.com/us/specialization/employment-law/does-your-arbitration-agreement-include-a-severability-clause/426936 https://www.hcamag.com/us/specialization/employment-law/does... In a nutshell, severability clauses may not save an employment contract plagued by illegal terms (in the case above, related to mandatory arbitration). In California at least, the presence of unconscionable terms can render the entire contract unconscionable when viewed as a whole.
    - surfacing_vol 3y ago
      Right -- while most agreements will include severability clauses, they may not be enough to save an agreement. Over time, New York, for example, has frowned on "blue-penciling" employment agreements: https://www.kramerlevin.com/en/perspectives-search/when-blue-penciling-fails-to-come-to-the-rescue-new-york-federal-court-refuses-partial-enforcement-of-restrictive-covenant.html https://www.kramerlevin.com/en/perspectives-search/when-blue...
shaftway 3y ago
Woah. I interviewed with Voleon back in 2018. The process was terrible. Like, the worst interview process I've ever had. They offered me more than my total comp at the time, all in cash, and I was happy to turn them down. They were super cagey about the non-compete. They claimed it was optional and offered additional salary if you signed it, but it sounded like it wasn't. They also claimed it was narrowly applied, and now it looks like that wasn't true. Clearly dodged a bullet with that one.
- surfacing_vol 3y ago
  What the article didn't mention was that in 2014, it was even more egregious. There was a 24 month, unpaid non-compete -- and it was a condition of employment, rather than attached to some "voluntary" profit-sharing program.
EdwardDiego 3y ago
> Some experts warn that the New York law, if signed by Hochul, could lead to an exodus of financial firms from the state. Where exactly are they going to go? There's a reason they're clustered around NYC, similar to how big tech clusters around SV.

107 points by LastNevadan 3y ago

https://archive.ph/Qh5Wq https://archive.ph/Qh5Wq

The Voleon Group, Berkeley, CA https://voleon.com/ https://voleon.com/ https://en.wikipedia.org/wiki/The_Voleon_Group https://en.wikipedia.org/wiki/The_Voleon_Group

User23 3y ago

My understanding is that merely proposing an illegal noncompete in California creates a cause to sue, but I’ve never heard of that being acted on.

lazide 3y ago
The just passed law would make it a civil violation (which if documented would be a slam dunk) to propose such a clause it looks like. Here is the text of the bill [https://legiscan.com/CA/text/SB699/2023 https://legiscan.com/CA/text/SB699/2023] The previous section of the B&P code (16600) can be found at [https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=BPC&division=7.&title=&part=2.&chapter=&article= https://leginfo.legislature.ca.gov/faces/codes_displayexpand...] specifically [https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600 https://leginfo.legislature.ca.gov/faces/codes_displaySectio....] which makes it illegal to restrain anyone from trade (which includes non-compete). No civil violations, but if you suffered an injury due to such a clause, then you could probably sue over it. Just way less clear, and also way less clear you could get things like attorneys costs - which the new law makes a thing. It also adds a section making any such contract signed elsewhere unenforceable in California (how that would play out in Federal Court still TBD. Seems unlikely to go well though). [https://www.littler.com/publication-press/publication/california-reaches-across-state-lines-invalidate-employee-non-compete https://www.littler.com/publication-press/publication/califo...]
- OkayPhysicist 3y ago
  Seems like it would be a pretty fun little hustle to create a tiny law firm specializing in racking up some legal fees while suing companies being stupid enough to include such illegal noncompete clauses. The actual damages payouts probably wouldn't be great (as, at best, you've got the employee's salary over the period of their unemployment due to thinking the noncompete was binding), but for a trivial amount of work ("Your honor, here's the employer's signature, here's the illegal noncompete clause, No further arguments"), it could be a half decent cash flow for the lawyers. Not sure if it's legal to kick back legal fees to your client, but if so, that might work.
surfacing_vol 3y ago
Right, I thought that got buried a bit in the article. It doesn't matter if the non-compete is paid or not or if it's 18 days or 18 months long. It shouldn't be enforceable. The exceptions I'm aware of are: * Voleon could claim that Delaware law applies. They'd have a tough case since they have literally no presence in the state - they're just a Delaware LP (like most hedge fund management companies). But, as the article noted, this works only if the employee had an attorney review the agreement. And even if that did happen, recent cases in Delaware suggest that Delaware might still rule that California law applies: https://www.mofo.com/resources/insights/230331-delaware-cases-stricter-review-sale-business-non-competes https://www.mofo.com/resources/insights/230331-delaware-case... * If Voleon pays its employees through a K-1, basically giving them shadow equity, then you could argue that the employees are LLC members or limited partners and that the non-compete is enforceable. But Voleon doesn't do that. * Really, Voleon seems to be putting most of its weight on the (totally bogus) argument that the non-compete is voluntary. Telling that the spokesperson wouldn't say how many employees, particularly at higher comp levels, actually chose not to sign.

j7ake 3y ago

Checking voleons website some of their standard roles pay 150-190k, don’t know how they expect someone to accept that job with non competes like that.

emidln 3y ago
I've black lined a lot of clauses in employee agreements like the one in the article. When questioned by the company I tell them I cannot agree to such terms at the salary being offered and generally propose what I consider to be an outlandish number as salary plus paid PTO in exchange for it. Typically, the company just signs. Sometimes they tell me to eff off. Only once has someone paid me what I thought was an absurd rate to not work for their competitor. My current non-compete is in the finance industry and uses paid salary during garden leave as a way of avoiding non-compete laws. Nobody esp cares whether it is legal since its a year or two paid vacation.
- blitzar 3y ago
  > My current non-compete is in the finance industry and uses paid salary during garden leave as a way of avoiding non-compete laws More often than not they will quite happily waive the non-compete and the pay - a sensible arrangement for all concerned.
  - renewiltord 3y ago
    Yes, this happens often enough but for those who it doesn't, the salary isn't really enough. You'll drop from almost a million to a few hundred k.
    - emidln 3y ago
      We're told from the start to live within our salary and investment returns. If you make $200k base, usually make about $1m TC and choose to spent all of your cash every year, I don't feel esp bad for you. The operative word from VR is variable. Leaving, not negotiating a sign-on bonus with the new firm, and getting your garden leave enforced isnt much different than a bad year wiping out your VR, except you have to make your own mistakes at every turn to put yourself in that situation.

sna1l 3y ago

> In 2017, The Wall Street Journal reported on the difficulties faced by the firm. At that point, Voleon had an annualized return since inception of 10.5%, below the S&P 500 index return of 10.7% over the same period. One of the problems encountered was that financial markets were chaotic, and machine learning systems were best applied where patterns were more repeating in nature. In addition, patterns that are found can be easily made redundant after investors notice them and take advantage on them. Gary Smith writes that patterns discovered by the algorithms are often simply coincidences rather than actual correlations.[2][3][7] > In 2018, Voleon had a return of 14% during a market turndown where the S&P 500 index dropped 6.2%. However, in 2019, its returns dropped to 7%, below the returns of its hedge fund peers of 9.2%. In 2020, Voleon's flagship fund lost 9%.[6][8] Given their returns, how do they have 7.6 billion AUM?

infecto 3y ago
Not defending this fund or any other hedge and I do not know the defined purpose of this fund but they generally exist to hedge your risks and are not there to beat the S&P500. Thats why they exist for accredited investors and not your regular investor saving for retirement.
- JackFr 3y ago
  Im pretty sure they exist to beat the market. They are called “hedge funds” because, as opposed to other stock funds they were allowed to take short positions while mutual funds could not, and so they could hedge some of their risk.
  - ITB 3y ago
    If a hedge fund returns a bit under SP500 on average but is more predictable and always has a positive return, it will definitely be desirable.
    - CPLX 3y ago
      Even if it’s not predictable and is occasionally negative it’s still really valuable if it’s totally uncorrelated.

WarOnPrivacy 3y ago

This exchange was clarifying to me. In a statement to Insider, a Voleon spokesman said: "Like most hedge funds, in order to protect its most sensitive intellectual property, Voleon requests that select employees sign noncompetition agreements. Voleon's non-compete agreements are not a condition of employment. Those who sign it will receive a paid garden leave. Those who haven't signed it remain employed at Voleon, but may not receive access to the most sensitive intellectual property." The Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce. They described the firm's noncompetes as a de facto condition of employment and said the firm was taking measures to restrict employees from joining competitors as recently as this year.

auntienomen 3y ago

This is one of the few sad side effects of CA's noncompete laws: it's very hard to run a business like Voleon where there's genuinely valuable IP. It's why we have like 2 quant hedge funds here, despite all the available engineering talent

alright2565 3y ago
That's not it at all. The problem is that Voleon is being dishonest around their non-compete agreements. A Voleon spokesman: > Those who sign it will receive a paid garden leave. Voleon ex-employees: > Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce. According to a Voleon ex-employee, which also matches my understanding of this industry: > They will defend that noncompete by saying more and more firms have two years. The trick is: And yes, they pay you something when they make you sit out of your career.
- auntienomen 3y ago
  You've missed my point. I'm not commenting on Voleon's non competes. I'm commenting on the fact that CA's noncompete laws make it challenging to run a business like Voleon.
  - norir 3y ago
    I personally don't really believe this kind of business is good for society so to me this is a more feature than a bug. Obsessive guarding of IP secrets seems to be correlated with paranoid and selfish antisocial behavior, which is essentially how the financial industry appears from the outside in spite of their lofty rhetoric about their contributions to society.
    - auntienomen 3y ago
      The largest stream of charitable donations in California come from the most IP-paranoid hedge fund I know of. If you have negative opinions of the finance industry in general, I can't do much but remind you that it's a large and varied industry and that your opinions are priors you should expose to relevant data.

thelastgallon 3y ago

Does this make their entire employment contract unenforceable? And invalidate any claims of IP against their employees (past/present)? Like, in Silicon Valley? https://www.youtube.com/watch?v=LOmbOfJLTKc https://www.youtube.com/watch?v=LOmbOfJLTKc

derf_ 3y ago
No, because all real employment contracts (and most other contracts, besides) will have a Severability clause that says if anything in it is found to be unlawful or unenforceable, then the contract will be modified to the minimum extent required to fix the problem (meaning any unrelated provision will remain in full force).
- gamblor956 3y ago
  https://www.hcamag.com/us/specialization/employment-law/does-your-arbitration-agreement-include-a-severability-clause/426936 https://www.hcamag.com/us/specialization/employment-law/does... In a nutshell, severability clauses may not save an employment contract plagued by illegal terms (in the case above, related to mandatory arbitration). In California at least, the presence of unconscionable terms can render the entire contract unconscionable when viewed as a whole.
  - surfacing_vol 3y ago
    Right -- while most agreements will include severability clauses, they may not be enough to save an agreement. Over time, New York, for example, has frowned on "blue-penciling" employment agreements: https://www.kramerlevin.com/en/perspectives-search/when-blue-penciling-fails-to-come-to-the-rescue-new-york-federal-court-refuses-partial-enforcement-of-restrictive-covenant.html https://www.kramerlevin.com/en/perspectives-search/when-blue...

shaftway 3y ago

Woah. I interviewed with Voleon back in 2018. The process was terrible. Like, the worst interview process I've ever had. They offered me more than my total comp at the time, all in cash, and I was happy to turn them down. They were super cagey about the non-compete. They claimed it was optional and offered additional salary if you signed it, but it sounded like it wasn't. They also claimed it was narrowly applied, and now it looks like that wasn't true. Clearly dodged a bullet with that one.

surfacing_vol 3y ago
What the article didn't mention was that in 2014, it was even more egregious. There was a 24 month, unpaid non-compete -- and it was a condition of employment, rather than attached to some "voluntary" profit-sharing program.

EdwardDiego 3y ago

> Some experts warn that the New York law, if signed by Hochul, could lead to an exodus of financial firms from the state. Where exactly are they going to go? There's a reason they're clustered around NYC, similar to how big tech clusters around SV.