Non-Competes - The Work Wire

[00:00:00] You're listening to Work Wire sponsored by Career Club and Sherman. Career Club has a range of services aimed at job seekers with an empathetic approach.

[00:00:08] Whether you are a job seeker yourself, know someone who is in job search or an HR professional looking to bring a more empathetic approach to transitioning employees, check out career.club.

[00:00:18] If you are an HR professional seeking to enhance your skills, subscribe to Sherman, explore their extensive resources. Visit shirm.org that's SHRM.org Hello everybody, this is Bob Goodwin, president of Career Club.

[00:00:35] Join by my good friend the president CEO of Shirm, Johnny C. Taylor, Jr. for another episode of The Work Wire. Johnny how are you? I'm doing really well in the man entering summer so I'm excited to be here.

[00:00:47] Yeah, yeah, but you're showing off your athletic bonafights and the background what's that all about? Let me, of course everyone knows, I'm a proud Miami hurricane.

[00:00:56] And I, of course, during my tenure, had a little bit to do with the football team not as a football player anyone who knows me also knows I'm not particularly athletic.

[00:01:05] But I was the academic coordinator for the University of Miami football team so I, as a result, they gave me a jersey in my honor that was probably closest I was ever going to get to football.

[00:01:18] That's cool. So as always, you know, part of our thing here in the work wires not being afraid to jump into the deep end of the pool and there's a topic that I think we both have some passion around which is a recent development with the FTC where they have essentially banned non-compet agreements.

[00:01:40] So a few weeks ago, you know, they were saying hey, this is our intention but we're going to do some more listening, but with the intent of implementing on September 4th, I think, or their Bouts early in September of this year. My understanding is that they're moving forward.

[00:01:58] And there's implications, there's implications for companies, there's implications obviously for employees and looking forward to tackling that with you. And so big one in tackle and let's go. Okay, let's go. Let's go.

[00:02:15] Now I was just going to say, and this will be counterintuitive probably, is from the company's perspective, they make huge investments in innovation, intellectual property, training of people, and basically creating competitive advantage of just for themselves, because we operate in a free market economy.

[00:02:37] And so it's kind of like, you know, at the best man when. And when an employee who has got very proprietary insight into strategy, technology, other work processes, whatever it might be,

[00:02:54] leaves and goes to competitor, a company should rightfully feel threatened by that because they were paying for services. And you know, have a level of understanding that those are their assets and they're not portable to that employee fair enough. I'm so proud of you.

[00:03:15] I didn't expect that to be my last. And on the year of year, yeah, I'm going after why the employee, do you love it? Come a block with you here. However, however, it was coming. I knew it was too good to be here.

[00:03:31] But the cure in some cases is worse than the disease or the threat of the disease. So, you know, I wrote up a post on LinkedIn a few weeks ago right after this happened, I know, Gibson from Braveheart Freedom.

[00:03:49] And the idea that a company could lay me off and also tell me where I can and cannot work is like so counterintuitive to me. I don't know how I could ever make that argument.

[00:04:04] Like you don't get to work here, but I also get to tell you where else you don't get to work. It's like what? Like, what world does that work? But at the same time, the idea that you bring with you certain things that we would consider really valuable.

[00:04:21] Well, either a compensating for it for the opium garden leave for a year and compensate me for it. Or what's just really kind of teased through. What's the difference between a non-compete, a non-disclosure, a non-solicitation, right? So the company is protected appropriately.

[00:04:41] But at the same time, and there's a couple of numbers I want to read and then I'll be quiet across. It is the FTC estimates the wages could increase by nearly 300 billion per year as workers can move to positions. It better match your skills in demand higher compensation.

[00:05:00] That's good for the economy. Then the FTC estimates, bany non-compete could lead to over 8,500 additional new businesses created annually. And then 11 to 19% increase in new patents over 10 years is entrepreneurial activity rises. So things should be very much net positives to the economy.

[00:05:24] So it seems like to me, one, the feds are catching up to what a lot of states have already been enacting and making this now just sort of the law of the land instead of if being at the state level.

[00:05:42] So I'm empathetic to the needs of the company. Yet at the same time, I believe this is a huge net positive for the labor market and for the economy writ large to not rain people in from where they can work and what they can do.

[00:06:01] So, speechover, what do you think? So, most of all and most importantly, this is likely to get tied up in the courts. I don't guess that September this is going to happen. You don't know. No, we've already seen a flurry of lawsuits.

[00:06:19] It's chamber of commerce, I think you have chamber of commerce. Sure, it's signed on to make a spree of some of this. But I'll tell you why, so I don't want anyone to say, oh my gosh, it's just a pro management. I knew Sherman would take that position.

[00:06:33] So I'm going to get there. But let's start with from the practitioner standpoint, why each of our listeners should be preparing for this. I'm not sure that it's as imminent as the headlines make it to be. Okay, so let's start with that.

[00:06:51] And so secondly, I'm going to agree with you. I'm going to agree with you that there are arguments on both sides of this and I'm glad you started with the fact that employers have an interest in ensuring that the information they have that is truly proprietary.

[00:07:11] Doesn't find itself in the hands of their competitors simply because the competitor will hire the person across the street. I'm Coke, I'm Pepsi and Pepsi goes in and raids Coke's people to get all their secrets, the secret recipe. That's real.

[00:07:31] And companies have invested interest in protecting themselves from that. Some wedge you pointed that out. The counter argument is employees need to be able to move freely, right? And work if I developed expertise carrying out the Coke and Pepsi as a beverage expert.

[00:07:53] I'm working for Coke. If you say, I can't work for any other beverage company in America or in the world for the next 10 years you've effectively made me unemployable. So I literally do see both sides and I've also spent the first gosh three years of my career.

[00:08:11] I would even one of these very cases actually as a lawyer. I went side. I will I represented the company in the enforcement of non-compete. And I'm just for a second, I'll take me two seconds to describe the, I was a blockbuster.

[00:08:27] And at that time, our big competitor was a company called Hollywood video. Hollywood video wanted to know the secret sauce to blockbuster and a big part of blockbuster success was how we chose our real estate.

[00:08:44] What locations? Because at the end of the day a video stores a video store you can provide better service, you can compete on price. But ultimately location means everything. And we had a secret sauce in determining which intersection in a city, which city, etc.

[00:08:59] We yield the returns that we wanted. So what did they do? They went and recruited some of our real estate people away. We have invested millions of dollars in across the globe.

[00:09:14] We remember blockbuster was global determining where the exact location where we knew neighbors were willing to drive this radius to a location. And so we put one location here at one, two, point two miles away on this corner because we had done all the math right and

[00:09:31] Meanwhile, all our competitors needs to do is go higher on our people. And it didn't need to be the head of real estate for the company. It can actually be a manager of the person.

[00:09:41] It could actually be one of our real estate associates who would have all this information in their head. They didn't have to take the files and take back in the day of floppy disc and turn it over to Hollywood video.

[00:09:54] It was already in their head. So the day they went to our competitor, they could immediately begin to undermine our business. And we have no way to prove it because they didn't take anything with them. It was all in their head, our proprietary information.

[00:10:10] Got me? So that's part of why we fought them and we were successful. And it wasn't to put those people out of work. It was to protect our investment. So I think when FTC rolled out all of their stats, this will generate as much more in this.

[00:10:27] They don't also talk about the other side, what it will cost industry by potentially. And I lived through this personally having a competitor compete unfairly by recruiting your people away and taking all of your intellectual enterprise.

[00:10:44] So part of what I think about with this Johnny is, again, this is a tricky thing for me because you're the lawyer and I'm not. There's this is proprietary, but isn't material. Yeah, think about as I said, I know which brand of copiers that company uses.

[00:11:01] Well, let's put who cares? Like I don't care. But hey, I know how these guys pick their retail locations and that's the unlocked to their strategy. That's a completely different thing.

[00:11:13] So you just nailed the issue and that's why I was going to go my final point to that. And that is, that being said employers abused this. And stand, we were making a cook in a restaurant. A McDonald's cook versus a high-end by a star Michelin restaurant.

[00:11:33] They're both cooks, but one cook has the recipe to a souffle that the competitors would love to have. That person might rightly be subject to an anchovy. Whereas the person who works at a McDonald's, there's no secret. You're working in a fruke.

[00:11:50] So that was the problem is they just, they made everyone sign them. And we didn't, unfortunately, so the enforcement was if you dare to go across the street to work at a McDonald's a burking problem. That's what has caused this. So I'm going to own this.

[00:12:04] Employers decide to lock everyone down, which I think created a problem. And, and so I see both sides of it, my friend. Where we land on it, Charm is the overall blanket. And I feel this way about most things. You can't, everything is nuanced, right?

[00:12:21] Especially when it comes to an employment context. So a blanket rule prohibiting all non-competes, even up to these levels. That's insane. It doesn't make sense to me with a, in my opinion, a humble opinion,

[00:12:36] what Charms point of view is on this, is that what we should have done is said, Here's the conditions. Here are the parameters around certain jobs. And it's not limited to title, pay, whatever, but certain jobs if you have access to highly proprietary confidential information.

[00:12:55] The company has, they should pay you for it, but they should be able to prevent you from going to a direct competitor within a reason. And, the FTC basically companies overreacted and I've got too broad by extending it, not against everyone.

[00:13:13] And the FTC went the other way and overreacted, I think, over corrected is a better way. And now said, it's the wow wow less. Let me just say this because I want you to react to this. Here's what no one's can be, uh, back to again.

[00:13:26] Assuming this became the law of the land, and what you're talking about, would you, Bob, in your business, career club? You had some secret sauce and I know you have some approaches. You're sales, however you do what you do.

[00:13:41] Would you hire someone to do it or would you consider just outsourcing it? Because if you have an outsource partner, you can contractually. That's a non-employee, you can make it sign, a non-disclosure. Not you can get the protection that outsourcing it.

[00:13:57] I worry that a lot of employers are going to say, tell you what, one, I'm either not going to share anything with my employees, so much for transparency, so much for being, you know, in the relationship with your employees and just not by share it,

[00:14:10] limited to a very few people or I'm just going to outsource this. To an organization, I can get a non-compete from an organization. I can't get it from an employee. Here's what I'm struggling is, if I feel like almost everything that you described

[00:14:26] would be covered by a non-disclosure agreement. Go ahead. Okay, so trade secrets, stuff like that for a period of time, like that all makes total sense to me and if that blockbuster, we might be building on an egregious example,

[00:14:46] so, but if that blockbuster employee went to Hollywood video and, you know, abide it by a non-disclosure agreement for 12 months or 24 months or another, probably we get hired, but, you know, but then you say that they did and they're like, Johnny, I can't tell you this.

[00:15:07] I like, I signed something that said I would not talk about this. I'm happy to help you guys do whatever within your strategy. Like, I get real estate. I'm going to do contracts and other people location. But I can't tell you how blockbuster does it

[00:15:22] because that puts me in jeopardy. Like, that's a non-disclosure agreement, but I'm still welcome to go work because I could double click and say, forget Hollywood video. Isn't that no retail? I mean, obviously, just basically talking about retail

[00:15:37] and you can't work in retail for some period of time. We didn't say that. We said to can't work in video retail. But anyway, come on Bob. This was your non-disclosure. That's really the, the not of the issue and then you think, well, honor those.

[00:15:51] Let's have a look. But listen, but now they're creating personal liability for themselves. That's their choice. They don't have any money. If you sue them, you can't get it back and if they, that bowls your proprietary information, the damage to you is irreparable. That's the point I'm saying.

[00:16:08] I'm going to prevent you from being there so that there's no change. So I'm just going to cut your arm off because I'm afraid you might cut your finger. It's like, or that's what the chain, the cure is worse than the disease. Hit it.

[00:16:21] Yes, because of the broad application of non-competes, I've flipping work at great clips and you're telling me that I can't go work at supercuts. No, I just, in certain roles, again, the broad, I am agreeing with you that it got too broad.

[00:16:38] Yes, but I am planning there are people at great clips, depending upon what they were exposed to in their job, should not be allowed to immediately go or for supercuts. I think that's my argument. Is that if the broad, give everyone a non-competes, very bad employers back.

[00:16:56] You shouldn't have done it. The other over broad side that says, no employer you can't protect your information, there are real. If you are, I do think that great clips and who just says supercuts, think there are certain employees who are exposed to certain information

[00:17:14] at great clips should not be allowed to go work at least at a minimum in the radius. So what we used to say is non-competes are enforceable except for in California. Provided they are reasonable in scope. Geography, right? You can narrow it. Right, you can narrow it tailor.

[00:17:33] Yeah, but to go to the up opposite side which is no one. No one can do it. Why would I? Much information. Okay, so, so I mean just being reasonable that makes sense where I really struggle. And we see this every day at Career Club

[00:17:50] working with people who you know, oftentimes are layoff. People who've been laid off and have to be refined a new career and they are worried to death that this blanket is not competing that they signed. You know, like I can't work in the very broad industry

[00:18:10] because they've got lawyers. I don't. And now I'll set up putting my life at risk my financial life at risk by even considering applying to companies that I know would value my expertise. I have no intention of sharing trade secrets

[00:18:28] I don't know if I know any trade secrets but these guys, my hands tied behind my back, that I can't work in the industry. I've worked in for XD years. Can I say, you know? When you took that job, see it sound part of this whole conversation

[00:18:43] and your argument is now they're holding me to it. When you took the job, you knew it. Most people are given the non-compete before accepting the job. So guess what Bob? You shouldn't have gone into a company that tells you that there's going to be a non-compete.

[00:18:58] You did negotiate that as a part of your deal. No one made you work there. Just being provocative, right? That's provocative. I'm not sure practical because it's fair practical. If right now I said I wanted to go work for the competitor of Shunt. Let's use that.

[00:19:13] Let's just use that. Do you think my board is going to take her in a minute? I know everything about our strategy I know our commitment. I'm not talking about a director of client service in a thousand person company. Not this, so you don't want to... We're agreeing.

[00:19:31] We're agreeing. Scope. So we're both saying the same thing. I think we've arrived at it. No non-compete is not a good idea. Saying non-compete on everyone is not a good idea. But you began to say duration, reasonable. I think the real answer if I read FTC would be

[00:19:52] let's figure out how we narrowly tailor it. Both sides overcorrected. When you say no one, essentially can get a non-compete what? Why don't we have KCZ even saying that? Or if they say like, if you make this certain amount of money

[00:20:09] or you're some kind of a senior executive, your still can be held to one of these. But for rank and filing employees, isn't that mostly in the same? Yes, except that's, they took almost my opinion. The lazy view. So it's certainly not a reality.

[00:20:26] I just told you that a rank and filing real estate person has a lot of information. In fact, arguably more than some senior executives in that organization when it comes to real estate. So that's the issue. Compete your poor proxy. I'm sorry. Compensation is a poor proxy.

[00:20:45] Title compensation. There are a whole, I just talked about a chef and a very high-end restaurant who has the secret, literally, the secret sauce. That should be protectable even if that person is working in a restaurant. Right? If I would have to say, if somebody's,

[00:21:06] the lazy approach is certain titles, certain salaries. No. We should be able to look at the job. Now, what I would have done also if I were on the STC commissioner as I would have said, and you've got to be crystal clear on the way in

[00:21:24] that this is a term in condition of the job. And you've got to give them compensation for the period that you want them not to work. Yeah, it can be. So now, so that's what they could have done. But instead, whoop. So it's interesting doing

[00:21:41] a little bit of prep for this episode that we're doing right now. I said, well, what goes on in other countries? And like in the UK, I think it was a UK. They have to do 30% of your thoughts. So when I alluded to like garden leaves earlier,

[00:21:56] like, oh, I'm going to pay you to be quiet. It's worth it to me for you go garden, go to the beach, go do whatever you're going to go do. Right. Beautiful. That's exactly it. We went way past that.

[00:22:10] We like it doesn't matter how much you made a person. They get to go. Come on. You now make it really difficult for me as the employer. Especially as I start and remember, where work really gets done in our organizations is oftentimes at the manager and director level.

[00:22:26] At the senior specialists. Think about the programmers. At open AI who the group of them who were working on that technology. No, they weren't sound at all, and they weren't the top of the food chain. But they knew exactly how this thing was being designed,

[00:22:43] what its flaws or everything. So that's what I mean. There's no, there it should have been more narrowly tailored. Now what I'm hoping comes out of this is that the court ultimately helps us narrowly tailor it and says let's do something that is good for business

[00:23:01] but also protects the rights of employees because that is a, it's not lost on me. And a firm work workers and the workplace who do want employees not to be unfairly hampered from earning a living. You know, got it. But I'm just not sure you asked the question

[00:23:16] is the FTC's response. And when we talk about this all time, is it an shovel or an axe instead of a killer fly? I just think it went weight. What do you think? I feel like I'm harping on this point

[00:23:31] but if you were in that negotiation trying to like put a finer point on this thing, if you're laid off, you're terminated but not for cause. Do you think that that would be some kind of an exception or should be factored into it? Nope.

[00:23:48] If I'm going to pay you to come out of market or doesn't mind, I don't care why you don't work here anymore. And part of that is because the laid off or terminated person is the person I especially want to be protected because they could be pissed off.

[00:24:02] They are likely to be pissed off. They can have the vendetta. So I'm going to go to your competitor. I'm going to specifically apply. I'm going to tell him everything and I'm not going to take files so you can't prove it when you talked about non-disclosure.

[00:24:15] That's an honor system thing because if you don't put it in writing and take files, I have no way to know. So I'm actually more concerned about the person who's laid off than the person who just left about. I understand where you're coming from

[00:24:32] but my goodness that in the court of public opinion that would be extremely tough. I took away your employment and I'm also going to tell you where else you can't work. What? Listen, there are three, what is it? 38 million one of the numbers of companies in America.

[00:24:52] I'm saying these are the 10 you can't work. Fair enough, geography. So guess what? You and I'm going to pay you not to do it. Okay, you'll be seeing that. I'm down for everything you just said because none of that is what it really looks like today.

[00:25:08] So if you get, mmm, listen. It depends. So generally speaking, you're right but what it will look like in September I'm suggesting to you is worse. Yeah, well, it's certainly another bad result. And again, I think you know, you and I are agreeing that you know,

[00:25:36] point A and or point B there's a lot of good ground in between those two places that hasn't been properly explored. It sounds like a surprise because the FTC took public opinion. They've talked to employers, they talked to us and we said

[00:25:50] the answer is maybe not in the center maybe it's a little leftist or whatever it is but it's not to the extreme because that's not practical for business. Again, I use example and I'm going to stay away from walk-ups

[00:26:04] just since many of your audience may not even remember it. But there's no thanks for the career club or to my day job. There are employees right now who are working in my exam certification group. I'm going to use that. Not in management,

[00:26:21] et cetera, not make an autonomy. Comfortable living wages with but right now they know the 150 questions that we're going to use for the next term certification exam. Do you think I want them going across the street to a competitor with that question? With those questions in their head?

[00:26:42] Oh, I should as an employer be able to protect that intellectual property. Your point is, well if they go, then sue them. Let me tell you how that works especially if that person doesn't have any assets. So I'm going to spend a ton of money. You're right.

[00:27:00] But I'm going to have to pay for them. And I'm going to spend a ton of money. And I may get a judgment, but it's not a judgment I can collect on. And meanwhile, I've still lost 150 highly valuable questions. The flaw in that logic

[00:27:13] for me is guilty until proven innocent. So I'm just going to assume that you're guilty. I'm going to assume that you are going to betray the legal contract that you signed upon employment insurance. Well, you said you won't do this.

[00:27:29] But since I don't believe you really are going to honor that contract, I'm just going to assume that you're guilty. And therefore, I'm going to exact the penalty on you so that you can't work and do. Now, I think limiting to extremely direct competitors very specific kinds of

[00:27:47] disclosures that you can and cannot make if we're going to compensate or I don't want to lose that point. Like, hey, I'm not asking you to do this total on your own time. I will basically supplement you for a period of time, right? Basically it's an insurance policy.

[00:28:04] So like, I'm pretty okay with that but this sort of general notion that people sign contracts that they have no intention of honoring to me is basically guilty until proven innocent. And it's fact. The reality is we know over time that, I mean,

[00:28:24] you'd like to think that overwhelmingly people are honorable when it comes to employment context that this historically been management versus employee, both sides owning some of this. So while I don't know what the percentages are let me tell you, there are a significant number of people

[00:28:38] who will steal especially if they were laid off or fired or pissed off and they don't act rationally. So what we're trying to do is to prevent us ahead of you and you from even being able to give us ahead of you. Now, I've already acknowledged and conceded

[00:28:55] counselor that, compensation is should be limited, etc. But yes, I make the assumption that my job is to protect this company's asset and you took the job knowing that I was going to protect the asset and I was going to expose you to proprietary information.

[00:29:15] In fact, you signed a document up front saying it and you understood that it's not a good idea. I'm just going to say, you have to give me a chance to do that. So, you have to give me a chance to do that.

[00:29:27] So, I think that's going to be a good idea. Just if people just threw you into it and I'm compete, you took the job knowing that you had an argument. Now, I'm just asking your honor of providing that pay you for that period of time

[00:29:40] then you, I don't get it. For me, the big variable in this is, and I'm paying you, yes. There the word garden leaf is a pretty standard thing particularly for as you say, I get people that know how the model works, what kind of stuff

[00:29:59] totally get it where their trading strategy is all that stuff. In the regular day to day, world of client surface manager at an x-maysie company. I haven't seen that. If that becomes reality, then I am way closer to being signed up for what we're talking about

[00:30:16] talking about. And that to me is what the, that's the problem that FTC should have solved for it. As opposed to a broad no one, we're not going to allow any of this to be enforced.

[00:30:26] How about figuring out how to ensure that the employees are protected so that there's a balance same last. That's what we should have, that's right, that that will trade, that as you like, they're trading their services, we're paying for it.

[00:30:40] That to me is what I was hoping they would have solved for. And no problem. If you say you let go someone, you want them to sign an uncompetome, be out of the market for six

[00:30:48] months so that whatever's in their head goes stale. Perfect. We're going to pay employer. You're going to have to pay for that because person can't be forced to sit on the sidelines for no pay. There's all and they could have even done. They could have done some really

[00:31:01] interesting things. Johnny, if you go to, if you leave here, I'm going to pay you six months to stay out of the market. If you go to a competitor, if you go to a non-competitor,

[00:31:11] that's not the pay. Because I shouldn't pay for not the sorts of ways to do this. Instead, it was there generally 90, this applies to like 98% of the US workforce. Yes, if it goes into effect, that's a lot.

[00:31:27] Okay, so maybe, is there anything else you want to say? Cause I want to put a bow on this finger. I think, but you know, I think we are more in agreement than dysgryma. Cause we see, I'm so honored that we see both sides of this employer has

[00:31:41] some some games, some risk and this. Employee has significant risk in it. How about we just try to deriske it for both sides with not what we did now? Okay, so the way I want to end this one is I think this is such a good example

[00:31:56] of how to have a civil conversation. You know, right? Yeah, and for those of you who aren't familiar here listening, you know, Shermysad on a, is it a year long initiative, Johnny to foster one million civil conversations in the workplace. And here's something that, you know, is it

[00:32:12] clearly a hot button issue that we both have strong, you know, I think both, opinions but informed points of view on in that there's merit in both sides. And you don't have to be ugly to explore an issue and try and understand it from the other

[00:32:30] person's point of view. And so, you know, I don't know if you want to pick up on that point for half a second but I just, I just love the whole idea of civil conversations, right? You know, mature adult people can talk about an issue that

[00:32:43] they don't see eye on necessarily and still be friends. You said it better than I could absolutely that that's that's the essence of it and what I love. You can't say our diversity is our strength. And then not one diverse person. You can't.

[00:33:02] So you and I should be able to disagree and go out and enjoy and argue, I remember once point I heard you in here you said, I just think you're wrong or something like that. And I get out of because you have a right to believe in wrong.

[00:33:17] And I don't, but you didn't think John, you're a bad person. That's wrong. That's what we've had to work on and this is a classic example. I can't, we should talk on another, I mean, we got a lot to talk about.

[00:33:28] But in particular, this conversation not just civility, but the ability to disagree is a big deal. Yes, I love it. We'll do the, do we know that we'll pick that one up and in the meantime, you know, we're quite a listeners.

[00:33:41] Thank you so much for tiling in and then spending a few minutes with John and me. If you've got comments or points of view on this issue or anything else, we cover on the work wire. We would love to hear from you.

[00:33:51] But in the meantime, John, great to see you and look forward to on the next work wire up. Thanks very much. Check out career.club for personalized help with your job search. Visit shrm.org to become part of the largest human resources organization worldwide.