You’d think that when a job is over, it’s over. You quit or you’re fired or laid off and then that’s that. Except that’s not always what happens. A lot of the time, even after you’ve cut ties, your former employer maintains some control over what you can say or do. It’s like a toxic ex you can’t warn anyone about because they might sue you, and who gets a say in who you go out with next.
It’s true that at the current moment, swaths of workers are more in the driver’s seat than they have been in years, thanks to a hot labor market that’s driven wages up, provided some people mobility, and given workers more leverage against their employers. But work hasn’t changed as much as some more optimistic headlines might suggest, and many of the fundamental power dynamics remain.
When you take on a new job, it’s often still a my-way-or-the-highway situation with your employer, and not just while you’re working your 9 to 5. Once you leave, companies have mechanisms such as non-compete clauses and non-disparagement agreements that make your post-work life a little bit harder. Much of the time, they don’t enforce those mechanisms, but the threat that they might gives them power.
I recently spoke with Peter Shamshiri, a former employment lawyer, about all the ways your boss keeps control of you even if they’re no longer your boss. Shamshiri is a host of two podcasts, If Books Could Kill, about airport bestsellers, and 5-4, about the Supreme Court. The latter podcast, 5-4, lost him his job last year when the higher-ups found out he was on it (he’d previously been anonymous). Our conversation, edited for length and clarity, is below.
It feels like when your company fires you or you quit, they should really not be able to have any more control over what you do. But that’s not the case, right?
There are a couple of ways that companies can maintain contractual control over you after your employment ends. One is that you sign something during your employment that applies to your post-employment period. So you will sign a document that delineates all these obligations you have as an employee, and some of them implicitly or explicitly stretch beyond the termination of your employment.
The other one is you agree when you part with the company to certain terms that include restrictive covenants — so non-competes, trade secret agreements, non-solicitation, things like that. In exchange for severance, for example, you’d be agreeing to that stuff. It’s still the company leveraging their position to get you to agree to restrictive covenants after you’re done with them.
So if Vox axes me tomorrow, which I hope they don’t, there are probably definitely rules somewhere about what I can say about them or whatever?
Most likely, you have at some point signed something saying that you will agree to certain levels of confidentiality with respect to their proprietary information, their trade secrets. It’s quite possible that that agreement also extends to you going to a competitor within a set period of time or you soliciting Vox employees once you are at a competitor, for example.
A lot of large companies will, essentially, when someone is onboarded, hand them a piece of paper and say, “Hey, to come work here, you need to sign this.” And it has all of these terms, and some of them will stretch beyond their employment, which could literally be years, decades in the future at the time of signing. People sign because it’s a prerequisite for maintaining the job.
Whenever I start a new job, I think, “Oh, I should look through this,” and then it’s like, “What am I going to do? Say no?” Is it possible to negotiate?
You may be able to negotiate yourself out of certain restrictive covenants if you are of particular import or the company is a little bit smaller. But if you’re at a large enough company, they’re not going to set the precedent of individually negotiating with people on this stuff. They’re just going to say, “Sign it or turn down the job.”
To get into specifics, let’s talk noncompetes a little. Those are the clauses that say an employee can’t work for a competitor. I feel like a lot of people have come across them when looking for a job, or you hear the horror stories of, like, restaurants using them. How are they even allowed?
Well, they’re not allowed everywhere, and I’ll get to that in a second.
The purpose of them generally is to try to protect company secrets. When you’re an employee, the company is trusting you with their proprietary and confidential information, and if you go over to a competitor, all of a sudden, the competitor has access to this stuff. Now, what’s odd about that is most companies will have you already agree to maintain confidentiality, to maintain the secrecy of their trade secrets. So the noncompete is substantively duplicative of that. The reason companies use that is because if someone goes to a competitor, it’s hard to figure out if they’ve spilled the beans on company secrets. So the easy solution is just to prevent them from going to the competitor altogether.
Almost all jurisdictions have restrictions on these. They need to be limited in duration, meaning maybe six or 12 months after you leave, but not beyond that. They need to be limited in their geographic scope. A lot of companies limit them by industry or even specifically name competitors that you can’t go to. Under California labor laws, you cannot use noncompetes. The FTC has proposed a rule to ban them. They say that the cost to employees is something like $300 billion a year.
The restaurant industry is a great example of how and where these can be abused, because it’s just the Wild West out there. I don’t think that any judge in most jurisdictions would hold up a noncompete in the restaurant industry, but no one’s going to lawyer up over a restaurant job and try to figure that out. So, they’re just being used as intimidation, essentially.
Years ago I had a friend who basically didn’t take a job because of a noncompete. The fear was like, well what happens if it doesn’t work out? You can never work in your area for the next year?
That’s what’s so bizarre about it. Say you have a career in selling life insurance, and they tell you in your contract you can’t go over to a competitor. What exactly are you supposed to do? You’re being blocked out of the only industry where you have expertise. They’ll often say it’s only within a 100-mile radius. But what does that tell you? You can’t work at a company in the industry that you’re familiar with, in the city that you live in, or anywhere nearby. If you want to move across the country, then you can do it, or if you totally want to switch careers, you’re good.
It doesn’t make sense, and that’s why there’s been a push to limit these, to outlaw them altogether. The legitimate uses of this are like 5 percent of the reason that companies use them. They are used to intimidate employees, to keep employees in their roles and make them nervous about where they go next. Frankly, they prevent other companies from coming over and hiring too many folks so that you have legal leverage when companies try to do that.
In finance, isn’t it the case that sometimes employers will pay you to not do anything for six months or something? You get “garden leave.”
Garden leaves are relatively rare. In certain industries where the pay is high, employees have a little more leverage in general, so they can say, fine, I’m at JPMorgan, I won’t go over to Goldman, but I want my six months of pay right then. If you’re serving tables, then you’re on your own. Essentially, noncompetes are more effective the more financially unstable someone is.
Are noncompetes even enforced though?
Almost never. It’s a conversation that will occasionally happen when higher-level folks may come from one company to another between legal departments, but these things go to court once in a blue moon.
It’s a bluff that employees can often call, but a) you need to know that, and b) you’re still running a risk. If a company feels like dragging you into court over this, at the very least, it’s going to make you miserable.
What about nondisclosure agreements, the contracts that say what people can’t say about their employers or former employers?
I would say that NDAs are a little bit distinct. I wouldn’t put them in the same bucket as most of these post-employment restrictive covenants — trade secret protections; noncompetes; non-solicitations, meaning you can’t solicit colleagues to come join you at a new company; non-disparagement agreements, meaning you can’t say anything disparaging about the company; and non-interference provisions, which means you can’t go try to intercept your old company’s clients.
NDAs tend to be limited to specific circumstances. So if you’re a lawyer or a finance person, you’ll often sign NDAs when you’re on a confidential deal. The controversial use of NDAs is: Okay, hey, you were harassed during your time at our company, we will compensate you in some way and in exchange you sign this NDA so we don’t have a PR problem here. We’ve seen more restrictions around that recently, especially in the sexual harassment context. That’s not something that would generally be part of your post-employment suite of obligations by default. It’s usually circumstantial.
What about non-disparagement agreements? Like, people have to promise not to say anything bad, even though they’ve got plenty of bad things to say?
Non-disparagement has got to be the most bizarre of the post-employment restrictive covenants, and they’ll often apply during employment too.
“I won’t say anything mean at the company,” at a certain high level, if you’re an employee, might make some sense. If you’re a Vox employee and you go on Twitter and say, “You know, I think Vox sucks, just like, substantively, I think the coverage is awful.” I think what the company would say was, well, do we really have to allow our employees to say that the product is awful, for example? On the other side of that, is there literally anyone who doesn’t violate this? Maybe I’m hanging out with a cynical crowd, but I don’t know anyone who has never said something a little bit disparaging about their employer.
The way that these operate is that because their scope is so broad, if you get laid off, for example, and vent about it on social media, which is a relatively human experience and human reaction, all of a sudden, your company can claim that you violated non-disparagement. If part of your severance package is non-disparagement, what they’re saying is, “We don’t want to hear about this on social media.” And your ability to criticize your employer, even in ways that are substantively true, is limited.
What’s different about defamation is that what you say has to be false for it to be defamation. If you say something true, that’s not defamation. People can accurately relay what happened to them at a company, and if the company says that that’s disparaging, that that would hurt their reputation, you still violated the non-disparagement clause, even though you didn’t tell a lie.
So if I lose my job tomorrow and go to Twitter and say “this person doesn’t do their job” or something, and that’s true, would the repercussions be that the company takes away my severance? Can they sue me?
If we’re talking about a severance agreement you violated, the agreement itself would tell you what the damages are. At the very least, they would try to seek an injunction telling you to stop, that’s pretty minimal. Most of them have outlined monetary damages — say either you’re going to pay back the severance or you’re going to pay back some set amount of damages.
It depends on the contract, but companies have a lot of options available to them. Generally speaking, and I’m being very general here because there are different cultures, it’s rare, even with a violation, to see someone go after an already-paid severance just because the PR can be so brutal. But they maintain that right, and that’s the whole point — all the risk is in the employee’s court. They are chilling the ability of the employee to speak confidently and freely about their experience.
Can I sue my employer? What is a forced arbitration clause?
That’s basically saying that if there’s a dispute about your employment, we’re going to arbitrate it, we’re not going to go to court. Arbitration is much more favorable to employers — they win more frequently, the costs are lower, it just sucks for employees. But that’s another thing that’s frequently buried in your employment contract — you’re signing away your ability to sue in court. Though I think “woke” employers have moved away from this in the last couple of years.
What if someone’s employer, say, committed a crime? With Theranos, some employees knew there was a problem and were afraid to speak out because of NDAs and non-disparagement agreements, right?
Technically, there are carve-outs — most agreements say you have the right to report things to certain government agencies, etc. But Theranos is a good example of how an aggressive legal team can make that irrelevant. You had employees being like, “Hey, this seems like maybe it’s fraud,” and you had some of the best lawyers in the country coming down on them with threats of litigation. Even if you’re technically, legally in the right, the whole point of these is for the company to maintain leverage to squeeze you if they want to.
In most situations, if the company is violating the law, you are legally allowed to talk about that and to escalate that to regulators. But is being legally in the right going to save you when you have David Boies knocking on your door and pointing to your NDA and threatening litigation?
So I guess the big overarching question here is, why are we like this? Or rather, why are companies allowed to behave like this? You quit or you’re laid off or fired, and they still have all this control even though you basically have no relationship anymore?
We are a country and a society that worships contracts as a method of doing business. This is something that, a century ago, the Supreme Court was holding up as a foundational element of our society, during the Lochner era, where they were upholding all these brutal labor practices and saying we should allow people to contract to whatever they want. That era is over to some degree — labor regulations kicked in in the ’20s and ’30s and exist to some degree to this day, but I think the worship of contract is what brings us here. The idea that someone can’t agree to something on their own terms, even if the leverage and the power dynamics are completely out of whack, Americans have a hard time with that. That’s why stuff like this is so prolific.
There’s also a real argument that much of this is anti-competitive. These restrictions are preventing market forces from maximizing their efficiency to some degree, right? You can’t go over to another employer, you can’t hire away your former colleague, you can’t try to convince our clients that they should come follow you to the new company. All of these things are anti-competitive, they’re not in the spirit of market capitalism, and yet they are extremely common.
Like if I want to steal all of your clients and I’m better than you, maybe I should be able to.
Right. If you have a pitch to the client to come join you, why exactly shouldn’t that be allowed? It’s hard to make the argument from the broader economic perspective.
We live in a world that’s constantly trying to sucker us and trick us, where we’re always surrounded by scams big and small. It can feel impossible to navigate. Every two weeks, join Emily Stewart to look at all the little ways our economic systems control and manipulate the average person. Welcome to The Big Squeeze.
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