The Work Wire
Non-Competes - The Work Wire
What if non-compete agreements are holding back your career? Join us for an insightful episode of The Work Wire as we welcome Bob Goodwin, President of Career Club, and Johnny C. Taylor Jr., President and CEO of SHRM, to dissect the controversial world of non-compete clauses. With recent FTC developments shaking up the landscape, you'll gain a deeper understanding of the potential economic benefits and legal challenges ahead. Discover how these changes could impact wages, entrepreneurial activity, and both companies and employees. This episode is essential for anyone affected by or interested in the evolving landscape of non-competes.
What if non-compete agreements are holding back your career? Join us for an insightful episode of The Work Wire as we welcome Bob Goodwin, President of Career Club, and Johnny C. Taylor Jr., President and CEO of SHRM, to dissect the controversial world of non-compete clauses. With recent FTC developments shaking up the landscape, you'll gain a deeper understanding of the potential economic benefits and legal challenges ahead. Discover how these changes could impact wages, entrepreneurial activity, and both companies and employees. This episode is essential for anyone affected by or interested in the evolving landscape of non-competes.
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Bob Goodwin:Hello everybody, this is Bob Goodwin, President of Career Club, joined by my good friend, the President and CEO of SHRM, Johnny C Taylor Jr, for another episode of the Work Wire. Johnny, how are you?
Johnny C. Taylor Jr.:I'm doing really well, my man Entering summer so I'm excited to be here.
Bob Goodwin:Yeah, yeah, yeah. Well, you're showing off your athletic bona fides in the background. What's that?
Johnny C. Taylor Jr.:all about. Let me tell you so, of course. Everyone who knows knows I'm a proud Miami Hurricane 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 but I was the academic coordinator for the University of Miami football team. So as a result they gave me a jersey in my honor. That was probably as close as I was ever going to get to a football team.
Bob Goodwin:Now, that's cool. So, as always, part of our thing here on the work wire is 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 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 thereabouts early in September of this year. My understanding is that they're moving forward and there's implications. There's implications for companies, there's implications, obviously, for employees, and I'm looking forward to tackling that with you it's a big one to tackle and, uh, let's go.
Johnny C. Taylor Jr.:What do you?
Bob Goodwin:okay because, I always so I'm not no, 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 advantages for themselves because we operate in a free market economy and so it's kind of like, you know, let the best man win. And when an employee who has got very proprietary insight into strategy, technology, other work processes, whatever it might be, leaves and goes to a 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.
Johnny C. Taylor Jr.:Fair enough, I'm so proud of you. I didn't expect that. That's why I'm leading with this. I'm going after why the employee I love this. Come on, bob, look at here.
Bob Goodwin:However, however.
Johnny C. Taylor Jr.:It was coming, I knew it was too good to be true.
Bob Goodwin:I know I know, but the cure in some cases is worse than the disease or the threat of the disease. So, you know, I wrote a post on LinkedIn a few weeks ago, right after this happened, and I had Mel Gibson from Braveheart Freedom 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 Like you don't get to work here, but I also ever make that argument 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?
Bob Goodwin:But at the same time, the idea that but you bring with you certain things that we would consider really valuable, well, either A compensate me for, put me on garden leave for a year and compensate me for it, or let's just really kind of tease through what's the difference between a non-compete, a non-disclosure, a non-solicitation, right, so the company is protected appropriately, but at the same time and there's a couple of numbers I want to read and then I'll be quiet, I promise is the FTC estimates the wages could increase by nearly $300 billion per year as workers can move to positions that better match their skills and demand higher compensation.
Bob Goodwin:That's good for the economy. Then the FTC estimates banning non-competes could lead to over 8,500 additional new businesses created annually and an 11% to 19% increase in new patents over 10 years as entrepreneurial activity rises. So things that should be very much net positives to the economy, very much net positives to the economy. So it seems like to me one the feds are kind of 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 it being at the state level. 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 rein people in from where they can work and what they can do. So speech over what do you think?
Johnny C. Taylor Jr.: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 gonna happen.
Bob Goodwin:You don't.
Johnny C. Taylor Jr.:No, no, we've already seen a flurry of lawsuits. It's a-.
Bob Goodwin:Chamber of Commerce, I think US Chamber of Commerce.
Johnny C. Taylor Jr.:SHRM has signed on. Am make us briefs on this, but I'll tell you why. So I don't want anyone to say, oh my gosh, it's just pro-management. I knew SHRM would take that position, so I'm going to get there. But let's start with from the practitioner's standpoint, while 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. And so, secondly, I'm going to agree with you.
Johnny C. Taylor Jr.: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 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 of their secrets, the secret recipe. That's real, and companies have a vested interest in protecting themselves from that. So I'm glad you pointed that out. The counter argument is employees need to be able to move freely right and work. If I've developed expertise carrying out the Coke and Pepsi as a beverage expert and 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 fighting one of these very cases, so actually as a lawyer.
Bob Goodwin:I was I'm sorry, on which side.
Johnny C. Taylor Jr.:Well, I represented the company in the enforcement of non-competes and I'm just for a second. It'll take me two seconds to describe the. I was at Blockbuster, okay, and at the 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's success was how we chose our real estate. What locations? Because, at the end of the day, a video store is 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, et cetera, would 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 across the globe. 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 2.2 miles away on this corner, because we had done all the math right.
Johnny C. Taylor Jr.:Meanwhile, all our competitor needs to do is go hire one of our people, and it didn't need to be the head of real estate for the company. It could actually be a manager level person. It could actually be one of our real estate associates who would have all of this information in their head. They didn't have to take the files and take back in the day a floppy disk and turn it over to Hollywood Video. It was already in their head.
Johnny C. Taylor Jr.: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 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 the ft FTC rolled out all of their stats, this will generate this much more. And this 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 and proprietary Right.
Bob Goodwin:So so part of what I think about with this, johnny, is and again this is a tricky thing for me because you're the lawyer and I'm not is this is proprietary, but is it material? Yeah, think about-. I know which brand of copiers that company uses. Well but's. But who cares? Like I don't care. But hey, I know how these guys pick their retail locations and that's the unlock to their strategy. That's a completely different thing.
Johnny C. Taylor Jr.:So you just nailed the issue and that's where I was going to go. My final point on that, and that is, that being said, employers abused this Hands down. We were making a cook in a restaurant a McDonald's cook, versus a high-end, five-star Michelin restaurant. 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 a non-compete, whereas the person who works at a mcdonald's there's no secret, you're working in the front. So that was the problem, is they? Just they made everyone sign them and we didn't uh in for so the enforcement was, if you dare to go across the street to work at a mcdonald's, a working problem. That's with. That's what has caused this. So I'm going to own this.
Johnny C. Taylor Jr.:Employers decided to lock everyone down, which I think created a problem, and so I see both sides of it, my friend, where we land on it. Sherm is the overall blanket, and I feel this way about most things. You can't. Everything is nuanced, especially when it comes to an employment context. So a blanket rule prohibiting all non-competes, even up to the executive levels, that's insane. It doesn't make sense to me what they, in my opinion humble opinion and what Sherm's 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 the company has, they should pay you for it, but they should be able to prevent you from going to a direct competitor within reason period. And the FTC basically companies overreacted and I've got too broad by extending non-competes to everyone and the FTC went the other way and overreacted I think overcorrected is a better way and now said it's the wow, wow Wes. Let me just say this because I want you to react to this. Here's what no one's factoring in.
Johnny C. Taylor Jr.:Assuming this became law of the land, let's talk about it. Would you, bob, in your business Career Club you had some secret sauce and I know you have some approaches, your sales. However, you do what you do Would you hire someone to do it? Or would you consider just outsourcing it? Because if you have an outsourced partner, you can contractually that's a non-employee, you can make them sign a non-disclosure, you can get the protections by outsourcing it. 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 in the relationship with your employees. I'm just not going to share it, limit it 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.
Bob Goodwin:But here's where I'm struggling is I feel like almost everything that you described would be covered by a non-disclosure agreement. Go ahead, okay, so trade secrets, stuff like that for a period of time. That all makes total sense to me. And if that Blockbuster and I might be building on an egregious example, so if that Blockbuster employee went to Hollywood video and, you know, abided by a non-disclosure agreement for 12 months or 24 months or now, they probably won't get hired, but you know but.
Bob Goodwin:But that means say that they did and they're like Johnny, I can't tell you this that 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. I get real estate, I know how to do contracts, I know how to pick a location, but I can't tell you how Blockbuster does it, because that puts me in jeopardy. That's a nondisclosure agreement, but I'm still welcome to go work Because I could double-click and say forget Hollywood video. Isn't that now retail? I mean, aren't we just basically talking about retail and you can't work in retail for some period of time?
Johnny C. Taylor Jr.:We didn't say that. We said you can't work in video retail. But anyway, come on, Bob.
Bob Goodwin:Disclosure, nondisclosure. That's really the nut of the issue. And then you think, think, people honor those let's have that conversation. But listen, now they're creating personal liability for themselves. That's their choice. They don't have any money.
Johnny C. Taylor Jr.:If you sue them, you can't get it back, and if that blows your proprietary information, the damage to you is irreparable. That's the point of saying. I'm going to prevent you from being there so that there's no chance.
Bob Goodwin:So I'm just going to cut your arm off because I'm afraid you might cut your finger. It's like that's what I'm saying the cure is worse than the disease, is it? Yes, because because of the broad application of non-competes, I flipping work at great clips and you're telling me that I can't go work at super cuts.
Johnny C. Taylor Jr.:No, I just in certain roles, again the broad. I'm agreeing with you that it got too broad.
:Yes, but.
Johnny C. Taylor Jr.:I'm saying there are people at great clips, depending upon what they were exposed to in their job, should not be allowed to immediately go work for super cuts. I think that's my argument is that if the broad give everyone a non-compete, very bad employers bang, you shouldn't have done it. 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'd you say Supercuts there are certain employees who are exposed to certain information at Great Clips should not be allowed to go work, at least at a minimum in the radius it. They are reasonable in scope, geography, right, we you can narration, right, you can narrowly tailor it. But to go to the up opposite side, which is no one, no one can do it. Why would I put?
Bob Goodwin:that much my 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 working with people who oftentimes are layoff, people who've been laid off and have to go find a new career and they are worried to death that this blanket non-compete that they signed, like I can't work in a very broad industry because they've got lawyers, I don't. And now I'll say I'm 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. I don't even know if I know any trade secrets, but these guys now have my hands tied behind my back that I can't work in the industry I've worked in for XT years. Can I say something?
Johnny C. Taylor Jr.:though. When you took that job see, it sounds part of this whole conversation and your argument is now they're holding me to it when you took the job, you knew it. Most people are given non-competes before accepting the job. So guess what, Bob, you shouldn't have gone to a company that tells you that there's gonna be a non-compete. You did negotiate that as a part of your deal. No one made you work there, Just being provocative, right.
Bob Goodwin:That's provocative. I'm not sure practical because Well, it's mere practical If right now.
Johnny C. Taylor Jr.:I said I wanted to go work for the competitor of Sherm. Let's use that. Let's just use that. Do you think my board's gonna take real? I know everything about our strategy.
Bob Goodwin:I know our competitor Like come on, and I'm talking about a director of client service in a thousand person company, not this-. So you and I are now agreeing.
Johnny C. Taylor Jr.:We're agreeing scope, so we're both saying the same thing. I think we've arrived at it. Saying no non-competes 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 were at FTC, would be hmm, let's figure out how we narrowly tailor both sides over corrected when you say no one, essentially, can get a non-compete what?
Bob Goodwin:what? I don't think the FTC is even saying that, aren't they? Aren't they saying like, if you make this certain amount of money or you're some kind of a senior executive, you know you're still can be held to one of these. But for rank and file employees, isn't that mostly what they're saying?
Johnny C. Taylor Jr.:Yes, except that they took, almost my opinion, the lazy view. So certain salary. I just told you that a rank and file 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.
Bob Goodwin:Compensation is a poor proxy, I'm sorry.
Johnny C. Taylor Jr.:Compensation is a poor proxy Title compensation. I just talked about a chef at a very high-end restaurant who has the secret literally the secret sauce. No, we should be able to look at the job now. I what I would have done also if I were mr ftc. Commissioner, as I would have said, and you've got to be crystal clear with people on the way in that this is a term and condition of the job and you've got to give them compensation for the period that you want them not to work for a computer. So now, so that's what they could have done, but instead whoop so.
Bob Goodwin:So it's interesting doing a little bit of prep for for this episode that we're doing right now. I said, well, what, what goes on in other countries and like in the uk I think it was the uk they have to do 30 percent of your comp. So when I alluded to like garden, leave earlier, right, like I'm gonna pay you to be quiet, it's worth it to me for you. Go, go garden, go to the beach, go do whatever you're gonna go do right beautiful, that's so.
Johnny C. Taylor Jr.:I, that's exactly it. We went that. We're 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, at the senior specialist. Think about the programmer at open ai, who, the group of them who were working on that technology no, they weren't sam at all, they weren't the top of the food chain, but they knew exactly how this thing was being designed, what is its flaws, or they knew everything.
Johnny C. Taylor Jr.:So that's what I mean. There's no, it should have been more narrowly tailored. Now, what I'm hoping comes out of this is the court ultimately helps us narrowly tailor it and says let's do something that is good for business but also protects the rights of employees, cause that is a it's not lost on me and sure work, workers and the workplace. We do want employees not to be unfairly hampered from earning a living, got it? But I'm just not sure you asked the question. Is the FTC's response? And when we talk about this all the time, is it a shovel or an ax instead of a killer fly Like I just think it went wait.
Bob Goodwin:What do you think? I feel like I'm harping on this point, but if you were in that negotiation trying to like put a finer point on this thing, um, 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?
Johnny C. Taylor Jr.:it, nope, nope. If I'm going to pay you to come out of market, it doesn't matter, 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. They are likely to be pissed off, they could have a vendetta. So I'm going to go to your competitor, I'm going to specifically apply and 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, that's an honor system thing, because if you don't put it in writing, 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 volunteer gosh. I.
Bob Goodwin:I understand where you're coming from, but my goodness that that in the court of public opinion that would be extremely tough. I I took away. I took away your employment, but I'm also telling you where else you can't work what listen?
Johnny C. Taylor Jr.:there are, there are three. Is it 38 million? Whatever the number is of companies in America, I'm saying these are the 10. You can't work Fair enough. So guess what? And I'm going to pay you not to do it.
Bob Goodwin:Okay, but see, I'm down for everything you just said, because none of that is what it really looks like today. So if it gets, Listen, it depends.
Johnny C. Taylor Jr.: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 point A and or point B.
Bob Goodwin:there's a lot of good ground in between those two places that hasn't been properly explored, it sounds like I'm surprised because the ftc took public opinion.
Johnny C. Taylor Jr.:They've talked to employers. They talked to us and we said the answer is maybe not in the center, maybe it's a little leftist whatever it is, but it's not to the extreme because that's not practical for business.
Johnny C. Taylor Jr.:Again, I use example, and I'm going to stay away from Blockbuster since many of your audience may not even remember it, but let's go fast forward to the career club or to Sherm, 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 et cetera, not making a ton of money, comfortable living wages, but and right now they know the 150 questions that we're going to use for the next sherm certification exam. Do you think I want them going across the street to a competitor with that question, with those questions in their head?
Johnny C. Taylor Jr.:oh I should, as 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, I do have lawyers, 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, highly valuable questions.
Bob Goodwin:The flaw in that logic 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 at sherm, where you said you won't do this. 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 a penalty on you so that you can't work and do Now, I think, limiting to extremely direct competitors very specific kinds of disclosures that you can and cannot make. And if we're going to compensate, I don't want to lose that point. Like, hey, I'm not asking you to do this totally on your own dime. I will basically supplement you for a period of time, right, basically as an insurance policy. So like I'm pretty OK 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.
Johnny C. Taylor Jr.:And it's fact. The reality is, we know over time that I mean you'd like to think that, overwhelmingly, people are honorable when it comes to the employment context that has 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 who will steal, especially if they were laid off or fired, who are pissed off and they don't act rationally. So what we're trying to do is to prevent us a headache and you from even being able to give us a headache. Now I I've already acknowledged and conceded, counselor that compensation should be limited, et cetera.
Johnny C. Taylor Jr.:But yes, I make the assumption that my job is to protect this company's assets and you took the job knowing that I was going to protect the asset and I was going to expose you to proprietary information. In fact, you signed a document upfront saying it and you understood. You act as if people just threw you into a non-compete. You took the job knowing that you had a non-compete. Now I'm just asking you to honor it.
Bob Goodwin:Provided I pay you for that period of time, then you, I don't get it, I just maybe For me, the big variable in this is and I'm paying you, yes, Okay that I've been doing this for a while. I have not encountered anybody that says and oh, by the way, bob, they are accepting financial services.
:Yes.
Bob Goodwin:Where garden leave is a pretty standard thing, particularly for your very, as you say, like people that know how the model works. That kind of stuff Totally get it. What our trading strategy is, all that stuff In the regular day-to to day world of client service manager and XYZ company, I haven't seen that.
Johnny C. Taylor Jr.:If that becomes reality, then I am way closer to being signed up for what we're talking about and that, to me, is what that's the problem the FTC should have solved for is, as opposed to a broad no one can, we're not going to allow any of this to be enforced. How about figuring out how to ensure that the employees are protected so that there's a balancing of less? That's what we should have. That's right. The Federal Trade Commission, like they're trading their services, we're paying for it. That, to me, is what I was hoping they would have solved for. And no problem.
Johnny C. Taylor Jr.:If you say you let go of someone, you want them to sign a non-compete and be out of the market for six 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 this 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 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, I stop the pay because I shouldn't pay there are sorts of ways to do this Instead.
Johnny C. Taylor Jr.:it was there generally 90,. This applies to like 98% of the US workforce, if it goes into effect like 98% of the US workforce. If it goes into effect, that's a lot.
Bob Goodwin:Okay, so maybe is there anything else you want to say, because I want to put a bow on this.
Johnny C. Taylor Jr.:I think. But you know, I think we are more in agreement than disagreement because we see I'm so honored that we see both sides of this. The employer has some game, some risk in this. The employee has significant risk in it. How about we just try to de-risk it for both sides, but not what we did now? Okay, so the way I want to, end this one is.
Bob Goodwin:I think this is such a good example of how to have a civil conversation. Love it, man, right. And for those of you who aren't familiar, who are listening, shrm is a year-long initiative, johnny, to foster one million civil conversations in the workplace. And here's something that you know have to be ugly to explore an issue and try and understand it from the other person's point of view. And so you know, I don't know if you want to pick up on that point for half of 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 they don't see eye to eye on necessarily and still be friends.
Johnny C. Taylor Jr.:You said it better than I could. Absolutely. That's the essence of it and what I love. You can't say our diversity is our strength and then not want diverse personalities. You can't right. So you and I should be able to disagree and go out and enjoy and argue. I mean, at one point I heard you in here. You said I just think you're wrong, or something like that, and I didn't get out because you have a right to believe I'm wrong and I don't. But you didn't think, johnny, you're a bad person, I just think what is wrong. That's what we've got to work on and this is a classic example, I can't.
Bob Goodwin:We should talk on I mean, we've got a lot to talk about, but in particular this conversation, not just civing in and spending a few minutes with Johnny and me. If you've got comments or points of view on this issue or anything else that we cover on the WorkWire, we would love to hear from you. But in the meantime, johnny, great to see you and look forward on the next WorkWire episode. Thanks everybody.
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