Noncompete Agreements Have Become ‘Ubiquitous’ in Financial Services and Elsewhere
Roughly half of U.S. companies require at least some employees to sign contracts banning them from working for a competitor, according to the Economic Policy Institute.
December 10, 2019
Illustration by II
Non compete agreements have long been used by hedge funds and other asset management firms to keep key executives and portfolio managers from leaving and taking their best ideas elsewhere. Now these employment provisions are widespread in finance and other industries, according to a report released Tuesday by the Economic Policy Institute.
In a survey of private-sector U.S. employers, 49.4 percent said that they required at least some employees to sign a non compete agreement — a clause banning individuals from working for or starting a competing business within a certain period of time after leaving their current jobs. Nearly a third of respondents reported that all their employees were required to enter into non compete agreements.
These figures suggest that the use of non compete agreements is “ubiquitous” and “growing,” according to the report, authored by Cornell University professor Alexander Colvin and Heidi Shierholz, policy director at the Economic Policy Institute. Based on the survey results, they estimated that somewhere between 27.8 percent and 46.5 percent of private-sector workers are now subject to non competes.
Finance, insurance, and real estate companies were among the biggest users of non-compete contracts, according to the report. The survey found that about 58 percent of these companies made at least some employees subject to non compete agreements, while 35.5 percent indicated that all employees were required to sign them.
Hedge fund firms Brevan Howard and Citadel have engaged in legal battles with former employees over non compete clauses.Institutional Investor reported in 2015 that Brevan Howard co-founder Chris Rokos had engaged in litigation against the firm to overturn an agreement preventing him from starting his own hedge funds for five years following his departure. They settled their disagreement.
The Wall Street Journal reported in 2009 that Citadel had asked a judge to temporarily shut down the high-frequency trading firm founded by former employees who had left earlier that year.
Video: Economist
Perspective: Battle
of the Yield Curves[/paste:font]
[IIDeep Dive:Non-compete Agreements May Get Tougher to Enforce]
Investment professionals such as those employed by hedge funds are typically highly educated and well compensated. The average portfolio manager at a U.S. hedge fund expected to make around $1.4 million in 2018, according to II’s All-America Buy-Side Compensation survey.
However, the Economic Policy Institute study found that non compete agreements are not limited to the most highly paid and skilled workers.
Among companies that typically employed workers with “some high school” education, 20 percent required all employees to sign non compete agreements, while 32 percent reported that at least some employees where subject to non competes. For companies that typically employed workers with a high school diploma, these figures rose to 27.1 percent and 43.9 percent, respectively.
Non compete agreements were also found to be in use at companies that paid average wages below $13 an hour. Among these companies, 29 percent said all employees were subject to non compete clauses, while 37.9 percent said some employees were.
“Non competes limit competition among businesses and stifle workers’ wage growth — given that changing jobs is where workers often get a raise,” Colvin said in the Economic Policy Institute’s statement on the report. “The rise of non competes is likely an important contributor to stagnant wages and declining job mobility in the United States in recent years.”
https://www.institutionalinvestor.c...biquitous in Financial Services and Elsewhere
Roughly half of U.S. companies require at least some employees to sign contracts banning them from working for a competitor, according to the Economic Policy Institute.
December 10, 2019
Illustration by II
Non compete agreements have long been used by hedge funds and other asset management firms to keep key executives and portfolio managers from leaving and taking their best ideas elsewhere. Now these employment provisions are widespread in finance and other industries, according to a report released Tuesday by the Economic Policy Institute.
In a survey of private-sector U.S. employers, 49.4 percent said that they required at least some employees to sign a non compete agreement — a clause banning individuals from working for or starting a competing business within a certain period of time after leaving their current jobs. Nearly a third of respondents reported that all their employees were required to enter into non compete agreements.
These figures suggest that the use of non compete agreements is “ubiquitous” and “growing,” according to the report, authored by Cornell University professor Alexander Colvin and Heidi Shierholz, policy director at the Economic Policy Institute. Based on the survey results, they estimated that somewhere between 27.8 percent and 46.5 percent of private-sector workers are now subject to non competes.
Finance, insurance, and real estate companies were among the biggest users of non-compete contracts, according to the report. The survey found that about 58 percent of these companies made at least some employees subject to non compete agreements, while 35.5 percent indicated that all employees were required to sign them.
Hedge fund firms Brevan Howard and Citadel have engaged in legal battles with former employees over non compete clauses.Institutional Investor reported in 2015 that Brevan Howard co-founder Chris Rokos had engaged in litigation against the firm to overturn an agreement preventing him from starting his own hedge funds for five years following his departure. They settled their disagreement.
The Wall Street Journal reported in 2009 that Citadel had asked a judge to temporarily shut down the high-frequency trading firm founded by former employees who had left earlier that year.
Video: Economist
Perspective: Battle
of the Yield Curves[/paste:font]
[IIDeep Dive:Non-compete Agreements May Get Tougher to Enforce]
Investment professionals such as those employed by hedge funds are typically highly educated and well compensated. The average portfolio manager at a U.S. hedge fund expected to make around $1.4 million in 2018, according to II’s All-America Buy-Side Compensation survey.
However, the Economic Policy Institute study found that non compete agreements are not limited to the most highly paid and skilled workers.
Among companies that typically employed workers with “some high school” education, 20 percent required all employees to sign non compete agreements, while 32 percent reported that at least some employees where subject to non competes. For companies that typically employed workers with a high school diploma, these figures rose to 27.1 percent and 43.9 percent, respectively.
Non compete agreements were also found to be in use at companies that paid average wages below $13 an hour. Among these companies, 29 percent said all employees were subject to non compete clauses, while 37.9 percent said some employees were.
“Non competes limit competition among businesses and stifle workers’ wage growth — given that changing jobs is where workers often get a raise,” Colvin said in the Economic Policy Institute’s statement on the report. “The rise of non competes is likely an important contributor to stagnant wages and declining job mobility in the United States in recent years.”
https://www.institutionalinvestor.c...biquitous in Financial Services and Elsewhere