Hire Power (Update)

Episode Summary

Executive Summary: The episode traces the history and spread of non-compete agreements through the story of Jeff Hong, a Hawaii tech worker who was blocked from starting a business after leaving Microsoft. It explains how non-competes evolved from rare trade restrictions into widespread employment clauses, why they may suppress wages and mobility, how Hawaii narrowed and then banned them for some workers, and how the FTC’s new nationwide rule aims to largely end them—though legal challenges may delay or overturn it.

Main Topics: Jeff Hong’s non-compete fight (Priority: 5/5): Jeff Hong, after being laid off from Microsoft, tried to launch his own company but was constrained by a non-compete that barred him from serving Microsoft clients and pushed him onto unemployment. Origins and legal history of non-competes (Priority: 5/5): The episode revisits the earliest known non-compete dispute in 1414 and later cases that show how courts shifted from limiting restrictions on workers to increasingly enforcing them. Why non-competes spread (Priority: 5/5): Experts explain that non-competes proliferated through copycat corporate behavior, template contracts, and the desire to appear legitimate, rather than through deliberate policy design. Economic effects on workers (Priority: 5/5): The show discusses evidence that non-competes reduce mobility, hold down wages, and create a chilling effect even when not enforced. Hawaii legislative reform (Priority: 4/5): Jeff Hong’s push to change Hawaii law succeeded in narrowing non-competes for tech workers, with measurable gains in wages and job mobility afterward. FTC nationwide ban and legal uncertainty (Priority: 5/5): The FTC has moved to ban most non-competes nationally, but business groups have sued, arguing the agency lacks authority, leaving the rule’s future uncertain.

Key Arguments: Non-compete clauses can lock workers out of their field even after they leave a job, limiting entrepreneurship and job options. These clauses spread because employers imitate one another and rely on boilerplate contract templates, not because every employer has a strong justification for using them. Non-competes can suppress wages by reducing workers’ outside options and discouraging job switching. Even unenforced non-competes can function as a scare tactic, discouraging workers from leaving or bargaining. Targeted legal reform can have measurable benefits: Hawaii’s tech-worker non-compete limits were associated with higher wages and more mobility. The FTC’s rule reflects growing policy consensus that most non-competes are harmful, but its fate depends on pending court challenges.

Data Points: U.S. workers with non-competes: more than 30 million - The episode says more than 30 million Americans have signed some form of non-compete agreement. Non-competes in Hawaii tech law: 4 percent wage increase - A recent paper found wages of newly hired tech workers rose after Hawaii’s ban on enforcing non-competes for tech workers. Non-competes in Hawaii tech law: 11 percent job mobility increase - The same research found job mobility rose after Hawaii restricted non-competes for tech workers. Jeff Hong tenure at Microsoft: nearly 20 years - Jeff worked at Microsoft for almost two decades before being laid off in May 2012. Jeff’s non-compete duration: 1 year - His agreement barred him from rendering services to certain clients for one year after employment ended. Hawaii tourism case restriction: 3 years - A Hawaii Supreme Court case involving a tour company worker barred her from working for another tour company for three years. First known non-compete dispute: 1414 - The episode describes the earliest known non-compete case, involving John Dyer in Britain in 1414. Plague labor loss: about one-third - The judge in the 1414 case considered the post-plague labor shortage, noting the bubonic plague had wiped out about a third of the labor supply in northern England. Hawaii hairstylist restriction: 20 miles - A hairstylist example described a non-compete preventing cutting hair within 20 miles of one employer’s stores. Hawaii law scope: tech workers - The final Hawaii law initially focused on non-competes for tech workers. FTC exception: senior executives above a salary threshold - The FTC rule retains some non-competes for senior executives with policymaking authority who meet pay criteria and signed before the rule takes effect.

Pivotal Quotes: "For a period of one year after termination of my employment, I will not render services in any capacity to any client or customer for which I perform services during the 12 month prior to my separation." — Jeff Hong: He reads the hidden non-compete language in his Microsoft contract that blocks him from taking clients when he leaves. "It is not the time to put restrictions on people's ability to work. If you can work, work." — Judge in the 1414 case: The court rejects an early non-compete claim in the aftermath of the bubonic plague labor shortage. "It's more the ideas that are in people's heads. And unlike property, plant, and equipment, those people can leave." — Matt Marks: He explains why modern knowledge-based firms rely more heavily on non-competes to protect valuable assets.

Implications: Most workers may soon be free of non-competes if the FTC rule survives court challenges, which could boost mobility, wages, and startups. But the final outcome remains uncertain, and state-by-state rules will continue in the meantime.