Morning Coffee: Banks and hedge funds don’t care about non-competes. The enormous overhang of mediocre consultants earning $325k
If you’re an employment law wonk, the big news this week is that the Federal Trade Commission has decided to ban the use of non-compete agreements. In doing so, it says it will increase worker earnings by more than $488bn over the next decade. The ban won’t affect existing agreements signed by “senior executives”, but no new non-competes are to be allowed, and any currently outstanding non-competes with employees earning less than $150k are null and void. Unsurprisingly, employers are not pleased; lawsuits have already been filed challenging their power to do this.
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Banks and hedge funds are famously partial to non-competes , so it might be supposed that this would all create a problem for them. In fact, for banks it all means a lot less than you’d think. For one thing, most banks and insurance companies aren’t subject to FTC regulation – they might have dozens of other regulators to comply with, but this isn’t one. And the existence of a federal ban might make it a lot less likely that states like New York will bother passing their own legislation .
Hedge funds are a different matter. In principle, hedge fund employees will be covered by the ban. And the FTC rule (check page 81) makes it clear that they won’t allow the use of NDAs, non-solicitation agreements or no-hire agreements to create a non-compete by the back door. So in principle, it might have got somewhat more difficult for aggressive hedge fund employers to intimidate portfolio managers who want to start up their own fund or pod elsewhere.
But, in the hard-nosed and often extremely destructive world of employment litigation, “in principle” are two words that you should be very scared of. In its
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