When I read about the U.S. Federal Trade Commission’s new rule banning non-compete agreements, I was reminded of when I left a blockchain startup a few years ago to join another early-venture company. My old employer sent me a cease-and-desist letter stating that I had breached a non-compete clause in my old employment contract.
There was little legal merit to their arguments. The non-compete clause was overly-broad and would probably have been unenforceable in court. The companies’ markets and products were distinctly different, and I was not a software engineer but a lawyer – a profession that is generally not subject to non-competes.
Linda Jeng is the Founder & CEO of Digital Self Labs, a blockchain advisory firm.
Nonetheless, this led to a protracted ordeal that kept me from working for many months. I lost over $80,000 in income, used up my savings, and bore the legal costs of hiring an employment attorney. But, worse than the financial costs, was the emotional distress.
I was fortunate that my new employer stood by me. Not everyone in my situation is so lucky. On their end, they shouldered the costs of hiring legal counsel and time spent negotiating with my old employer. More importantly, they lost months of what would have been my contribution to the company. The ordeal ended when my new employer realized that this was probably a delay tactic on the part of my old employer, which had rejected reasonable financial offers to settle.
The federal and local government were also losing parties. They lost tax revenue from my months of unemployment. In the third month, I had even begun the paperwork for unemployment benefits. Other losing parties include the venture capital investors whose funds were being deployed to handle the matter rather than on developing products and going to market.
I have never publicly written about these events. It was perhaps the most stressful period of my 20 year career. There are few statistics on how non-competes are used against departing employees, but I know I’m not alone. Nearly one in five Americans are subject to non-competes, and a 2023 US Government Accountability Office survey of 247 employers found that only 39% responded that they have never tried to formally or informally enforce a non-compete agreement. FTC chair Lina M. Khan says the new rule, once enacted, will create 8,500 new startups through greater competition.
I work in the blockchain and digital assets industry. Looking back, I see the irony that a blockchain startup violated the foundational principle of our innovative industry’s open-source ethos. Another irony was that the CEO was based in the State of California, which has not enforced a non-compete since 1872. Imagine what Silicon Valley would be today if California had been banning non-compete agreements all along.
