Non-Compete Agreements (2024)
Hi all -
I'm an experienced hire (5-10 years exp), looking at MM pods or systematic research shops, but am surprised by how long some non-competes are. Certain pods are around 1 year, and some research places are upwards of 1.5 years. Does this severely limit your ability to go somewhere afterwards (into a quant research, or sub-PM role, rather than as a full PM)? E.g. with a 1 or 1.5 year non-compete, would you basically need to quit first then start discussions with only 6 months remaining? Or is this becoming the norm.
Tell them you won’t sign it, especially if you’re bringing a new strategy to the firm. Everything on a contract is negotiable, including non-competes. If you’re learning new strategies then the scope of the non-compete should cover only strategies you’re working on/learning from your new firm. Worst case try to limit it to 3-6 months at most, and require them to pay you a higher guarantee to lock you up (ie you want double the salary during the non compete period, or you want a bigger upfront guarantee).
Imagine you join a new firm and find out everything is way different than what was discussed during the interview process (ie risk tolerances are different, tech is non-existent/sucks, coworkers are incompetent, etc). Should you be tied down because they misled you? Absolutely not. There are some things that are impossible to fully vet out when making a switch (ie every firm will tell you that have world class technology, top talent, plenty of capital, etc, but the fact of matter is this isn’t always true).
Protect yourself and negotiate. 12 months makes you a very unattractive potential hire. 3 months is very tolerable. 6 months basically means you waste a year of bonus to make a switch. 12 months puts you out of nearly 1.5 years of full bonuses. More than 12 months means you should change careers after you’re done with that shop.
Won't work. Very very hard for them to negotiate the non-compete because if they reduce it for you, it automatically reduces it for everyone else. There's a thing called "Similarly Situated Employees" -- non-compete law requires the agreement must be necessary to protect the firm's secrets, so if they make you sign it but don't require the same thing from another guy doing the same job as you, then a court will consider that strong evidence that the non-compete is not actually necessary and they'll be much more likely to throw it out.
You may be able to negotiate to get them to increase the payout of the non-compete though.
This is pretty much the norm these days. Although you can negotiate your non-compete when you are leaving the firm. This should be worse the higher you are on the chain, I know a L/S PM from the big 4 pods who was on a ~4 year garden leave. The same is true on the Quant side, if you are a Quant Researcher then firms like Susquehanna have upped their non-compete to 2-3 years, this was recently discussed on the forum. But yes, 1 year has become the norm and 1+ is becoming the norm unfortunately.
Thanks!
I wouldn't be 'bringing my own strategies' (might have a few, but would be hired for research / to come up with new ones). My impression is that 6-9 months is becoming more and more standard though, and sometimes even longer, with 3 months being very rare outside of real money. I'm wondering what the industry standard for a QR is... people I know at MM have been on 9 months, then gone to 1 year, but they've been PMs.
If 1 year is the norm, I'd assume it's less of a disadvantage to moving (as pretty much everyone would have it, so it would be expected)? Otherwise, do people tend to just quit, take 6 months vacation then start applying, or is this a red flag (someone applying to a job without currently having one, after having quit previous firm)?
Most people interview elsewhere telling the new firm about their non-compete and get an offer before resigning. If you resign before then it will make new firms wonder whether you got fired or were forced out. The new firm should offer you a large guarantee in order to entice you to make the switch given the big opportunity cost you’re giving up by leaving (ie you’re giving up potentially 2 bonuses by making the switch, and your first bonus at the new firm might not be as high at first if you’re building up a new strategy from scratch). If you have a niche skill set then they’ll be willing to wait and pay up for you. But if you’re average and easily replaceable then it’s going to be hard to find a new firm that’s willing to pay up and wait for you.
Making a switch is always risky, and can be quite costly. You absolutely don’t want to be in a position where you leave a comfy seat for a new role that turns into a complete nightmare. You will be super depressed and hate yourself. I know someone that left a job paying a steady $1m per year all in for a high risk/very high reward role (apparently he could have made $5m or more if it worked out), it completely backfired, and he sat out for 2 years on just a base salary (over $1.5M in lost opportunity cost), and then had to settle for a new seat at a lower pay than where he was beforehand. You don’t want to be that guy, and make a mistake picking a shit firm where you completely fuck up and end up worse off than where you are currently.
One year non-compete is unfortunately standard now, and 2 years is becoming common. They won't negotiate the length when you sign it. They just won't. (Because if they do it for you, that gives a court ground to retroactively waive the agreement for all other employees. After you're leaving, you *might* be able to negotiate to waive it *then*; but not before you join the company). But they may be willing to negotiate the payout amount.
I wrote up some tips on this you may find useful: https://www.wallstreetoasis.com/comment/3002394#comment-3002394
That’s not true. I’ve successfully negotiated non-compete, and many of my friends & former colleagues have too, this was all done before signing the contract/starting employment. I’ve also hired people who have requested the same.
Firms do not have to give all new employees the same package/employment agreements, otherwise all employees would be paid the same, which would mean negotiating anything regarding compensation is completely useless, which is simply not the case. It’s not illegal for employers to pay employees differently as long as they aren’t discriminating on the basis of protected characteristics (race, gender, etc).
I wish FTC bans non-competes, or atleast manage to restrict the timeline/constraints used. Non-competes are good to protect IP and prevent loss of critical information, but employers just use this as a tactic to pressure employees to stay.
I’m ok with some non-competes, but 2+ year non-competes are just insane (even a 1 year non-compete is a lot). Especially for junior people or people so senior that they aren’t involved with the day to day trading (ie management or partners).
Knowing that a junior person is locked up for a short period of time (3-6 months) gives me confidence that I can train/develop/invest in these individuals without the fear that they’re going to immediately turn around and immediately steal my work and give it to a competitor. However, when the non-compete is too long, it creates a barrier for exit, which enables employers to underpay employees as the cost to that employee to leave is quite high.
I personally think golden handcuffs is a better solution to retain employees (retention by choice or incentives is always better than retention by force). Give employees deferred compensation instead with a 2-3 vesting period, and have that compensation invested in the fund to align interests. This still requires employers to pay employees a fair wage for their work each year, while still creating a reasonable obstacle for exit, but still aligns interests to disincentivize overly risky behavior.
For the big quant places 2 years is common for QR/trading roles, regardless of whether you leave or get fired. Unless you are very senior (who have even longer terms) it would be hard to go to another firm, they won't wait that long to bring you on. The real purpose of non competes is to suppress wages for everyone.
Getting fired then having to serve a two year non-compete feels like a downright criminal arrangement
I’m a junior QR with an 18 month noncompete and recruiting and getting plenty of looks. I don’t think it’s much of an issue
Yeah unfortunately noncompetes sort of turned into an arms race. Before 2020 standard noncompetes for non quants was basically 3 months. Churning thru people was part of the MMHF business model and they didn't see any reason to lock their talent up. The post 2020 bidding competition and poaching of MMHF talent caused many funds to re-evaluate and force their newer PMs to sign longer non-competes. Nowadays 1.5 years is fairly common/standard even for non quants at huge MMHFs.
Unfortunately the NYC non-compete legislative proposals will not benefit the high income earners on the buyside. And you will absolutely need to assume your firm will fully enforce on the non-compete. Give a real think about it and consult an employment attorney before you sign up to one.
Quant PM here: we put new hires on a 1-year NC and frequently interview people with 1+ year NCs. If it's longer than 3-6 months we generally will not make an offer to someone unless they are legitimately amazing and offer a niche skill set (maybe 2-3 of 100+ people I've interviewed). That being said, most people can get their NCs waived; we've done it ourselves when people get fired + have low risk.
Interesting - and in your view would it be common for QRs with 1y+ non-competes to quit their job and apply 6 months later or would that be seen as a red flag?
As an aside, what kind of 'quant strategies' do you do (macro, equities, what time horizon)?
I mostly do equity stat arb. Usually people secure the offer then ask to have it waived when they put in their notice. Or their shop / pod is folding in which case no NC.
Are noncompetes enforceable if you aren’t paid during that time period?
Are noncompetes enforceable if you aren’t paid during that time period?
Usually no. It ultimately depends on the contract too. If they give up a mega guarantee when you join they could say that is to pay for your non-compete period, but in most circumstances the firm will pay you your salary during the non-compete period either in lump sum or as you go. I have had colleagues whose former employer decided mid way through the non-compete period to just decide they didn’t want to enforce the non-compete period and stop paying… this happened a lot during 2009/2020 when the markets shit the bed and many employers thought it was unlikely for their laid off talent to quickly find another job.
I don't think this is true, other posters here have said the courts will back even unpaid ones depending on the state.
The real issue with noncompetes is they are a deterrent. Firms won't risk hiring someone on a noncompete even if it would be voided by courts, and even if you fight a firm in the courts it will take years and huge amounts of time and energy, so nobody does it.
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