Why Yelp wants to ban non-compete agreements

Illustration: Sarah Grillo/Axios

In public comments published Tuesday evening, online review site Yelp makes a strong case for the Federal Trade Commission’s proposed ban on non-competition agreements.

Why is this important: There is a general consensus, even in the business community, that the lowest-paid hourly workers should not be forced to sign non-compete clauses, but Yelp argues that subjecting senior executives to such contracts is also bad for business.

  • “Such clauses are generally bad for the employees who are subject to them, employers who want to compete freely and fairly for those employees, and consumers who may end up paying more and getting less from a market distorted by covenants. non-competition,” the company writes.

How it works: Non-compete agreements typically bar employees from taking a new job with a competitor for a certain period — often more than a year — after leaving their current employer.

Driving the news: Yelp reviews are coming right under the feed; Wednesday marks the end of the public comment period for the The rule proposed by the FTC.

  • Companies tend to wait until the last minute to express themselves.

Enlarge: Yelp, in its comments, talks about a recent non-competition imbroglio it went through, after it tried to hire Groupon executive Sung Shin as Yelp’s vice president of product management in 2021.

  • Shin had been with Groupon for just seven months when he announced his intention to quit. Groupon told him he couldn’t take the job because Yelp was a competitor.
  • Groupon told Shin he basically had two options: stay with Groupon or stay until he could find a job at a company that Groupon did not consider a competitor, according to a court filing.
  • Groupon ended up filing a lawsuit against Shin to prevent him from taking the job. He lost at the district court level – and was banned from working for Yelp for a year and a half.
  • He appealed, but it was too late. “[A]Any decision on that appeal would have come far too late to save the job he wanted at Yelp,” the company explains.

Zoom out: Yelp’s experience shows how non-competition lessens competition for workers, Yelp points out.

  • In the meantime: In California, where Yelp is headquartered, non-competitors have been banned since the 19th century — and the state is known as a place where startups and competition thrive, Yelp points out.
  • To protect trade secrets, Yelp requires its employees to sign confidentiality agreements.

The plot: The rise of remote work complicates the situation. Shin lived in Washington State, which limits non-competitors, but Groupon is headquartered in Illinois, which allowed them at the time.

  • These inconsistencies add to the uncertainty for companies trying to hire.

The other side: The Chamber of Commerce and more than 280 professional groups and organizations submitted a comment Monday strongly opposes the ban – he argues that non-competition is good for competition and good for business.

  • He says non-competition helps protect trade secrets and keep turnover down.
  • Moreover, he says, the FTC does not have the authority to enact such a blanket ban.
  • For the record: A Groupon spokesperson pointed to the district court’s ruling in his favor, noting that he said the company would be at a “serious competitive disadvantage” and suffer irreparable harm if Shin worked for a competitor without an 18 month break.

And after: The FTC will review the comments and then issue a final rule, possibly before the end of the year, experts told Axios.

  • Some observers believe the rule will ultimately be watered down a bit more than the original proposal — perhaps adding exceptions for those who get significant compensation for signing a non-compete clause.
  • The Chamber of Commerce has already announced that it will take legal action to prevent the enactment of any rules.

Leave a Comment