When Sam Altman was abruptly ousted from OpenAI in November, only to be snapped up by Microsoft and just as abruptly boomeranged back to OpenAI, a lot of people had a lot of questions. (And a bit of whiplash.) One of which happened to catch my eye:
How could Altman leave OpenAI and immediately sign on with not just a competitor but an OpenAI investor?
The answer lies, at least in part, with California law.
How California factors in
Had OpenAI been based in another state, a C-suite executive like Altman may have been asked to sign a non-compete agreement. Such agreements prohibit employees from leaving one job and moving over to work for a competitor in the same field, doing the same thing, over a set time period, and within a given region…and they just so happen to be banned in California. (As well as Colorado, Minnesota, North Dakota, and Oklahoma, at the time of this writing.)
The bill prohibiting California non-competes was signed into law by Governor Gavin Newsom in October 2023 — and it’s worth our attention even beyond the OpenAI and Altman non-compete saga because a similar ban is being considered at a federal level.
What’s the current status of federal non-competes?
In January 2023, the Federal Trade Commission proposed a rule that would ban most United States non-competes, with exceptions including protection against unfair competition and the sharing of proprietary information. But nearly a year later, a final vote on the rule still hasn’t been called, with Bloomberg Law sources suggesting that the FTC vote on non-competes may not take place until at least April 2024.
Even then, the issue is a divisive one, and will likely still be far from settled.
In addition to the FTC, groups in support of the rule include the U.S. Department of Labor (DOL) and the National Labor Relations Board (NLRB), which argue that non-competes place an unfair burden on workers, limiting wages, stifling healthy competition, suppressing innovation and discouraging entrepreneurs. The FTC estimates that banning most non-competes would directly affect 30 million Americans and increase wages by $300 billion annually.
Those opposing the rule, on the other hand, fear that the cons of banning non-competes are too significant to ignore. They feel a ban would remove a tool that’s currently being used to protect trade secrets, limit turnover, and actually incentivize innovation — as organizations need not fear that the ideas they’ve invested in will be shared with competitors. If the rule is passed by the FTC, experts anticipate pushback from private parties and larger agencies alike, with the U.S. Chamber of Commerce already threatening to challenge any non-compete ban in court.
What could be next?
With so much up in the air, the possibilities really are endless; some believe that a challenge to an FTC ban on non-competes could go all the way to the Supreme Court. In the meantime, there’s not much to do but wait and see — and to review any existing non-competes currently in use at your org. That’s because any new FTC rule would be “highly unlikely to ‘grandfather’ or otherwise exempt pre-existing non-competes,” to quote the Employment Law Worldview, which recommends that you “reevaluate your current approach and prepare a backup plan for a scenario where non-competes become unlawful.”
As they say, better safe than sorry.
For now, we here at Ethena will be keeping a close eye on any developments, and keeping you apprised of them — most likely in our legal newsletter, Brand(is) Awareness.
