The just passed law would make it a civil violation (which if documented would be a slam dunk) to propose such a clause it looks like. Here is the text of the bill [https://legiscan.com/CA/text/SB699/2023]
The previous section of the B&P code (16600) can be found at [https://leginfo.legislature.ca.gov/faces/codes_displayexpand...] specifically [https://leginfo.legislature.ca.gov/faces/codes_displaySectio....] which makes it illegal to restrain anyone from trade (which includes non-compete). No civil violations, but if you suffered an injury due to such a clause, then you could probably sue over it. Just way less clear, and also way less clear you could get things like attorneys costs - which the new law makes a thing.
It also adds a section making any such contract signed elsewhere unenforceable in California (how that would play out in Federal Court still TBD. Seems unlikely to go well though).
Seems like it would be a pretty fun little hustle to create a tiny law firm specializing in racking up some legal fees while suing companies being stupid enough to include such illegal noncompete clauses.
The actual damages payouts probably wouldn't be great (as, at best, you've got the employee's salary over the period of their unemployment due to thinking the noncompete was binding), but for a trivial amount of work ("Your honor, here's the employer's signature, here's the illegal noncompete clause, No further arguments"), it could be a half decent cash flow for the lawyers. Not sure if it's legal to kick back legal fees to your client, but if so, that might work.
Right, I thought that got buried a bit in the article. It doesn't matter if the non-compete is paid or not or if it's 18 days or 18 months long. It shouldn't be enforceable.
The exceptions I'm aware of are:
* Voleon could claim that Delaware law applies. They'd have a tough case since they have literally no presence in the state - they're just a Delaware LP (like most hedge fund management companies). But, as the article noted, this works only if the employee had an attorney review the agreement. And even if that did happen, recent cases in Delaware suggest that Delaware might still rule that California law applies: https://www.mofo.com/resources/insights/230331-delaware-case...
* If Voleon pays its employees through a K-1, basically giving them shadow equity, then you could argue that the employees are LLC members or limited partners and that the non-compete is enforceable. But Voleon doesn't do that.
* Really, Voleon seems to be putting most of its weight on the (totally bogus) argument that the non-compete is voluntary. Telling that the spokesperson wouldn't say how many employees, particularly at higher comp levels, actually chose not to sign.
I've black lined a lot of clauses in employee agreements like the one in the article. When questioned by the company I tell them I cannot agree to such terms at the salary being offered and generally propose what I consider to be an outlandish number as salary plus paid PTO in exchange for it. Typically, the company just signs. Sometimes they tell me to eff off. Only once has someone paid me what I thought was an absurd rate to not work for their competitor.
My current non-compete is in the finance industry and uses paid salary during garden leave as a way of avoiding non-compete laws. Nobody esp cares whether it is legal since its a year or two paid vacation.
We're told from the start to live within our salary and investment returns. If you make $200k base, usually make about $1m TC and choose to spent all of your cash every year, I don't feel esp bad for you. The operative word from VR is variable. Leaving, not negotiating a sign-on bonus with the new firm, and getting your garden leave enforced isnt much different than a bad year wiping out your VR, except you have to make your own mistakes at every turn to put yourself in that situation.
So "we'll pay more than that, we promise, we just can't promise in a way thats legally binding" and "you aren't allowed to look for a better deal if you dont like what we give you"
It would seem that way, but I’ve known many people who have had 7- and 8-figure year-end bonuses. The key is that it’s not a one-time thing, it’s a repeated game with many players who share information. If a firm gets a reputation for underpaying its star performers, it won’t ever again get good talent, and it will die.
Sort of. Traders have successfully sued when screwed on a formulaic bonus. If it's discretionary, and historically didn't follow a formula, an employee has much less to stand on.
I've worked for 4 different quant hedge funds and interviewed with about a dozen others to reach final stages and comp negotiations.
I can claim with full certainty that comp is entirely discretionary and is not beholden to any "percentages". They pay you min(market worth, amount to make you stay) - and those figures are reviewed every year.
Percentages only apply to discretionary traders who are allocated a book to trade. They get to keep a certain percentage. For everyone else, especially techies and researchers, it's discretionary.
Yes, if you have no pnl attribution the concept of a take doesnt even make sense. I've never heard of a fund with attribution that does not pay the analysts some percent of their profits.
one move here is to use reputation and geographic reach to find edge candidates who are both skilled and also disadvantaged personally. This is part of "skills arbitrage" and is happily embraced as game rules, yet, with internet and database enabling access across economies and jurisdictions, one could argue that is can easily tip against the individual applicants over time, due to power imbalances.
One edge case for deeply-imbalanced power relationships is expressed in the writings of classical Italian advisor Machiavelli, and more recently in the US in the book "48 Laws of Power" by Robert Greene.
> In 2017, The Wall Street Journal reported on the difficulties faced by the firm. At that point, Voleon had an annualized return since inception of 10.5%, below the S&P 500 index return of 10.7% over the same period. One of the problems encountered was that financial markets were chaotic, and machine learning systems were best applied where patterns were more repeating in nature. In addition, patterns that are found can be easily made redundant after investors notice them and take advantage on them. Gary Smith writes that patterns discovered by the algorithms are often simply coincidences rather than actual correlations.[2][3][7]
> In 2018, Voleon had a return of 14% during a market turndown where the S&P 500 index dropped 6.2%. However, in 2019, its returns dropped to 7%, below the returns of its hedge fund peers of 9.2%. In 2020, Voleon's flagship fund lost 9%.[6][8]
Given their returns, how do they have 7.6 billion AUM?
Not defending this fund or any other hedge and I do not know the defined purpose of this fund but they generally exist to hedge your risks and are not there to beat the S&P500. Thats why they exist for accredited investors and not your regular investor saving for retirement.
They are called “hedge funds” because, as opposed to other stock funds they were allowed to take short positions while mutual funds could not, and so they could hedge some of their risk.
Yes but what market? That was my point, nothing to do with why they are named as they are. Sure, many in the 2-20 bubble had this weird existence where they did not really do much but in general its hard to make a statement about their AUM and returns compared to the S&P500 without know what they were trying to achieve.
They nearly matched the market in a good year, and beat it very well in a bad one. Hard to say for 2019 since the quote switches to comparing them to "hedge fund peers" instead of the broader market.
As someone else is pointing out that's very close to the intended behavior of hedge funds. Entities with money in hedge funds also have money in indexes. They aren't necessarily looking for just "the market, but more" they want uncorrelated behavior to hedge their exposure.
>Given their returns, how do they have 7.6 billion AUM?
Am I missing something? Don't most of these funds under-perform index funds over the long and even medium term? The idea that they wouldn't have customers if this were the case is another Econ 101 fantasy. It's like any pyramid scheme, just with better record-keeping and marketing.
In a statement to Insider, a Voleon spokesman said:
"Like most hedge funds, in order to protect its most sensitive intellectual property, Voleon requests that select employees sign noncompetition agreements. Voleon's non-compete agreements are not a condition of employment. Those who sign it will receive a paid garden leave. Those who haven't signed it remain employed at Voleon, but may not receive access to the most sensitive intellectual property."
The Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce. They described the firm's noncompetes as a de facto condition of employment and said the firm was taking measures to restrict employees from joining competitors as recently as this year.
This is one of the few sad side effects of CA's noncompete laws: it's very hard to run a business like Voleon where there's genuinely valuable IP. It's why we have like 2 quant hedge funds here, despite all the available engineering talent
That's not it at all. The problem is that Voleon is being dishonest around their non-compete agreements.
A Voleon spokesman:
> Those who sign it will receive a paid garden leave.
Voleon ex-employees:
> Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce.
According to a Voleon ex-employee, which also matches my understanding of this industry:
> They will defend that noncompete by saying more and more firms have two years. The trick is: And yes, they pay you something when they make you sit out of your career.
You've missed my point. I'm not commenting on Voleon's non competes. I'm commenting on the fact that CA's noncompete laws make it challenging to run a business like Voleon.
I personally don't really believe this kind of business is good for society so to me this is a more feature than a bug. Obsessive guarding of IP secrets seems to be correlated with paranoid and selfish antisocial behavior, which is essentially how the financial industry appears from the outside in spite of their lofty rhetoric about their contributions to society.
The largest stream of charitable donations in California come from the most IP-paranoid hedge fund I know of.
If you have negative opinions of the finance industry in general, I can't do much but remind you that it's a large and varied industry and that your opinions are priors you should expose to relevant data.
Maybe the reason that the most IP-paranoid hedge fund makes the largest charitable donations in California is to proactively secure favorable publicity in case they become embroiled in a scandal that could impact their financial standing.
Moreover, it raises the question of who truly benefits from these charitable contributions. For example, Ikea is owned by a charity for tax optimization purposes. The mission of the charity is to promote interior design and architecture. Essentially, strategic investments that will ultimately benefit Ikea itself in the long run.
Interestingly, it's the opposite. They made the donations anonymously and were outed by a charity reporter. Likewise, the charities were things like the Sierra Club, various disease research foundations, and the ACLU.
I see your point, though respectfully disagree. Voleon gets some real advantages from being "the only game in town" by being the only remotely large quant fund right next door to Berkeley, and Jon McAuliffe has his pick of good students from Berkeley. I don't think Voleon should be able to reap all of those advantages but not play by California's rules.
I wonder how this article is going down in the Berkeley stat department...
Voleon is competing with the local unicorn population. Unless their returns are amazing, you can get comparable lifetime returns at higher sharpe as a big tech employee.
If the IP is that valuable, why can't they pay those that are familiar with it enough to keep them at the company and happy? And if that's not enough, maybe building an entire business model based around a reproducible IP isn't a great idea.
In any way you look at it, a business using non-compete clauses is trying to have the employees bear the weight of questionable business practices.
Non competes wouldn't be a big deal, if companies were required to use them fairly and sensibly: by matching a competitor's compensation for the duration of however long they want someone to not work for a competitor.
Companies want to have their cake and eat it too: no, you can't work for someone else, and no, we're not gonna compensate you for that.
I disagree. This would be handled by trade secrets. California doesn't stop you from requiring ex-employees to continue to guard trade secrets they learned or created under your employ
Right. And trade secret protections are enforceable forever, not just for the 1-2 years that a non-compete might cover. And they almost certainly would not get thrown out even if (large) parts of an employment agreement did; in fact, often quant firms will make IP agreements separate from employment agreements.
No, because all real employment contracts (and most other contracts, besides) will have a Severability clause that says if anything in it is found to be unlawful or unenforceable, then the contract will be modified to the minimum extent required to fix the problem (meaning any unrelated provision will remain in full force).
In a nutshell, severability clauses may not save an employment contract plagued by illegal terms (in the case above, related to mandatory arbitration). In California at least, the presence of unconscionable terms can render the entire contract unconscionable when viewed as a whole.
Right -- while most agreements will include severability clauses, they may not be enough to save an agreement. Over time, New York, for example, has frowned on "blue-penciling" employment agreements: https://www.kramerlevin.com/en/perspectives-search/when-blue...
Woah. I interviewed with Voleon back in 2018. The process was terrible. Like, the worst interview process I've ever had. They offered me more than my total comp at the time, all in cash, and I was happy to turn them down.
They were super cagey about the non-compete. They claimed it was optional and offered additional salary if you signed it, but it sounded like it wasn't. They also claimed it was narrowly applied, and now it looks like that wasn't true.
What the article didn't mention was that in 2014, it was even more egregious. There was a 24 month, unpaid non-compete -- and it was a condition of employment, rather than attached to some "voluntary" profit-sharing program.
66 comments
[ 1.3 ms ] story [ 59.3 ms ] threadhttps://voleon.com/
https://en.wikipedia.org/wiki/The_Voleon_Group
The previous section of the B&P code (16600) can be found at [https://leginfo.legislature.ca.gov/faces/codes_displayexpand...] specifically [https://leginfo.legislature.ca.gov/faces/codes_displaySectio....] which makes it illegal to restrain anyone from trade (which includes non-compete). No civil violations, but if you suffered an injury due to such a clause, then you could probably sue over it. Just way less clear, and also way less clear you could get things like attorneys costs - which the new law makes a thing.
It also adds a section making any such contract signed elsewhere unenforceable in California (how that would play out in Federal Court still TBD. Seems unlikely to go well though).
[https://www.littler.com/publication-press/publication/califo...]
The actual damages payouts probably wouldn't be great (as, at best, you've got the employee's salary over the period of their unemployment due to thinking the noncompete was binding), but for a trivial amount of work ("Your honor, here's the employer's signature, here's the illegal noncompete clause, No further arguments"), it could be a half decent cash flow for the lawyers. Not sure if it's legal to kick back legal fees to your client, but if so, that might work.
The exceptions I'm aware of are:
* Voleon could claim that Delaware law applies. They'd have a tough case since they have literally no presence in the state - they're just a Delaware LP (like most hedge fund management companies). But, as the article noted, this works only if the employee had an attorney review the agreement. And even if that did happen, recent cases in Delaware suggest that Delaware might still rule that California law applies: https://www.mofo.com/resources/insights/230331-delaware-case...
* If Voleon pays its employees through a K-1, basically giving them shadow equity, then you could argue that the employees are LLC members or limited partners and that the non-compete is enforceable. But Voleon doesn't do that.
* Really, Voleon seems to be putting most of its weight on the (totally bogus) argument that the non-compete is voluntary. Telling that the spokesperson wouldn't say how many employees, particularly at higher comp levels, actually chose not to sign.
My current non-compete is in the finance industry and uses paid salary during garden leave as a way of avoiding non-compete laws. Nobody esp cares whether it is legal since its a year or two paid vacation.
More often than not they will quite happily waive the non-compete and the pay - a sensible arrangement for all concerned.
Sounds ripe for abuse.
Sort of. Traders have successfully sued when screwed on a formulaic bonus. If it's discretionary, and historically didn't follow a formula, an employee has much less to stand on.
I can claim with full certainty that comp is entirely discretionary and is not beholden to any "percentages". They pay you min(market worth, amount to make you stay) - and those figures are reviewed every year.
Percentages only apply to discretionary traders who are allocated a book to trade. They get to keep a certain percentage. For everyone else, especially techies and researchers, it's discretionary.
One edge case for deeply-imbalanced power relationships is expressed in the writings of classical Italian advisor Machiavelli, and more recently in the US in the book "48 Laws of Power" by Robert Greene.
> In 2018, Voleon had a return of 14% during a market turndown where the S&P 500 index dropped 6.2%. However, in 2019, its returns dropped to 7%, below the returns of its hedge fund peers of 9.2%. In 2020, Voleon's flagship fund lost 9%.[6][8]
Given their returns, how do they have 7.6 billion AUM?
They are called “hedge funds” because, as opposed to other stock funds they were allowed to take short positions while mutual funds could not, and so they could hedge some of their risk.
Not possible. Even the greatest mutual fund manager in the history of the world, Warren Buffet, has beat the market only 39 out of 58 years.
https://en.wikipedia.org/wiki/Hedge_fund#Etymology
"Early hedge funds sought to hedge specific investments against general market fluctuations by shorting the market, hence the name.
Nowadays, however, many different investment strategies are used, many of which do not "hedge" risk."
They're still not generally designed to beat the S&P 500, always.
As someone else is pointing out that's very close to the intended behavior of hedge funds. Entities with money in hedge funds also have money in indexes. They aren't necessarily looking for just "the market, but more" they want uncorrelated behavior to hedge their exposure.
Am I missing something? Don't most of these funds under-perform index funds over the long and even medium term? The idea that they wouldn't have customers if this were the case is another Econ 101 fantasy. It's like any pyramid scheme, just with better record-keeping and marketing.
In a statement to Insider, a Voleon spokesman said:
"Like most hedge funds, in order to protect its most sensitive intellectual property, Voleon requests that select employees sign noncompetition agreements. Voleon's non-compete agreements are not a condition of employment. Those who sign it will receive a paid garden leave. Those who haven't signed it remain employed at Voleon, but may not receive access to the most sensitive intellectual property."
The Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce. They described the firm's noncompetes as a de facto condition of employment and said the firm was taking measures to restrict employees from joining competitors as recently as this year.
A Voleon spokesman:
> Those who sign it will receive a paid garden leave.
Voleon ex-employees:
> Voleon ex-employees who spoke to Insider said their noncompete agreements did not provide paid leave. Ex-employees and other sources close to the firm said the unpaid noncompetes have been applied broadly — including to people who say they had little exposure to the firm's secret sauce.
According to a Voleon ex-employee, which also matches my understanding of this industry:
> They will defend that noncompete by saying more and more firms have two years. The trick is: And yes, they pay you something when they make you sit out of your career.
If you have negative opinions of the finance industry in general, I can't do much but remind you that it's a large and varied industry and that your opinions are priors you should expose to relevant data.
Moreover, it raises the question of who truly benefits from these charitable contributions. For example, Ikea is owned by a charity for tax optimization purposes. The mission of the charity is to promote interior design and architecture. Essentially, strategic investments that will ultimately benefit Ikea itself in the long run.
I wonder how this article is going down in the Berkeley stat department...
In any way you look at it, a business using non-compete clauses is trying to have the employees bear the weight of questionable business practices.
Companies want to have their cake and eat it too: no, you can't work for someone else, and no, we're not gonna compensate you for that.
Like, in Silicon Valley? https://www.youtube.com/watch?v=LOmbOfJLTKc
In a nutshell, severability clauses may not save an employment contract plagued by illegal terms (in the case above, related to mandatory arbitration). In California at least, the presence of unconscionable terms can render the entire contract unconscionable when viewed as a whole.
They were super cagey about the non-compete. They claimed it was optional and offered additional salary if you signed it, but it sounded like it wasn't. They also claimed it was narrowly applied, and now it looks like that wasn't true.
Clearly dodged a bullet with that one.
Where exactly are they going to go? There's a reason they're clustered around NYC, similar to how big tech clusters around SV.