To Compete Better, States Are Trying to Curb Noncompete Pacts - <AUTHOR> http://www.nytimes.com/2016/06/29/technology/to-compete-better-states-are-trying-to-curb-noncompete-pacts.html?ref=technology <comment><USER2> I've been thinking of a mutual defense society for startups in Washington who in good faith hire someone and the employee is then threatened by Amazon or Microsoft, as a former employer, on non compete grounds.

I suspect if you were willing to completely go to war over a hire, you could ultimately get noncompetes invalidated. The problem is the chilling effect on marginal hires -- it usually isn't worth going all the way on hiring someone when you have other options, and even when it is, it makes sense to settle and move on (for both sides).

(From what I've heard, Amazon is particularly egregious in enforcing noncompetes. I believe they are an unconscionable and unconstitutional restraint on individual liberty, and believe the federal courts would agree, as well as the court of public opinion.)

<comment><USER3> Perhaps the main thing such a society could do is maintain a website with data about employers that have non-compete clauses in their employment contracts, and the extent to which they try to enforce them (like Chilling Effects, but for employers).

If prospective hires for such companies knew that they would be seen as damaged goods on the employment market as a result of working for a certain company, it would influence their choice of employers, especially in the common scenario of having a few offers to choose between and not having much else to separate them with.

<comment><USER4> Sounds nice in theory, but in practice the greater part of offers at the high- end employers, like Amazon, Google, Facebook, is made through referrals or internships. Everyone who signs up has the full picture already. I just can't see this work.

<comment><USER5> A lot of times employers say "This is industry standard." or "Everyone else has the same sort of agreement."

If such a website listed companies that good/no non-compete clauses, it gives ammunition for prospective employees. Esp people with multiple offers, during the negotiation, the candidate can point to a competing offer from a company with no non-compete clause.

<comment><USER6> I absolutely love the idea. Kinda like a [https://tldrlegal.com/](https://tldrlegal.com/) for employment agreements. Somebody should build that.

<comment><USER7> ...and also cross reference it against companies that have at any point complained of a lack of affordable talent.

</comment></comment></comment></comment></comment></comment><comment><USER8>
        *** MASSACHUSETTS TECHIES: THIS IS ABOUT YOU ***

        * Read the article
        * Contact your State Representative [1] and urge
          them to support the bill [2]

[1] [https://malegislature.gov/People/Search](https://malegislature.gov/People/Search) [2] I think this is the bill text: [https://malegislature.gov/Bills/189/House/H4434](https://malegislature.gov/Bills/189/House/H4434)

</comment><comment><USER9> I've been fortunate enough to have an employer with no non-compete, but in the past with my first job out of college I just signed everything and was under one for a year after leaving. My thought process now is that a non-compete is just another thing to negotiate during the hiring process. I'm happy to sign one but I will absolutely require that I'm compensated at least for a year of salary, benefits, etc. while under the non-compete. It's only fair that if you're asking me not to work for a year that I can actually sustain myself and my family. Employers are just coasting off the fact that people will sign these things and ask for nothing in return--once people realize it's negotiable (even if you just plain walk from that job opportunity to something else) employers will have a much tougher time with them IMHO.

<comment><USER10> Yeah, so it would in a lot of ways be ideal if people could reasonably read, understand, and negotiate the contracts they sign, and then be reasonably bound by those contracts. So each person could say something like, "Sure, I'll sign a non-compete. For an extra $15,000 per year." And then the company could decide if that's worth it to them.

In practice, people just sign what's in front of them, and indeed even if they want to read and understand everything, they can't without a fair amount of training -- and the existence of lots of other people who will just sign what's in front them means that it's hard to negotiate based on what you're signing even if you do read and understand it.

(Digression: I bought a house. The amount of paperwork that I signed without reading was probably around 100 pages. This is a crazy way to live.)

This feels like a problem that is getting amenable to a technological solution. It's pretty easy to imagine a digital assistant that could understand common contract phrasing and even do things like say to a person, "This offer includes a non-compete clause. Based on your demographics and the position, signing a non-compete clause will cost you approximately $X per year. Would you like to negotiate for +$X per year? Y/N" The problem, it seems to me, would be to get buy-in to the idea that such digital assistants should exist and that companies would have to accommodate such assistants.

<comment><USER11> I signed mine with my new hire paperwork. I had just flown across the country to take the job. Am I supposed to say no when my family had just spent a ton of money to move?

Shady when companies do this, IMO

<comment><USER9> Bring it up in the interview process, particularly when talking to HR, etc. You don't have to make a stand right there but at least find out what's typically in an employment contract (a very reasonable question to ask even in an early interview). Then later on when they're trying to close the deal make it a negotiable thing just like salary, etc.

<comment><USER12> I asked about something similar at the offer stage: invention disclosure and assignment. I asked several times and the recruiting team told me that "everything I needed was on the website [where the job offer and the related terms were]." I even asked "No, I mean the forms you'd ask me to sign upon accepting the offer when I'm hired." Still nothing.

Sure enough, as soon as I accept the offer I'm presented with exactly what I was looking for on that very same website.

Somehow I think "never attribute to malice ..." doesn't apply to corporations.

<comment><USER13> Why didn't you tell them that you wouldn't take the job if they couldn't present you with the paperwork that they would be requiring you to sign?

And if they presented extra paperwork later, why wouldn't you hold them to that?

<comment><USER14> I can't speak for this case, but the answer is often "you found out after you travelled across the country and turned down other job offers, and may be waiting for repayment of moving expenses".

Yes, a person could try to get this sort of thing in writing and sue for damages incurred, but they'd still be unemployed and loaded with expenses in the meantime. There's a lot of freedom to push this kind of thing because there's too much legal overhead to fight it.

</comment></comment></comment></comment></comment></comment></comment><comment><USER15> It seems particularly egregious that non-competes apply even in the case of layoffs or firing.

It's one thing to keep employees from running off to a competitor for a slightly higher salary.

It's unconscionable to fire someone and then prevent them from finding a new job in their field. That's egregious.

<comment><USER16> You can fire someone to go to their competitor for a lower salary, eg off- shoring. That's just fine. Surely it has to work both ways. You must be able to quit to go to a higher salary unencumbered or it's just pure regulatory capture by employers to screw employees.

<comment><USER17> You're under the impression that employers want things to be fair.

</comment></comment></comment><comment><USER18> It's nice for some anonymous internet person to say "Non compete clause? just don't sign them" but if you are ever lucky enough to get high up in a company this often just sometimes isn't an option.

So if you do have to sign one then the below is the advice I've been given by the employment lawyer's I've spoken to over the years.

1) make sure it says you are compensated for the time you can't work. ie if it says you cant' work for a competitor for a year then you should be getting a salary for the same duration. Some companies will try to give you a signing bonus and include language that the signing bonus is consideration for you waiving this compensation. I mean it's nice to get $50,000 in stock vested over 3 years just for signing, but it won't feel that way if your former employer also views this as compensation for you not working for a year.

I've had 3 or 4 employment lawyers go over this with me, both as an employee and as an employer and they've all repeated this, if the company doesn't' pay your salary during the non compete period then you just cant' sign it. Now they also stressed that this means the non compete is probably not enforceable but that won't be much consolation if they drag you to court.

2) Be very clear as to what "salary" means. So if you are a Google engineer and you have a salary of say $125,000 and then a bonus of say $100,000 worth of restricted shares vesting over 3 years and maybe a signing bonus of $50,000 worth of shares vesting over 3 years, you might brag that you just got paid $275,000, but the company will probably argue that they only need to pay you the pro rated amount of your salary over the waiting period.

Finance especially gets burned by this, as small salary and huge bonuses are how many hedge funds compensate their key employees, also known as the "you eat what you kill" compensation package.

3) Be very wary of telling your former employer of where you are going to work. There just is no real upside to it.

I've also been told not to hire former employee's in the first year you leave for a competitor. It's one thing for a company to loose you, but if you leave and take an entire team with you then even though you've probably done nothing wrong, it own't be very comforting when you are out of pocket $10,000's of dollars in lawyer fees and stress.

As always, IANAL, I've just happen to work in the most incestuous industry around, finance, and I've seen and heard too many horror stories of people leaving for another firm and bringing their team with them and then being in court for years.

<comment><USER15> I think the key point isn't not to automatically sign or not sign non- competes.

It's to realize they are a negotiable item (just like salary, stock, vacation, severance, etc.) and to ask for appropriate compensation in return for signing it. This can include a guarantee of salary during the time of its application. You can also narrow the conditions under which they're invoked or the scope of what's considered competition.

<comment><USER19> got to love employers who foist these on existing employees under threat of termination if not signed in short order. they do happen to often

</comment></comment></comment><comment><USER20> None of those states will catch up with California. The other states are proposing weak limits on noncompetes - limited by industry, limited to "unreasonable" terms, etc. California also doesn't let employers claim rights in work you do on your own time. Both of those rights fuel California's startup culture.

<comment><USER21> Got details on employers not being allowed to claim rights on work done during free time?

I heard from a Google employee that their contract prevented them from working independently on personal projects.

<comment><USER22> I have worked part time at several different places while keeping a full time thing going. (which doesn't pay much, but I choose my own adventure) Each one has tried to make me sign paperwork involving them getting first right of refusal on things I make. I have refused to sign those documents, three times now, twice for one company, with no real recourse from their side. HR put on a show but I didn't take the bait. Make a stand when it comes to things like that. I own my spare time, nobody else.

<comment><USER17> That's great, but not everyone is in such a position to be able to do so.

</comment></comment></comment></comment><comment><USER23> When an employer sends you their boilerplate agreement and you see "Employee will not work for a competing business", you're not looking at the only employment agreement they've ever signed. You're looking at the version most favorable to them. Strike out the "for 2 years following employment" and replace it with something reasonable like "while employed by the Company."

It's customary to ask for a ridiculous clause like this up front, because no candidate will walk away over the mere sight of it. They get one free chance to screw you over, just like when you were talking about salary and they asked what you made at your last job. But you have to do your part; politely bounce it back.

You are a professional and this is a negotiation. No one will begrudge you putting a reasonable counteroffer on the table.

<comment><USER24> Why would I want to work somewhere that I notice has just taken a free chance to screw me over?

<comment><USER25> That's getting to emotional. The definition of "screwing you" is you taking their first offer, no matter what it is. Both sides should be trying to get as much as they can in a negotiation.

<comment><USER26> This is not true at all. Getting too high of a salary may increase your chance of getting canned (performance or RIF.) And offering too low of a salary to a new employee may cause problems if the new employee finds out they're paid less than their peers.

<comment><USER25> You're never going to convince an employer to give you "too much" money. And employers have no problem low balling you - they really don't think you're going to find out what all your peers make, which is why they discourage the practice of sharing salary information so heavily.

<comment><USER26> I've seen both of these things happen in real life, and have worked at companies that had an explicit policy against low-ball salaries.

Startup valuations can also be "too high" \-- making it hard to raise the next round.

</comment></comment></comment></comment></comment></comment><comment><USER16> It's really simple. If you want to enforce a non-compete you have to pay* the employee gardening leave for its duration.

Enforcing a non-compete when you've laid someone off is utterly indefensible and anyone who does this deserves to go bankrupt fast. Usually when forced to pay employers discover ruining an employees career isn't actually worth anything much to them and don't enforce. But if it's free it's a great lesson to current employees - we'll go after you if you want to leave so no you're not getting a raise.

*pay the maximum of the employees salary including any bonuses vs market rate, where the market rate calculation has to be defended by the employer in court and can be retrospectively re-applied. With the usual obvious basis of "the employee had offers for $x" etc.

</comment><comment><USER27> I'm curious if there has ever been a case where an employee going into competition with their former employer has been a net negative for society at large.

Most of the tech we enjoy today probably would've been prematurely killed if the creators were under modern non-compete and NDA paperwork.

<comment><USER28> It's hard to imagine that we would be even close to where we are now if non- compete agreements, that are common in other states, had existed in California in the 1950's and 1960's.

[https://en.wikipedia.org/wiki/Traitorous_eight](https://en.wikipedia.org/wiki/Traitorous_eight)

<comment><USER29> Certainly Shockley would've used them and sued if he could.

</comment></comment></comment><comment><USER30> In Australia it's quite simple. If you want an enforceable non-compete, you have to pay the person their salary for the duration. I'm personally quite happy to sit on the beach on full pay for a year or two if you guys think it's important!

<comment><USER31> I'd be on board with this idea. Australia seems to have a very worker supportive law system though.

</comment></comment><comment><USER32> In New York State, the company has to demonstrate damage to it in order to win a lawsuit, and non competes are usually tied to some sort of previous granting of something, like stock options which can be lost. In practice judges rarely enforce them more than a year although the contracts stipulate longer periods.

Now, the above is just my understanding, I'm not a lawyer and new to this awful world of non competes.

Just the threat of a lawsuit can steer behavior since defense against one can be costly.

<comment><USER33> a mere threat of a threat (counsel at new company saying yes his noncompete covers us) lost me a job offer in nyc

<comment><USER34> I worked for a small company for a number of years. We wouldn't even look at anyone who had a non-compete that could even conceivably have triggered legal action.

</comment></comment></comment><comment><USER35> Wait, so in some states you can be prevented from working in your field, and the company doesn't even have to compensate you? That's insane! Why would you agree to that?

<comment><USER17> "Why would you agree to that?"

Wrong question. The proper question is, "Why is that allowed?"

<comment><USER36> > _Wrong question. The proper question is, "Why is that allowed?"_

Because people should be able to put whatever ridiculous terms they want into a contract. It's up to you to agree in the first place, and in the second, a court to determine if the term is enforceable.

There _are_ a few valid reasons for a non-compete, after all.

<comment><USER17> "Because people should be able to put whatever ridiculous terms they want into a contract"

No, they shouldn't.

"There are a few valid reasons for a non-compete, after all."

No, there aren't.

<comment><USER36> > _No, they shouldn 't._

No, you're right. Someone like, say, you, should get to decide, preemptively, what a contract between two parties should or should not be allowed to include. Because you know better than the parties _actually_ doing the negotiation, right? Why should we trust that the relevant parties know what's in their own interests?

> _No, there aren 't._

Yes, there are.

<comment><USER17> "No, you're right. Someone like, say, you, should get to decide, preemptively, what a contract between two parties should or should not be allowed to include. Because you know better than the parties actually doing the negotiation, right? Why should we trust that the relevant parties know what's in their own interests?"

When one party has far more power than the other, and the clause in question is only there to screw the worker over and prevent them from working in their chosen field? Yes. There is absolutely no reason why a worker would want one of these clauses. They get railroaded into them only because they need a job and don't have negotiating power.

Stop pretending that everyone has the same negotiating power.

"Yes, there are."

No, there aren't. A company is not entitled to make money. Especially not at the expense of someone being able to feed their family.

</comment></comment></comment></comment></comment></comment><comment><USER37> The old boogeyman that used to get trotted out by companies was the "they'll steal trade secrets and run away to other companies".

With the federal defense of trade secrets act now a thing, can someone tell me exactly what purpose _at all_ non-competes still have that makes any sense?

(If it's "we spend time and money training people or signing bonuses or whatever", great, make them pay back the money if they leave too quickly)

<comment><USER15> Non-competes can make sense in client-facing roles.

You don't want to pay a lot of money for someone to come in, develop relationships with clients, and then walk out the door with all their clients when someone else offers more money. It makes some sense to have non-competes for sales, lawyers, and similar positions.

<comment><USER37> Errr, that's not a non-compete. That is a "no-solicitation-of-clients" agreement, and that is common in the legal industry, for example.

There is no reason, as a lawyer, i should not be able to go to a competing firm just because they compete with you for the same client base. Full stop.

If you want me to not solicit your clients, that's fine. But again, that's not "non-competition", it's "non-solicitation".

So while i don't disagree with you, that isn't what these agreements cover :P

<comment><USER15> You're right. Non-solicitation agreements and non-compete agreements serve slightly different and overlapping purposes.

Technically, non-solicitation agreements only prevent solicitation. So they can bar me from hopping to a competitor and calling up all my old clients to bring them over. They don't prevent me from joining a competitor, having all my old clients find out, and having them then decide to join me.

Thus, a non-compete is often simply a stronger form of non-solicitation. That's also why you sometimes see non-compete agreements which apply to a geographic area.

They're also often regulated in tandem. AFAIK, both are unenforceable in California.

For what it's worth, I think the harms done by non-competes far outweigh this limited argument. But you can't argue that there isn't an argument.

<comment><USER37> "They don't prevent me from joining a competitor, having all my old clients find out, and having them then decide to join me."

That's on your clients though, and their call. You have done literally nothing to make that happen, and it's unrelated to you leaving or not. If the other firm hires a superstar lawyer, they may do the same thing.

This is essentially "not an evil we should prevent" :)

" But you can't argue that there isn't an argument."

I think there are good arguments for non-solicits. I don't still don't see any for non-competes. That is because I don't think "try and indirectly prevent people unrelated from employee from doing things" is a valid argument for _directly_ restricting employee movement, instead of directly dealing with the behavior at hand. If having clients move is really just that harmful, make it part of the contract with the clients. They sign retainer and other agreements, require they not move for x number of days upon their current contact leaving the firm, or else they pay you damages for jumping ship.

(i'm a lawyer, so i'm aware this would run afoul of most states ethics rules, i'm just pointing out there are valid ways to deal with this that make sense, all things being equal. )

<comment><USER15> > You have done literally nothing to make that happen, and it's unrelated to > you leaving or not.

It's obviously not unrelated. The lawyer they had been working with leaves the firm. They (obviously) find out and this causes them to decide to re-evaluate their choice of firm. They find out where you jumped ship to and go there. Thus their move is a direct result of you moving firms without requiring solicitation.

Like I said, I don't think it's a sufficiently good argument to justify non- competes. But it's absolutely an argument that people make.

Restricting the client is of course another avenue. It's certainly a major contribution to discounts for long-term contracts.

</comment></comment></comment></comment></comment></comment><comment><USER38> I thought it was illegal to prevent someone from earning a living?

<comment><USER39> If you're a felon, then you're essentially prevented from earning a living.

<comment><USER40> How so? They're prohibited from possessing firearms, so they're not suited for armed security, but there's nothing structural preventing them from earning a living. Plenty of companies will hire felons, just not all of them.

<comment><USER41> In practice "plenty" translates to "almost none" and those that do tend to abuse their employees since there's very few repercussions.

Simply being unemployed for an extended period of time is enough to exclude you from many jobs. Being a felon and having done jail time excludes you even more severely.

<comment><USER42> "I was operating a sole-proprietorship business from 1998 to 2012."

<comment><USER41> That can work for a case of simple unemployment if you can make it sound plausible, but if you can't come up with a single client reference from that period of time you could be pooched.

This is also complicated by the fact that you may have no option to admit that you're a felon and served time since they may have your police report on their desk.

We're living in an era where having nothing more than an _arrest record_ , even if no charges were ever filed, is grounds for suspicion. It doesn't even matter if you were someone walking their dog and rounded up by the police in some kind of illegal kettling, you have a record.

</comment></comment></comment></comment></comment></comment><comment><USER43> I had a non compete clause crossed out of a contract once. I was told they didn't usually change contracts, but they did.

I was also told 'it isn't usually enforced, there are plenty of people that have taken jobs at <only competition in the city>'. I said 'then it shouldn't be in there'.

Everything worked out for me but people need to remember a few things:

1\. A contract is a negotiation/conversation/two way agreement. It is never a take or leave it offer in my experience.

2\. Get the contract EARLY. Companies try to build momentum and act like a contract is a formality. Then they hand you something that takes away as much power from you as possible. They have lawyers, bargaining power, choice, time, experience, and a global view of salary that you might not. There is a huge imbalance of information.

3\. If it is worth signing, it is probably worth having a lawyer take a look at it. A lawyer might bill at $250/hr. It might take 30-45 minutes to look through a contract and that can be a very worthwhile investment.

4\. And of course, take the contract seriously. Don't sign something thinking the scenarios where it comes into play are too rare for you to care.

<comment><USER17> "1\. A contract is a negotiation/conversation/two way agreement. It is never a take or leave it offer in my experience."

In your experience. In many others, it is. Especially if they're in an area with not a lot of tech employers. Just because you find it easy to negotiate doesn't mean everyone does, and that doesn't mean that those who can't should be screwed over because of it.

<comment><USER43> Nothing I said contradicts what you've said.

<comment><USER17> No, this is a complete cop out. You're saying, "I can do it, so there's no problem." Yet, most people aren't in the position to do it, so there is a problem.

</comment></comment></comment></comment><comment><USER44> If you live in MA, please write to your state legislator and ask her or him to move on this. We need noncompete reform here. This bill isn't perfect. But, as a child I know might say, "EMC isn't the king of me."

[https://malegislature.gov/People/Search](https://malegislature.gov/People/Search)

Thanks.

</comment><comment><USER45> My favorite is when the company you work for is purchased and the new owners come in and lay people off, then those who are left get 3 days to sign a non- compete. I begrudgingly signed because I had nothing else lined up at the time.

</comment><comment><USER46> Yeah when I was working retail, there was a cat that i met that needed some help, (he was known by all the managers). I offered to help him on his project, to which my mangers found out, and were talking about firing me over it. I had no idea that that would violate my NonCompete clause that i signed to when hired, being that it was not related to retail AT all, and there were no transferable skills that I learned. Luckily my lead saved my ass, and told the managers "theres no way he knew that."

<comment><USER47> > there was a cat that

Sounds like an Alice in Wonderland story.

</comment></comment><comment><USER48> I have a friend who was "reminded" by his first employer that he had signed a non-compete after he changed jobs to a second (competing) employer. He ended up finding a third job at a company in a somewhat different field.

This was in Ohio where non-compets are enforceable, and the courts likely would have sided with the first employer if it had gotten to that point.

I don't think he ever realized what he had signed until he was "reminded" of it.

</comment><comment><USER49> I think requiring a high portion of a former salary during a non-compete is fine. Otherwise, it's just not fair to enforce.

</comment><comment><USER50> I don't understand the companies that are going under, lay off employees and then still except the non-compete to be binding. I would at least expect where the company initiated the departure that the non-competes are no longer binding. That, and that I get a small stipend for the duration of the non- compete.

</comment><comment><USER51> By "states" they mean Massachusetts. In many states they are all but entirely unenforceable (CA) or only enforceable under very specific circumstances (PA).

</comment><comment><USER52> Paywall. Why Does HN allow this stuff to be submitted?

</comment><comment><USER53> uh... isn't the whole point of "States" because a larger controlling body is a bad thing, and many groups want to make deals in their own ways? so then a Company WANTS to make deals their own way "Noncompete Pact" deals, and now you're telling them they can't do that... and you think by driving away these companies by not letting them do what they want, that you will somehow compete better? for what? the 50th spot on the economic rankings list?

idiots.

<comment><USER54> So your argument is that to achieve economic growth one just needs to pass a law that says "companies can do anything and everything that they like, no restrictions?"

</comment></comment><comment><USER55> The article is seriously misinformed. It seems to imply that noncompetes can restrict employees from working in their field. That is not the case in New York. Post-employment restrictions are only enforceable to the extent they protect a "legitimate business interest" of the former employer. That interest does not extend to preventing former employees from practicing their trade. Employers use noncompetes abusively all the time. The problem is not the state of noncompete law. The problem is the nature of the legal system.

<comment><USER56> How is it misinformed? So New York is different. The article clearly says that the legality of noncompetes varies from state to state, and it doesn't mention New York State at all.

<comment><USER55> It is misinformed in that it misstates the law in most US jurisdictions, including the one in which it is published.</comment></comment></comment>


Screw you. Pay me.  - <AUTHOR> http://venturebeat.com/2011/04/15/screw-you-pay-me/ <comment><USER2> Oh the horror stories I've heard:

\- a software house whose biggest client found out that they were 75% of their business. So they just stopped paying their bills and waited them out until the source code ended up in receivership.

\- A contractor that bid a time and material job, deployed it successfully, and got paid. He was then called back in to change a few things for which he was not paid because, "We paid for it to be right in the first place."

\- a local trucker that made 500 successful deliveries buy screwed one up, so he got paid nothing. He blocked the parking lot with his truck in order to get paid. (The company would rather pay him that get the bad press from the local newspaper.)

\- bounced checks, checks without signature, checks where the 2 amounts didn't match, checks with next year's date: too many to mention

Also, I'm surprised no one has mentioned a controversial practice I know that others have used: time bombs in the software. It goes something like this: Here is your working version which we will make permanent when you're paid in full.

I have never resorted to something like this and I hope I never do. Has anyone ever tried this? What are the ramifications, financial, business, and legal?

<comment><USER3> "Also, I'm surprised no one has mentioned a controversial practice I know that others have used: time bombs in the software. It goes something like this: Here is your working version which we will make permanent when you're paid in full."

If you have to resort to this practice, you have already failed. Tripping the time bomb will get you sued, not paid, and you will lose. You may even go to jail.

<comment><USER4> I think it's a matter of perspective. We do this with enterprise software, except we don't call it a "time bomb".

"We've deployed your installation with a provisional, expiring license. We'll issue your permanent license once you've confirmed the software is installed and configured to your liking."

Then when they send the check, we send the license. It's never been a problem for any of the parties because we've always been very up front about how the process works. No surprises.

<comment><USER3> Sure...I guess when I hear "time bomb" I think of something that wipes source code or data. Something that alters the bits and bytes. That's the thing that will cause you a world of hurt. What you're talking about is of course totally legit.

<comment><USER5> Yeah, using that kind of "time bomb" would be ridiculously bad. I've always looked at that as breaking into the premises and manipulating / burning the books.

I sold a piece of software to a local business a few months ago that works on expiring dates. Each payment I get from the owner pushes back the expiration date until I get the full amount, at which point it's theirs forever(it's worth mentioning that so far things are great).

We didn't agree to a contract for the work I did, so I can only hope I don't get screwed over some how in the future. It was my first freelance job though, so I guess there's a lesson to be learned.

</comment></comment></comment></comment></comment><comment><USER3> My small firm has never had cash flow problems and we've never had a client successfully avoid payment. (EDIT: We've had cash flow problems in the beginning due to being a startup, but never from non-payment).

There are a few things that we do that have created this scenario:

1) __Stipulate a 10 day payment policy. __We don't really expect people to pay that quickly, but prospects/clients always bring it up. It give us the opportunity to communicate how serious we are about getting paid. We then flex the policy to something more realistic, although we make them fight to get the time beyond 10 days.

2) __Payment is made regardless of the client's invoice status. __We work with a lot of creative agencies so we're not always contracted to the ultimate payer. We make it very clear that we will be paid on time regardless of the status of their invoices. This is a really big thing to look out for it you work with agencies; they want to try to wait to pay you until they've been paid. We make it crystal clear that we will not allow their collection issues to become our collection issues.

3) __Meet with your clients face-to-face and build relationships and in some cases friendships with them. __It's a lot harder to screw over someone you have to look in the eye. Also, in my case I'm a pretty big dude, ex-lock (rugby), and it's also harder to screw over someone who could break you in half. It's primitive, but it works. :)

4) __ALWAYS ALWAYS ALWAYS get money up front. __We have a sliding scale for this based on total contract size, but it ranges from 25-50% as an initial payment.

5) __Don't start the clock or work until you get paid. __We guarantee delivery time, however our clock doesn't start until we've deposited payment, and our contracts stipulate this.

6) __Follow up on invoices. __We follow up on invoices at 15 day intervals. This is a good thing for so many reasons. It reminds them you're serious. It allows you to communicate before you have to go to the mattresses. It keeps you on top of your A/R because it's too easy to go "oh, it'll be okay, they'll pay" and go back to the IDE.

<comment><USER6> >) Payment is made regardless of the client's invoice status.

That's a good way to state that. I hadn't thought of that way to state the exact sentiment.

<comment><USER3> Thanks. Our language on the matter is very specific, and we are very explicit about that policy both in the contract paperwork and in our verbal communications.

Even so, I'd say 3 of 5 clients try to pull the "we haven't been paid yet, we can't pay you" bit. At which point I remind them of their initials on the contract acknowledging that they understood that particular point.

Bottom line, I refuse to let their cash flow issues become my cash flow issues.

</comment></comment></comment><comment><USER7> During my consulting days, this was a hard issue to get across to many clients. (Part of the reason I don't do much consulting anymore.) My time has a value. You're paying for my time. Whether you extract value from my time is up to you, but I'm going to be paid for it either way.

My consulting colleagues often disagreed with this philosophy, trying to walk some careful balance of not asking to be paid too much so the client will use you again. use being the operative word here. If the client is the type that doesn't value your time, you don't want them to hire you. It never ends up being worth it.

</comment><comment><USER8> When I got my first real job at a small consulting firm, I was shocked at how many clients just refused to pay their bill. They didn't even really seem to have any specific reason for not paying.

Law firms were they worst. I guess because whaddya gonna do? sue them?

<comment><USER9> Yeah, having seen some friends get stuck in that situation, I've decided if I ever get into contracting, I'm never starting out on a contract without the "you pay my legal fees if I have to sue you for collection" clause in the contract.

Once you've got that clause.. hey bring it on. Pay me or I'll just hire a buddy for my lawyer, have him rack up the bill and consult with him over a steak dinner.

<comment><USER10> Correct me if I'm wrong, but I did not think that was possible(legal).

<comment><USER11> You can put anything into a contract. And in this case (client pays fees, including legal fees, associated with collection of invoices ... Or somesuch) it's certainly enforceable.

<comment><USER12> I'm unconvinced that the "client pays legal fees" clause is really a sure thing. All the client has to do is make the argument on some other basis, and suddenly it's not a collections issue but a dispute over something else in the contract. In most states, each side will pay their own legal freight in such civil complaints.

<comment><USER9> I've personally been on the wrong side of it with some opportunistic a-hole lawyers and a 30-day late payment on my condo fees. Maybe it wouldn't have held up if I wanted to dump 5 figures to fight it all the way, but then that's the point, right? Once you threaten someone with legal fees, they're likely to get a lot more cooperative. Personally, I ate it rather than fight it.

</comment></comment></comment></comment></comment></comment><comment><USER13> My lawyer once pointed out to me that "contracts are only as good as the people who signed them" and what I've learned over the years is to go out of my way to avoid doing business with anyone who seems to be a flake. Granted that things can go south, but this strategy works well. And I say this as someone who went to court once and still couldn't collect.

<comment><USER14> That's like "pulling out" instead of using real contraception. It's usually effective, but when it fails, it can be disastrous. That's why you should always have a good contract, just in case.

<comment><USER15> You misread. He didn't say "don't have a contract".

</comment></comment></comment><comment><USER16> As someone getting started in the Freelancing / Consulting world and trying to figure out how you are supposed to do things the "right way" this was a really accessible, fun, and valuable piece to watch, definitely worth the time.

I do have some questions for the HN community if anyone has some advice, thanks in advance.

What's the best way to go about contracts, especially form contracts. Most of the work I do is the same kind of thing and normally the only variables are rate / duration / deliverables. Is the best way to go about this to find a lawyer and have him draft something that I can just drop "$rate / $time" for "$durationOfProject" into.

Is it best to go to the lawyer with some sort of draft in hand already or should you let them do all the work? Can anyone point to some good resources for boilerplate contracts?

Anyways, it's all very new and confusing and exciting, just trying not to fuck it up too badly. Thanks for any advice.

<comment><USER17> At $250 it's not cheap, but there's a lot of really great process and information in the Sitepoint Web Design Business Kit; including sample contracts.

It's kind of like a franchise kit for freelancers.

<comment><USER18> Obie Fernandez has one as well, for $100. He also has a few lectures on the topic on Vimeo.

</comment></comment></comment><comment><USER19> I once had a client ask if they could just not pay a $2M bill (after 18 months of work) in the name of the "relationship" (because presumably there were much bigger deals down the line.) My boss, to his credit, didn't miss a beat before saying "that's not the kind of relationship we want."

</comment><comment><USER20> Any particular reason you changed the title? Some people might find it offensive, but they've already semi-censored it with the title "F*ck You. Pay me."

<comment><USER21> Because thats the title on Venturebeat I imagine.

<comment><USER22> But the title of the video is "F*ck you. Pay me.". If you ask me this submission should point directly to the video and the title should be that of the video.

<comment><USER21> Well, we could argue that about many of the posts on here. But as it is, this links to the VentureBeat article which links to the video, So I think the title is okay.

<comment><USER23> Is this what we are calling an article? Five sentences plus a warning that the video is offensive. If this was posted on any no name blog, there would be a lot more pressure to link to the original video only. I call double standard.

<comment><USER24> Time to get back in the DeLorean?

</comment></comment></comment></comment></comment></comment><comment><USER25> Just had to send out a Fuck You, Pay Me email this morning. That's the #2 piece of advice I'd give to graduating computer science/engineering students: always get paid. #1 is don't build that idea the business major across the street has for free, which ties in nicely to #2.

</comment><comment><USER26> There's a ton written about running a startup, but there is amazingly little written about doing a professional services design / development firm. Anybody know of good sources for running a good services firm?

<comment><USER27> The basics are: 1) Get good clients. Low-end clients typically aren't worth your time, and it will be hard to make money. 2) The best way to get new business is via referrals. The best business can found through happy customers 3) Don't try to compete on price, or hire the cheapest the employees. It doesn't work well in this business. 4) Have contracts and get everything agreed to in writing 5) Pay careful attention to your costs, and learn basic accounting. Overhead for offices and such costs money. You also need to overhead to cover downtime, sales, project management, and collections. You may need 100% overhead.

If you agree to do a project for $3000, make sure you can really get it done for that prices. You also need to figure out how to deal with change-requests. If you allow too many free change requests, you will lose money.

When setting the prices, you need to think like a businessperson. A lot of designers and programmers don't understand how to price their work very well.

<comment><USER28> >If you agree to do a project for $3000, make sure you can really get it done for that prices.

Yes, and to repeat another point you made earlier, the price you need to charge includes the associated overhead. I have seen many people start in consulting only to fail because they didn't take their overhead costs into account, or at least enough into account, when billing. The only real difference between failing to bill for overhead costs _at all_ and not billing _enough_ is how long it takes you to fail.

</comment></comment></comment><comment><USER29> Don't people usually deal with this sort of thing by signing a contract ahead of time?

<comment><USER30> Sure. Some clients still refuse to pay.

This happened a few times at a previous employer's. It usually wasn't worth it to take them to court, and since we also hosted their website, after a certain time, we'd simply take down their website and e-mail accounts.

About half of the non-paying clients suddenly found room in their budget to pay us for our work and hosting fees. Funny how that works, but unfortunately, that doesn't work for design firms. :/

<comment><USER31> There is a Danish support company which figured out that if all else fails a public foundraising event will shame most companies into paying your fee.

It supposedly works on IBM.

<comment><USER32> What's a public foundraising event and how does it get people to pay?

I don't really understand what you mean, sounds interesting though.

<comment><USER31> You pretty much have a fundraiser even like a politician would.

Obviously the company is in need of money, seeing as it can't pay its bills....

</comment></comment></comment></comment></comment><comment><USER33> Tangential but I'm hugely impressed with the camera work in this video. The alternate long and close-in shots of Mike, the speaker, and the use of contract gave it a decided Hollywood feel for me.

<comment><USER34> The original source link at Vimeo (which, as other commenters have stated, should probably have been linked to instead of VentureBeat) states that the camera work was by <http://whitmoreprod.com/> , which seems to be a professional film production/design firm.

</comment></comment><comment><USER35> Wish I had seen this about a year ago. Learnt some of it the hard way already sadly.

</comment><comment><USER36> This question might seem naive and if it does I apologize. I live in Vegas but in all likelihood the vast majority of projects I'll be taking will be for out of state companies(especially in CA.) Should I retain a lawyer here, or should I look for one based in California? Thanks for any insight.

<comment><USER37> If you are going to sue a company in CA, you will need a lawyer licensed there.

For contracts, you can hire a local lawyer if they put Nevada as the jurisdiction in the contract. Also, you can then sue them in Nevada.

</comment></comment><comment><USER38> This is something that, as someone that is looking to get into the whole consulting business (yes I must be insane), found quite interesting. Thanks for sharing.

</comment><comment><USER39> This wouldn't work in New York where you can call cabs from the street, but I lived in a town in Minnesota where there was a "non-payer" phone-number list that cab companies used. If you didn't pay the driver, your phone wouldn't get through to any cab company until you paid it back, plus interest and a processing penalty.

It seems like a "bad client" list would be, at least, a partial solution.

<comment><USER40> What stopped people companies blacklisting you for personal grudges?

<comment><USER41> The urge to make money?</comment></comment></comment>


Jason Calacanis: Poker ace with a Twitter problem - <AUTHOR> http://www.alleyinsider.com/2008/5/jason_calacanis_poker_ace_with_twitter_problem

<comment><USER2> It's sad that this was even written.

</comment><comment><USER3> How do I get an invite to that game?

</comment><comment><USER4> If I cared about this "news" I'd be following him on Twitter.</comment>