Epic's noncompete list.
Epic says the number of companies on its noncompete list has been sharply reduced.
The Federal Trade Commission’s bold move to strike down noncompete clauses in employment contracts seems sure to shake up the Madison tech scene, given that medical software giant Epic Systems has enforced a rigorous one-to-two year noncompete period for departed workers.
Just how it will shake things up, we don’t know yet.
The ban, which is headed to a federal court review, describes noncompetes as “a widespread and often exploitive practice imposing contractual conditions that prevent workers from taking a new job or starting a new business.” The FTC estimates 30 million workers are subject to noncompete restraints.
Epic has long defended its noncompete policy as necessary for protecting its intellectual property (the company’s much praised integrated software package). This is not an unreasonable concern considering Epic won a $140 million thievery judgment against an Indian tech company in 2023.
Local tech observers say Epic has other tools to deploy for IP protection, including non-disclosure and non-solicitation agreements as well as its trade-secret rights.
Last June, Isthmus reported how stifling Epic’s noncompete restrictions were for former employees who want to work in healthcare without taking a year or two off, as Epic requires. Easily the most stunning finding: More than 4,500 companies were explicitly blacklisted for work during a former employee’s nonconcompete period.
Since then, Epic, which is the dominant player in the lucrative health-technology field and which employs about 14,000 people worldwide, including 12,500 at its Verona campus, appears to have loosened the screws on its noncompete policy.
In response to an emailed question, the privately held company explained: “For most of Epic’s lifetime, we limited the noncompete to a list of about a dozen IT vendors that were direct competitors and about a dozen consulting firms. Then for a while that got expanded to a much larger list. When Epic management realized that, the list went back to a much smaller size, which is where it is now both for employment and for stock options.”
In another email, Epic said it was reviewing the FTC rule and “where noncompetes do not serve the purpose of protecting IP, we agree with the FTC’s vote.”
Local tech observers, like UW Law School professor Steph Tai, argue that banning noncompetes could strengthen Epic’s market position by allowing former employees to move easily into healthcare jobs where their Epic familiarity would likely translate into new contracts.
John Neis, managing director of Madison-based Venture Investors LLC, meanwhile, says “Epic’s use of broad noncompetes and aggressive enforcement has stifled new company formation and talent mobility in this community.”
His bet is that ending noncompetes would help Epic “attract the most highly skilled talent” because the recruits wouldn’t worry about being trapped at Epic.
Scott Resnick, the chief operating officer of software firm Hardin Design & Development, thinks abolishing noncompetes would be a tremendous advance for the startup community across the country. But he’s not holding his breath that the new ban will withstand the court challenge. Powerful business interests oppose it. But Resnick is heartened by the number of states looking skeptically at noncompetes, asking if they’re antiquated and choking innovation.
“I think it’s going to be a continued conversation,” Resnick says. “There was a time and place when noncompetes made more sense depending on the industry.” But he’s concerned at how they limit the free movement of labor. “At this point in our history, noncompetes don’t make sense,” the tech exec says.
As for the pending lawsuit, Tai predicts it won’t be resolved for nine to 12 months, and could end up before the U.S. Supreme Court.
