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Welcome to AccelPro Employment Law, where we provide expert interviews and coaching to accelerate your professional development. Today, we are featuring a discussion with Josh Guttman, Co-Founder and Executive Chairman of Small Door veterinary, about why noncompete agreements are unfair to employees and the potential impact of the Federal Trade Commission’s recent vote to ban them.
This AccelPro Employment Law interview gives the client perspective on an issue top of mind for employees and business owners.
Guttman says noncompetes aren’t just golden handcuffs placed on high flying executives, but they’re much more insidious than that. And it appears the FTC agrees with him, as its vote last week to ban most noncompetes shows. But whether that ban will ever actually be enforced remains an open question.
Explore the AccelPro Employment Law collection on noncompetes.
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Interview References:
Josh Guttman’s LinkedIn profile and Small Door founder’s note.
6:18 | Non-Compete Clause Rule, BILLING CODE: 6750-01-P, 16 CFR Part 910, RIN 3084-AB74. Federal Trade Commission.
8:57 | Hochul can end noncompete clauses: Noncompete agreements are pervasive and un-American. (25 August, 2023). New York Daily News.
Supplemental Materials:
FTC Announces Rule Banning Noncompetes. (23 April, 2024). Federal Trade Commission.
Szkutak, Rebecca. The FTC’s ban on noncompete clauses could be good for startups. But it also might be struck down. (25 April, 2024). TechCrunch.
TRANSCRIPT
Matt Crossman, Host: We’re going to talk all about noncompete agreements and your dissatisfaction with them. But let’s start off with some background first. What is Small Door?
Josh Guttman: I’m the Co-founder and Executive Chairman. I was the founding CEO for seven and a half years. I recently moved up to Executive Chairman. Small Door is a brand and veterinary platform. We offer a membership-based veterinary experience that’s delivered through 11 locations in three cities on the East Coast.
We have 20,000 paying members, and it’s a re-imagination of how veterinary care can be delivered, primarily for cats and dogs. And we do that through brick-and-mortar centers that we’ve built throughout the East Coast.
MC: You are not a fan of noncompetes on principle. Your competitors use them, but you don’t. Why?
JG: We find noncompetes in this scenario to be punitive and oppressive to the employee. We set out to build a business that was better for the consumer and also was better for the employee.
And when we looked at how the employment models were built in this category, pervasive noncompetes were used across multiple levels, from nurse assistant all the way to senior doctor. We felt like that was not the right way, on principle, to employ a medical professional.
If we’re not able to provide an attractive workplace, attractive compensation, attractive benefits, that worker should be free to go pursue those things elsewhere. I think as an employer, it’s our duty and our obligation to provide those things.
So that was our philosophy. From Day 1, we decided, we are not going to use noncompetes. It’s not going to be a part of our ask of our employees. If we’re not doing our jobs, if we’re not providing the things that we espouse to provide, then we want our employees to leave because that’s really valuable feedback for us.
I think we’ve done a pretty good job in thinking through how to employ and motivate and retain workers. But if we fail or if we come up short, we want our employees to tell us, and one way employees tell employers that they’re not holding up their end of the bargain is by using their feet and walking out the door.
MC: So you don’t use them, but other companies do, and that hurts your business. How?
JG: One of the ways we describe our business is veterinary care reimagined or a modernized version of veterinary care, which includes how we employ and motivate and retain our workers, worker conditions, workplace environment, all those things.
We come across situations where a nurse or a doctor would like to come work at Small Door, but they are unable to do so because of a noncompete they agreed to sign at the time they joined their current employer. And that creates an unfortunate situation for us because we often can’t bring on that person. Not because we’re scared of legal action, but really because they’re scared.
There have been a few cases where employers have pursued workers who violate noncompetes. They’re few and far between. I think primarily these agreements are used as a scare tactic.
And in many ways, that’s even worse. Workers are scared to pursue employment that allows them to rise to the peak of their profession. Instead they feel that they have shackles on, forced to stay with their current employer. In many cases, the way these agreements work in our sector is there’s a geographic radius in which you can’t work—it might be a 10-mile radius.
We’re headquartered in Manhattan. That basically means that you can’t work on the island of Manhattan. So there have been many cases where someone that we knew or interviewed has decided that their current employer is not the right fit for them, but they’re unable to work in Manhattan or the surrounding areas.
So they are forced to pick up and relocate their family to another state. We’ve seen that happen many times. I think that’s unfortunate. Workers deserve freedom and mobility. I think one of the freedoms that America provides is to pursue employment that allows you to perform to the highest level you’re able to.
One of the things that noncompetes do, particularly noncompetes focused on the professional sector, is limit your mobility. They can cost you happiness and money. And sometimes a noncompete can cost you your home if you’re forced to relocate.
MC: I did an interview last week with an employment attorney named Joe Beachboard. He’s been in the business for 35 years and is the former managing director of Ogletree Deakins.
This is what he told me about the FTC ban:
“This is going to be subjected to multiple lawsuits. At least three have already been filed challenging whether or not the FTC actually has the ability to adopt these rules.
So these are probably going to be tied up in litigation for years. And even if it does end up being that there are some limitations on companies’ abilities to use noncompetes, we’ve learned how to deal with those out here in California, and it hasn't seemed to kill our economy.”
His basic message to people was don’t panic because it’s probably going to be years before anything changes anyway. What are your thoughts on that?
JG: Yeah, California has a unique employment model that has restricted noncompetes for quite a while. But we’re based in New York State.
And now that the FTC has ruled, we’ll see where that goes. I’m not a litigation expert, so it’s hard for me to comment on what will happen next. But I certainly think this is a move in the right direction and a move that will ultimately help workers.
MC: From reading about the vote, there is one caveat for high-level executives. Are you comfortable with that? Did the vote go far enough?
JG: I think there is a difference between high-level executives that get paid a lot of money and who might be privy to corporate secrets or corporate strategy discussions. If you work for Coke, it doesn't want you to go take those secrets to Pepsi.
I think there is validity to that concept. But the average line worker, who is just trying to make a living, those are the people that noncompetes impact disproportionately. And those are the people that I think will be liberated by this ruling.
MC: It appears to me that there’s a common sense approach where you don’t have to restrict a hairstylist or a local TV news reporter. That’s what this ruling targets.
JG: I agree. As an entrepreneur I believe that the cream rises to the top. If you’re providing a better workplace environment, a better employment opportunity, you should be able to attract workers to your place of work. And you shouldn’t be restricted by these agreements that prevent people from pursuing the employment they want.
And so that’s our philosophy. I think that is why this ruling has been debated and came down the way it was. And so I think this is a step forward for America.
MC: I want to read a quote to you from a piece you wrote about this topic in the New York Daily News. You wrote, “Noncompetes aren’t just golden handcuffs placed on high-flying executives, bankers, tech workers and others with big compensation packages.
Noncompete clauses increasingly are inserted into the employment contracts of fast-food workers, baristas, dog walkers, janitors, security guards and millions of others who don’t have the resources or the legal sophistication to challenge them.”
Those are very strong words. Absent banning them, is there a solution to this power imbalance?
JG: There are examples of employers like Small Door who have taken the high road. We’re not alone in this fight. There are a number of other companies, both in our category in veterinary and in other categories, that have taken this more principled stand.
But the larger the company is, the more ingrained their practices are, the harder it is for them to change. I do think it’s time to free workers from the shackles that these agreements represent. I think ultimately that will be a positive thing for our economy.
MC: I want to flip the issue around for a second. Does it give you and would it give other businesses a competitive advantage to not have noncompetes? If you choose not to do it when everyone else does, would that be a reason to come work for you as opposed to going to work for somebody else who does have a noncompete agreement?
JG: It does for sure. I think that’s one of the things that attracts people to Small Door. I don’t think it’s the leading factor, frankly. We provide a leading workplace environment, competitive compensation and benefits. We provide many other benefits that probably rank higher than our position on the noncompete.
I think the noncompete clause features legal language that a lot of workers may not even fully understand when they sign those agreements. But on balance, when people do understand that we’ve taken this principled position and don’t ask any medical professionals to sign them, I think it’s another reason why somebody would want to come work for us.
Ultimately companies should be forced to compete on the quality of their employment model. If you are a doctor, for example, what things really matter to you? What is your schedule? How are your facilities? Is your equipment modern? And what are your co-workers like?
Those are the things that should really matter. What’s unfortunate is that some doctors and nurses and other industry practitioners also have to say, “I don’t particularly like my employer, but I have this noncompete agreement, and I don’t want to move to New Jersey, so I’m just going to stay.” That is the sad truth created by these agreements.
MC: I want you to imagine you’re mentoring a peer, another business owner perhaps, who has used noncompetes in the past. They think it will hurt their business if they stop. Make the case that they should stop anyway.
JG: I would just say, “Think for yourselves and do what’s right. Because it has always been done that way is a really bad reason to do anything tomorrow.” I think that represents stagnation. That represents lack of original thought. That represents lack of creativity.
I think any creator or real business-builder knows inherently understands that. I think some of these very large companies that have tremendous inertia and have been doing things a certain way for a very long period of time become resistant to change.
Changing that pattern or changing the inertia of their employment model represents a significant change. It probably represents risk. And if I’m the CEO of a multi-billion dollar company, it may not be a risk I’m willing to take.
MC: In other AccelPro interviews, we’ve been told hiring managers should use noncompetes only when necessary and to be reasonable in the details. That sounds like the opposite of your lived experience. You are seeing these noncompetes where really they shouldn’t be. Am I right there?
JG: I think there are cases where noncompetes are reasonable things to enforce. In technology where there are corporate secrets, key employees might be privy to proprietary formulas, systems or designs, and in those cases I can understand a company saying, “We’re paying you a lot of money to be a part of this business. And if you leave, we don’t want you working for a competitor for X number of months.” That feels reasonable.
On Wall Street, there’s a concept called garden leave. The main difference between garden leave and noncompetes is that during garden leave they pay you for the time you’re not working.
That’s very different from the noncompete agreement. The noncompete agreement is truly shackles. You are unable to work for a competitor unless you take a prolonged leave of absence from your profession, which is not really practical for a lot of workers today.
MC: One more question about that piece you wrote in the New York Daily News. You used the expression “crude racket” to describe noncompetes. What did you mean by that?
JG: A lot of these workers don’t fully understand the agreements they’re signing. Even some doctors—who are educated and professional—we’ve spoken to don’t fully understand the extent of these agreements. They haven’t hired a lawyer to help them interpret and understand the agreement they’ve signed.
Certainly as you go to nurse assistant, some of our front-desk staff—the lower the wage, traditionally the less knowledge they have with these agreements and what they mean and what they represent.
So I think that’s a racket because you’re asking someone to sign something that they don’t fully understand. The employer is saying, “Hey, here’s a job, we’re going to pay you 20 bucks an hour, sign these 10 pages and you’re good to go.”
That’s a power imbalance.
MC: When somebody comes into your office looking for a job and you want to hire them and you find out they have a noncompete, is there any recourse for you other than just waiting until it expires?
JG: We’re not a party to those agreements. Typically, they’re between an employer and an employee, and the employee that we may want to hire is a party to that agreement. There have been cases where we decided to take the risk and hire the person. In those cases, we always promise the worker that if anything happens, we’ll protect them—we’ll cover whatever financial costs might be at risk.
So far, whenever we take that bet, it’s worked to our advantage. But, again, I think the shame of it is that the worker is often scared into not pursuing other employment. It’s largely a fear-based mechanism. Whether or not that is the way it was originally intended, I’m not sure, but that’s certainly the way it often is practiced.
And that fear prevents these workers from pursuing employment elsewhere at a place where they might be happier and more productive.
MC: If someone read your bio right up until you started this company, they would not guess that you run a veterinary business. Tell me the origin story.
JG: My career is really a mix. I started my career in finance. I was an investment banker for nearly four years on the West Coast. I then went back to business school and decided I wanted to get my hands dirty operating and building businesses. I was involved in a number of different businesses, including online media and online advertising, and ultimately found myself as an investor at a venture capital fund.
One of the things I focused on at the fund was healthcare and healthcare technology innovation. And then my dog got sick around 2010. I took my dog to the vet. They couldn’t figure out what was wrong. That led me to visit about six additional veterinary clinics in the New York area over eight months in pursuit of a diagnosis.
While this was happening, during my workday, I was talking to entrepreneurs who were innovating in healthcare and healthcare services and healthcare delivery.
And so really I found myself in a fortunate time and place where I was having a personal experience with my dog, and during my workday I was meeting with entrepreneurs who were innovating in the same general category. I was able to put two and two together and connect the dots. And ultimately that’s what led us to start Small Door.
MC: A philosophy of the AccelPro employment law community is that peers talking to peers can be a valuable way to develop professionally and gain important insights. How have you relied on peers to deal with tough situations or manage career decisions?
JG: It’s a great question. At Small Door specifically, I’m very lucky to have a co-founder, a guy named Florent Peyre. The entrepreneurial journey can be quite a lonely one. They say it’s lonely at the top, that being CEO is a lonely job. That’s very true.
It seems glamorous on the outside, but it is fairly lonely at the top. So I think having a co-founder is really valuable for any entrepreneur who is setting out on an entrepreneurial journey because there will be some lonely days.
You cannot build a company without getting into that messy middle where things are tough and you have to figure it out, and you have to trudge through—that is an inevitability with any business that you start. And I think the co-founder dynamic is very helpful. Having a partner, someone to work with you when the days are long and tough, is critical.
At every job I’ve had on my journey, I’ve collected one or two friends that I’ve kept close. And for me, that’s been very valuable to check, see where they are on their journey and compare notes with where I am on mine.
MC: I, of course, have to ask you what your dog’s name is, and did he or she make it through?
JG: The dog’s name was Morrison. He was named after the Doors lead singer Jim Morrison.
He had a miraculous recovery. We ultimately diagnosed him with a condition called Cushing’s. It took about eight different doctors, and I think it should have been much faster. Again, that’s what ultimately was a lightbulb moment for me. I said, “Hey, we can do a better job here.”
He went through 15 rounds of radiation treatment. The tumor went into remission. He lived another three years after that. The radiologist told me the treatment might extend his life one year. And he was eight at the time. It ended up extending his life three years, and he lived to 11, which for a boxer is a fairly ripe old age.
Morrison has since passed, but we have another young boxer named Eleanor, and she keeps us on our toes at home. Eleanor is named after the Beatles’ song, Eleanor Rigby. We stayed with the musical theme.
This AccelPro audio transcript has been edited and organized for clarity. This interview was recorded on April 9, 2024.
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