A California hedge fund’s noncompetes drew outcry from employees. Now, it’s doing away with the practice for former staffers.

• California quant hedge fund Voleon has voided its noncompete agreements with ex-employees.
• Voleon has long demanded ex-employees leave the industry for years without pay despite a state ban.
• An Insider report last week detailed the company’s practices, including litigation threats.

The Voleon Group, a California quantitative hedge fund, is discontinuing its contentious practice of requiring ex-employees to recuse themselves from the industry for two years without pay.

Despite California lawmakers’ efforts to end the practice, the $5 billion fund based in Berkeley, California, has long imposed one of the industry’s harshest noncompetition agreements. Insider reported last week on Voleon’s noncompete policies, which the company has tried to enforce at times through intimidation and legal threats, according to ex-employees.

According to people familiar with the matter and copies of the messages seen by Insider, the fund messaged a number of ex-employees this week, saying it would no longer enforce the agreements they’d signed with the firm through its Company Profit Participation Program.

“Voleon will void and not enforce the Company Profit Participation Program (CPPP) agreement that you voluntarily signed during your now completed employment with the company, including the non-compete provision contained therein,” the message reads in part. The messages, which were sent by Voleon COO Lee Koffler, state that confidentiality and trade secret agreements remain in effect.

Ex-employees and lawyers dispute that the policy was truly voluntary, describing it as a de facto condition of employment due, in part, to the agreement tying a large portion of total compensation.

“I don’t know anyone who hasn’t signed,” a former employee told Insider previously, adding that Voleon managers encouraged employees to sign the agreement.

Voleon refused to comment for this article. A spokesman for the company previously stated in a statement that the contracts were not a requirement for employment.

Noncompetition agreements that are lengthy and exacting have become commonplace at quant trading firms, though most companies pay departing employees significant six-figure sums while they sit out. Voleon was an outlier in imposing broad and lengthy noncompetes while also refusing to offer compensation, especially given California’s restrictive covenant policies.

California is currently one of only a few states that prohibit noncompetes, but New York lawmakers are considering doing the same, and Voleon’s practices suggest that enforcing the rules may be difficult.

According to Insider’s investigation, companies like Voleon have continued to impose lockups on employees despite a state ban in place since the nineteenth century. According to labor experts, many employees are unaware of their legal rights or are too intimidated by the prospect of hiring a lawyer and battling a powerful employer.

“Like most hedge funds, Voleon requests that select employees sign noncompetition agreements to protect its most sensitive intellectual property,” a Voleon spokesman previously told Insider.

While the company is voiding contracts with former employees, it is attempting to implement a new version of the agreement with current employees.

According to the spokesman, the company has been distributing an updated noncompete agreement to new and current employees this year, which includes a paid 18-month leave.

According to people familiar with the situation, Voleon has recently directed employees to hire an attorney to negotiate the new employment contracts, and has offered to cover the costs. Some employees and labor lawyers, however, interpret this as an attempt to exploit a loophole in California’s labor code in order to make the noncompete more enforceable.

A 2017 amendment to the labor code, which clarified that employers cannot simply apply the laws and courts of another state to California employees, made an exception if the employee hires a lawyer to negotiate the terms before signing.

Some employers believe that doing so will allow the contracts to be governed by a more favorable state’s law, thereby avoiding California’s prohibitions. Labor lawyers were skeptical, pointing out that this maneuver would not make the noncompete enforceable under the state’s longstanding laws, and that it’s unclear whether an out-of-state court would enforce the contract or defer to California public policy.