Opportunity lost

After graduating from the Rochester Institute of Technology in 2020, Cassy Smithies took a job at Epic Systems, joining thousands of other young brainiacs who work for the hugely successful medical software company in Verona. Her job, in a nutshell, was to make Epic software more intuitive and less head-scratching for patients and medical staff alike.

“The job had its good parts,” she says, including the interplay with her team colleagues. But Smithies found the long hours grueling, work expectations unrealistic, and there was a continuing sexism issue she saw with some male leaders. (Epic declined to be interviewed for this article and offered written comment on only select questions, as noted.) 

Smithies quit Epic after a two-year tour as a “user experience designer.”

“It became pretty obvious that another opportunity would be a better fit for me,” she says, acknowledging Epic tried to convince her to stay. Today, Smithies remains in Madison and is a senior product designer for Fetch, a rising consumer rewards company.

“I would have absolutely loved to stay in healthcare,” Smithies says, sounding a note of regret. “That was important to me. When I graduated college that was my goal.”

But Smithies couldn’t continue in her chosen field. When she joined Epic, she, like all employees, was required to sign a noncompete agreement. It effectively blocked her from working in healthcare for one year upon leaving the company. 

Critics say these stipulations needlessly constrain Epic expats from earning a living and seriously retard what should be the centerpiece of the Madison area economic strategy: the growth of health-information technology firms spurred by Epic’s extraordinary success.

Indeed, Epic’s restraints are so expansive they could be swept away by a controversial Federal Trade Commission proposal to outright abolish noncompete and similar restrictive employment clauses.

Describing them as “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses,” the FTC asserts that ending noncompetes could increase wages by nearly $300 billion a year and boost career opportunities for around 30 million Americans.

In Epic’s case, Isthmus reviewed company documents from 2021 that showed former employees in their noncompete periods are barred from taking jobs at roughly 4,500 firms that have business ties to Epic, its customers, its partners or its competitors. 

The verboten list includes giant health systems and physician groups, major health insurers, a plethora of billing services, health consultants of all sorts, not to mention seeming oddities like Little Rock Ambulance, the YWCA of Southeastern Massachusetts and the Buffalo Urban League (click here to download a PDF of the list). 

All were off-limits for former Epic employees after their departure from the Epic mothership. When asked about this, the company was non-responsive in a written reply: “Our agreements say that after employees leave Epic, they can work anywhere they wish as long as, for a certain period of time, the work they’re doing doesn’t involve Epic software.”

While the 4,500 number was higher than what a half-dozen Madison-area tech executives and Epic veterans guessed, nobody was surprised at the existence of what several called “the blacklist” of companies where former Epic employees are barred from working in their noncompete period.

Surviving the noncompete restrictions has long been a rite of passage for Epic expats. They joke about taking their “gap year” as if they were delaying college for 12 months to work in a bike shop or to bum around Europe. But that’s no longer a good comparison. Some former employees, including Epic stock owners, can now be blocked for as long as two years from working in healthcare.

Aris Blevins, who worked almost seven years at Epic, points to not just the noncompete clause but also what he calls the “all efforts’’ pledge Epic requires of new hires: “that you will devote your full business and professional time and energies to Epic and will neither accept nor conduct any other business or professional activities.…” In other words, no part-time or outside work, including no teaching. (The clause goes on to say no overtime will be paid either because the company says salaries are designed to compensate for overtime.)

“Between the noncompete and all-efforts clauses, Epic makes it basically impossible for people to launch a healthcare startup,” Blevins says. “I’m sure Madison would prefer it if Epic were more like Microsoft in Seattle.” He explains that “literally hundreds of startups have been founded by former Microsoft employees who know how to integrate with Microsoft and build businesses on top of its technology.

“You don’t see that around here, and there’s a reason: Epic,” Blevins says.

As for Epic’s take on things, it firmly lays out its position in its employment agreements with new hires. Because the company is engaged in a “highly competitive business,” Epic says it needs to take steps to protect its intellectual property and trade secrets. And because it “expends substantial time, money and effort” in schooling new employees who develop “relationships” with Epic customers and consultants, the company says it needs to protect its interests by enforcing a noncompete policy when staffers depart.

Epic founder Judy Faulkner, who launched the company in 1979 with 1.5 employees, built her software company slowly, deliberately and by accretion. And conspicuously without meddlesome outside investors providing capital.

Epic’s revenue hit $1 million in 1985, $50 million 15 years later, and jumped to $502 million in 2007. All along Epic’s highly rated medical software program systematically built out to include patient scheduling, billing, clinical notes, the MyChart patient portal, the Hyperspace login for users, and much more in an integrated package that customers increasingly demanded. 

The Epic workforce — a mere 29 in 1990, 400 10 years later — soared to 3,000 in 2008. Total employment now numbers around 12,500, with 11,000 at the sprawling campus in Verona. A recently announced expansion will add 1,700 jobs in 2023 and a new round of office construction.

What fuels Epic’s growth? Clearly the superiority of the Epic software package is a huge advantage. But the company was also in the right place at the right time with the right product.  In 2009, when the Obama administration opened the spigots of federal funding for electronic health records, Epic already had 30 years of EHR experience under its belt.

An eventual $35 billion flowed to hospitals and clinics to subsidize their transition from paper to electronic health records. This supercharged EHR installation as promised, says one Epic watcher, but Epic’s lockdown of former employees simultaneously created a shortage of skilled workers to run the systems once they’re installed.

 “Epic cannot do it on its own,” he says. Nor can the hospitals and clinics. Even Epic has grudgingly accepted this state of affairs by allowing hospitals and physician practices to contract with outside consultancies (albeit Epic-certified) like Nordic, HCI Group, Tegria (Bluetree) and others that specialize in optimizing Epic software once it’s installed. Epic also has an in-house consultancy called Boost.

The irony is that the non-Epic consultancies actually strengthen Epic’s hand in controlling wayward staffers. That’s because Epic requires the consulting group to sign an operating agreement that incorporates Epic’s noncompete requirements. In short, former Epic employees can’t begin their consulting career until their noncompetes expire.

The same dynamic plays out if Epic’s medical and clinic customers want to hire former Epic employees to pilot their health record systems once they’re up and running. Ain’t happening. Their contract with Epic bars them from doing that until the expats’ noncompete periods have passed.

If you’re keeping score, that’s three different ways that former employees are handcuffed in legal zip ties. Even Epic’s modest app marketplace has become a tool to control their job prospects. According to a former Epic employee, third-party medical app developers can’t sell through Epic unless they, too, agree to not hire anyone from Epic still in their noncompete periods.

Clearly, Epic has constructed a mighty legal edifice to protect its interests. Blevins can testify to its power. He took a job with Gundersen Health System in western Wisconsin last summer. He says both he and Gundersen felt his role was so different from his Epic work that it wouldn’t run afoul of the noncompete issue. But five weeks on the job he says Gundersen cut him loose when Epic objected.

Gundersen, which merged with Bellin Health Systems in December, did not respond to interview requests. Epic says while it would notify a customer of a contract violation it would not instruct the customer to fire the offender.

Blevins, who wanted to stay in healthcare, now finds himself working for a video-technology company, Sonic Foundry, in Madison. He and his former Epic colleague Cassy Smithies are the rare Madison techies who will speak on the record about flaws they see in Epic’s operation.

That anonymous techy quoted on federal funding would only talk about Epic if he was not named. It’s a familiar story. Industry people who follow Faulkner’s work are almost always effusive in their praise of Epic’s success, but they also fear reprisal should the company conclude they’re not playing by the Epic rulebook.

“We know Epic has the money, the time and the power to make our lives miserable if they want,” says another tech industry insider.

 That’s “miserable” as in being on the wrong end of bullying phone calls and “cease and desist” letters from Epic. The sort of things that can ruin an entrepreneur’s day, as he or she ponders the hard reality of what it would mean to be kicked out of the Epic ecosystem. 

It’s not just that former employees are expected to honor their noncompete promises, everybody who contracts with Epic or its customers is expected to steer clear of noncompliant expats. Those 4,500 or so companies make up the so-called blacklist.

The consultancies, for example, are especially vulnerable to Epic pressure. If they hire a noncompliant expat, they risk being barred from the Epic user network. And if they are barred from the user network, they can’t tweak software they can’t access.

The power dynamic with the 250-plus health systems that contract for Epic software is a bit different. They pay a ton of money for software licensing and ongoing maintenance upgrades. They would love to hire bright young Epic technicians to run their software once it’s installed…but not at the expense of angering Epic.

“These clients will adhere to Epic’s restrictions on who they can hire and when,” says another industry observer: “Why would they want to get in a pissing match with their software vendor after they just invested a $100 million or more with them?”

Leaving the mothership and dealing with the noncompete can prompt an outright existential crisis for departing Epic employees. What will I do with my life?

“You’re either forced out of the EHR industry and have to start over in a new field or you’re punished if you want to continue in it” (by having to sit out the one or two year noncompete), says Epic expat Tim Lopez, who left the company because he felt he and Epic no longer shared the same values.

Lopez eventually found a good job in Milwaukee healthcare, but it took him 33 months to get there. “This is one reason why the electronic medical record industry sucks,” he says.

Other Epic expats are irked at the lost money and lost freedom they say they suffered by the limits placed on their job mobility. The consultancy jobs are highly attractive for exactly those reasons. They pay substantially more than Epic. They’re usually premised on a normal 40-hour work week, while Epic software installers might rack up 60 hours a week during a high-pressure installation. Consultants can also pick their own projects. And they can work remotely, which Epic does not allow except for Boost staff. (Faulkner believes Epic’s distinct culture is reinforced by having the team working together in Verona.)

The remote-work prohibition can seem particularly onerous at a time when working at home is so pervasive in the workforce. As one Epic veteran recounts, it was the sole reason he quit. He and his wife have several children and wanted to raise them closer to their faraway grandparents.

He thought he found an acceptable job with a major health system, but he says the Epic human resources department felt some of his job responsibilities would overlap with what he was doing at Epic. “It was really just up to them alone to decide,” he recalls. In the end, he just quit, found another healthcare job close to the grandparents — and did what other former employees do in that situation: Go silent on social media in hope that Epic doesn’t track his whereabouts until his noncompete period passes.

Another Epic veteran, who had soured on the company when it tried to force employees back to the campus during the early days of the pandemic, found a legal loophole to remain in health tech while working in Madison. He recalls the first time he created an external account on the Epic user network: There was an immediate hit on his LinkedIn account from Epic. “My name was flagged instantly for a manual review of my Epic status.”

The fact he wiggled through a crack in the noncompete edifice doesn’t change his opinion of how dysfunctional it is for so many of his colleagues. They can’t easily find a new job where their expertise is relevant: namely as an Epic software consultant or a direct hire by a health system using Epic software.

“Epic seems really focused on the idea of ‘the golden handcuffs,’” he says. “That it’s going to be really expensive for you to leave Epic. That you will have to find a job for a year or two that may not play to your workplace strengths. That you will probably make less money than if you had stayed.”

He pauses for a moment then makes a point that all thoughtful critics of noncompetes make: “If they only work at Epic because they’re scared of leaving, that’s not good for anyone.”

Despite all the hoopla, there is no telling when the Federal Trade Commission will finish its review. Roughly 20,000 comments were submitted for consideration in the proposed rule-making (see page 22). 

Years may pass before the FTC takes a final vote. Steph Tai, a University of Wisconsin Law School professor, predicts if a new rule is finally adopted, “there’s almost a 100% chance it will be challenged in court.”

It’s no surprise that a noncompete ban would touch off a lengthy political donnybrook. FTC chair Lina Khan, who is young, progressive and strongly committed to antitrust enforcement, infuriates many Republicans for just those reasons. 

Her announcement that the FTC would target noncompetes quickly drew opposition from business interests, including the U.S. Chamber of Commerce and its affiliate, Wisconsin Manufacturers & Commerce. Opponents make both a jurisdictional argument (noncompetes are a state and not federal matter) and a practical one.

This is the belief that noncompetes are needed to protect trade secrets and client lists, which is very much Epic’s thinking. Another problem to be addressed, as WMC President Kurt Bauer put it in a letter to the FTC: Why would an employer pay for skills-based training and reimburse workers for tuition if “the employer could no longer expect the employee to stay with the company for any duration?” Workers and bosses, in other words, would both be losers if noncompete stipulations were cast out, according to Bauer.

The history of Silicon Valley teaches a very different lesson. 

Begin with the fact that California outright bans enforcement of noncompete clauses of the sort that Epic believes is integral to its economic success. Then consider the rich legacy of one of the most celebrated breakout moments in American technology. This was the 1957 walkout of the “traitorous eight” engineers — as their fuming boss at Shockley Semiconductor Laboratory described them. They launched Fairchild Semiconductor Corp. as a direct challenge to the mercurial Nobel Prize winner William Shockley’s semiconductor company.

The number of startups traced to Fairchild’s eight founders is simply staggering. Upwards of 2,000 companies are identified, many of them (one assumes) disappearing beneath the waves. The same research published by Tech Crunch in 2014 found that 92 of 130-plus large publicly traded companies in the San Francisco Bay area had Fairchild roots. Their aggregate value? More than $2 trillion. Total employment? More than 800,000 people.

“Every time we came up with a new idea, we spawned two or three companies trying to exploit it,” legendary Fairchild cofounder Gordon Moore told the researchers.

This is very much not the Epic style, and it’s why some Madison notables think it’s in Epic’s own best interests — as well as the community’s best interests — to rethink its strategy. 

Joseph Dahari, who runs the coworking space 100state, whose members include many former Epic employees waiting out their noncompetes, says their timeout “prevents them from exercising their intellectual capital and their industry-specific knowledge.”

While Dahari feels it’s wrong to villainize Epic for doing what is common in the business world, he is puzzled why Epic doesn’t craft its story to include the great companies — Redox, Nordic and Carex, among others — that grew up around Epic.

Faulkner doesn’t seem to recognize that “a rising tide lifts all ships,” says Dahari.

Tom Erickson, director of UW-Madison’s School of Computer, Data and Information Sciences (and a veteran of the Boston tech scene), says Epic can protect its intellectual property without tying the staff up in suffocating legal restraints. Tailored nondisclosure agreements are one alternative. Both he and Tai cite other legal tools to protect proprietary information, while allowing bright young staffers to move on to new jobs or start their own enterprises.

“Innovation is stymied by noncompetes,” says Erickson. They block people with bright ideas from pursuing them “even if it’s not clear if the new company would be competitive or complementary to the older one.”

Tai suggests a ban on noncompetes might even benefit Epic, because it would open the door to places where Epic employees want to work — usually health tech, service, and care organizations. “Having the ability to hire Epic-trained employees in those positions might actually make those various organization more likely to adopt Epic software,” says Tai.

Mark Bakken, a serial entrepreneur (he co-founded Nordic) turned venture capital investor in health startups, sees room for compromise on noncompetes. “I’ve been on both sides,” he says. “It sucks when you invest a ton of money in employees, train them, pay them well — and somebody else waltzes in and says: ‘Now that you’re experienced, I can pay you slightly more than the company that got you here.”

Bakken pauses and switches gears: “At the same time, it’s like, ‘Hey, it’s a free country. This is what America is built on, right?’ Personal initiative.”

Bakken’s conclusion? “I think a six-month noncompete seems appropriate.”

Erickson is more unequivocal about freeing employees from the restraints of noncompete contracts. “Individuals need to be able to choose where they want to work,” he says. This includes tapping their own hard-earned knowledge to start their own business.

Noncompetes give corporations “massive leverage” to block such enterprising individuals, Erickson argues. The new business never launches because the creators fear getting sued into submission.

Erickson, who ran a large cloud platform service in Boston, says the city’s software industry boomed in part because Lotus, the big dog on the software scene in the 1980s, never tried to choke off the startups that sprouted around it.

In 2014, Erickson took to the pages of The Boston Globe to support a plan to make noncompetes unenforceable in Massachusetts. He argued they made it harder “to spin off great ideas into new companies” and functioned as cooling-off periods “where great ideas slowly burn out.” This was preventing the Massachusetts tech scene from reaching its full potential as a tech center, he warned. 

The same warning, it seems, may well apply to Madison and Epic.

[See “Broad overreach” for excerpts of comments on Epic’s noncompete agreements submitted to the Federal Trade Commission by former and current employees.]