Non-Compete Pacts Called Bad For Tech Innovation 190
carusoj writes in with NetworkWorld reporting from a panel at Harvard last week. It concluded that employee non-compete agreements have stifled tech startup development in Massachusetts, where the pacts are aggressively enforced, but failed to hold back the tech industry boom in states like California, where they are mostly unenforceable. We've discussed non-competes often here in the past; Techdirt made much the same point a year and a half back.
I guess, "No Duh", might be redundant... (Score:5, Insightful)
Innovation is incremental and people are collaborative. Whenever you stifle that collaboration, the economy as a whole suffers...
Yes, but (Score:5, Insightful)
The point is not to enhance innovation, but to enhance corporate (ok, and shareholders as a side effect) profits. If there happens to be innovation, that's a nice addition.
The actual detriment to innovation (Score:5, Insightful)
As an employer, I abhor them (Score:5, Insightful)
I have a business consulting corporation (founded in 1993, incorporated in 1997) that works in large scale construction and tech. We will never require an employer to sign a non-compete. We don't even require them to sign anything preventing them from "stealing" our business. What you do on your own time is yours. If you go off on your own and take our customers, all it does is teaches us to be more efficient, competitive and effective for our clients. I openly motivate my own employees to discover how to become their own bosses: save money, learn basic business skills, gain confidence, discover a niche market. Capitalize.
A true capitalist welcomes competition, and also pushes themselves, not their employees, to be a motivator and an expert in their field. I would refuse employment if I had to sign anything that stifles my freedom to produce, invent or perfect a current product or service.
Thank you Captain Obvious (Score:3, Insightful)
Re:Thank you Captain Obvious (Score:4, Insightful)
They aren't trying to inform you, they are trying to paint the ground. If people in Mass. start thinking that the law is costing them jobs...
Re:As an employer, I abhor them (Score:5, Insightful)
That's the right way of doing it.
The easy way is to abuse laws to protect your biz.
And in other exciting news, gravity exists. (Score:5, Insightful)
I'm sorry, but as a former consultant, occasional inventor*, and business owner, I've always thought that non-competes were mostly b.s. If you're afraid that they'll steal your IP, register and enforce your IP. If you're afraid that they'll provide better services, well then, best you do a good job there, cobber. Seems to me that non-competes usually just protect those with lots of lawyers against those competing on the basis of value for the dollar.
*See patent 4,808,204.
Re:apropos (Score:1, Insightful)
I'll risk all my karma, but, here goes.
This is simply NOT true. This comment is why discussions like these are frustrating on Slashdot. The economics are simply not true.
First, your friend's compensation priced in this non-compete. If your friend didn't like it, he should have asked for more.
Second, his election to go with that company probably reflected his value at the time. If he was more valuable, he could have gone elsewhere where there was not a non-compete obligation. The fact that he tried to break his contract after taking from the company (time, money, training, know-how, etc.) is not an excuse.
Third, and most importantly, PEOPLE ARE FREE TO STRUCTURE THEIR EMPLOYMENT AS THEY WISH. Whether a person has the clout to get different terms is a factor of their value. The company doesn't have to hire someone and someone certainly doesn't have to work for a company.
Could you imagine a situation in which a company simply decided to ignore a contract because they could just go hire someone else for less?
Finally, I'll just add: there is a good public policy reason for not enforcing non-competes. They're rarely defined by the effect on the individual. In fact, arguable, individuals stand the most to gain, economically, if they're valuable enough to be able to negotiate. The detriment, so the argument goes, is to society as a whole.
Re:apropos (Score:3, Insightful)
It's a shame he signed such a shitty contract -- perhaps this can be a lesson to read your contracts wisely instead of complaining about clauses you don't like after the fact.
By the way, since I presume your friend is an intelligent chap, I wouldn't dare insult him to insinuate that he is incompetent to enter into a binding contract. It seems much more plausible that he made an error of judgment, that's all.
Isn't that capitalism? (Score:5, Insightful)
Capitalism is presented as being a healthy economic model because it provides a fitness function that weeks out the unhealthy players. That's fine until people game the system in various ways: monopolies, no competes, undercutting....
Re:As an employer, I abhor them (Score:2, Insightful)
A true capitalist can and will be utterly destroyed by a company in China that miraculously reverse-engineers every product produced by said true capitalist's corporation.
If you have an employee that leaves the company and then takes a suspicious "personal vacation" to Shanghai or Shenzhen while taking along engineering samples of your products that he was not meant to take with him when he quit, expect your company to fail and fail quickly.
A non-compete might scare the guy into not doing that. Maybe. Either way your patent and patent lawyers will be useless against anyone or anything in China unless you have the right influence in the right places. The non-compete will at least let you sue the defecting employee into oblivion if he's stupid enough to return to the states after selling off your business overseas.
It should also be noted that non-competes can be used as an added layer of protection along with an NDA when disclosing technology/products/IP on a limited basis during the normal course of doing business.
Re:apropos (Score:5, Insightful)
Zero sum game. (Score:5, Insightful)
As an employer, you lose as much (in terms of failing to recruit experienced staff from your competitors) as you gain in terms of preventing the loss of experienced staff to your competitors.
In an industry where these clauses are common, everyone would be better off if there were to be a law disallowing them.
The trouble is - if you're the only employer who doesn't do it, you lose staff and can't easily recruit replacements.
It's a classic "crisis of the commons" issue - and that means that you need a law to prevent it.
Re:Thank you Captain Obvious (Score:4, Insightful)
Well yes, that's the market idealist's view. Market idealism falls over and breaks in three on its first encounter with a fluffy ol' feather.
The real deal is that more often than not, non-competes are applied with a breadth that cannot be described as anything but abusive. In general an US-style non-competition agreement bars one from practicing his profession at any company other than the one that the person happens to be working at. Thus the employee is restricted from applying e.g. market forces to gain things such as higher pay: a switch of companies means a switch of careers unless the employer happens to go under for good and doesn't get bought out.
Of course the practice tends to spread. Any company that does not require a non-compete of all employees soon finds itself in a worse position in labour negotiations. Therefore there's no realistic chance to "just find a contract that doesn't involve a NCA": chances are that within a state that permits them every company abuses them in exactly the same manner.
And just so you know, this is one of the reasons why Europe laughs at the US. The right to profession is basically enshrined in every EU member country's contract law. Only extremely specific and time-limited forms of non-competition agreement are permitted, such as concerning a company's existing clients for up to six months after resignation (or immediately after termination).
Re:apropos (Score:4, Insightful)
Yes, because it's well known that during employment negotiations, prospective employees hold all the cards, especially during a recession.
Did it occur to you that the "recession" you mentioned--that is, a condition in which the supply of labor exceeds demand--means that you aren't worth as much as during times of tight supply?
Why is it that people lose the ability to understand simple economics as soon as the commodity is labor?
Re:apropos (Score:5, Insightful)
I agree with your perspective, and live in California. I think these agreements should be legal in all states, but only at the executive level, and perhaps at the professional level if the company is serious enough to make certain the professional be represented by their own attorney.
Anyway, I digress. It is ordinary for the person being offered such an agreement to request pay for the non-compete period.
I knew someone once who had that kind of agreement draw up. Later, the company, a large one, sort of forgot about it. There was a layoff.
See where this is going?
They tried to un-lay him off, half-heartedly.
No go.
Nice long paid vacation. He worked in an adjacent field for a while. :-)
C//
Re:As an employer, I abhor them (Score:3, Insightful)
Bullshit.
If you aren't incompetent, you should be able to compete with a company that's late to market with a knockoff of your product.
Re:apropos (Score:3, Insightful)
Who decides who is a competitor? Or if the position you're going to take is involved in the competition? You want court battles over these?
Like any other legal tactic, these contracts can be abused and misused and the small fish is shit out of luck. I guess if you've never been in the position you wouldn't know then would you?
Is he supposed to sue them because they unduly threatened prospective employers and cost him jobs? He wants income to pay bills, not more bills and a protracted legal battle. Prospective employers also do not want legal battles.
Re:I was hit with one of these (Score:4, Insightful)
tools of the trade (Score:4, Insightful)
Re:apropos (Score:4, Insightful)
Re:apropos (Score:5, Insightful)
Here's the problem with your argument: for every person who actually does read and understand the non-compete and tries to negotiate, there's N dumbasses who don't. So, essentially, smart people's bargaining power is being eroded by everyone else's stupidity. This externality is not compensated for by the "free" market.
Re:Yes, but (Score:2, Insightful)
Re:apropos (Score:5, Insightful)
It doesn't matter what the market conditions are, slavery is wrong, and that's basically what a non-compete is: slavery. To get a decent job today, you need to spend years of your life, and thousands of dollars, just to get in the door. And then, for the privileged of working for a company, you're supposed to sign a piece of paper that says, essentially, "if you aren't working for us, you aren't allowed to work at all"?
I honestly don't care about the market effect of no-competes. No-competes are inherently immoral. These kinds of studies are just tools to help get rid of them.
nonsense: Re:apropos (Score:3, Insightful)
Seems like a total nonsense to me. The premium would be very high. With an average duration of employment being 2-3 years, an 18 month non-compete would require a 50-80% salary premium. If you take taxes into account, the premium would go to more than 100% (there is a big tax penalty if you get your 3 year income in just 2 years).
Not everything you can put your signature on is considered to be a valid contract and rightly so.
Re:apropos (Score:2, Insightful)
PEOPLE ARE FREE TO STRUCTURE THEIR EMPLOYMENT AS THEY WISH.
With Uncle Sam having tied health insurance to employment and specifically your unique employer's unique plan, your statement is not as true as it otherwise would be.
Re:apropos (Score:5, Insightful)
Why is it that people who have a little money never give a damn about people who don't?
YEAH YOU MORON WE F***ING KNOW WE"RE NOT AS VALUABLE NOW AS WE USED TO BE. DID IT EVER OCCUR TO YOU THAT WE STILL HAVE TO PAY THE BILLS AND FEED OUR FAMILIES?
When you have no job and the unemployment office says there's 98% unemployment in your field and you are facing eviction and maybe you have a kid to feed and an employer offers you a job but it comes with a non-compete that could *theoretically* put you out of work for 18 months someday in the future, YOU F***ING SIGN IT BECAUSE YOU HAVE NO CHOICE. DON'T WHINE AT US ABOUT SUPPLY AND DEMAND AND TELL US IT'S OUR FAULT.
Re:apropos (Score:5, Insightful)
Third, and most importantly, PEOPLE ARE FREE TO STRUCTURE THEIR EMPLOYMENT AS THEY WISH. Whether a person has the clout to get different terms is a factor of their value. The company doesn't have to hire someone and someone certainly doesn't have to work for a company.
No they're not. People and companies are bound by the law, which still applies. Putting it in caps doesn't make it so. People modding you up for such a stupid statement doesn't make it so. All it takes is proof by counter example and you've got egg on your face. So...
For example, everywhere as far as I know, a company can't offer you a contract that requires you to give them any children you conceive while working for them. Likewise I can't imagine a condition of employment being that you go out and murder your neighbours being legally binding (with perhaps the exception of an extremist military regime that also holds power).
So no, people are not free to act as they wish. That isn't the definition of freedom. Freedom does not mean you're allowed to do whatever you want no matter how it impacts others. You still have to be at least benign to the society in which you live, based on the laws that society has passed. At least that's the theory. I'm guessing you're American? When America's founding fathers fought for freedom they did not fight for lawlessness and hedonistic disregard for their fellow man.
Re:apropos (Score:2, Insightful)
We don't misunderstand the economics. We have notions of structuring the rules of a market around certain rights such as "An employment contract may not regulate what the employee does with their non-working hours."
Sure, but keep paying me (Score:5, Insightful)
How non-compete agreements ought to work is that they can prevent you from getting a competing job, but they have to pay your salary during this period. This would prevent damage to a worker's livelihood when a company invokes these, and provide a monetary disincentive to invoking a privilege that is damaging to the industry.
Not that I expect this to happen...
Re:apropos (Score:4, Insightful)
Re:As an employer, I abhor them (Score:2, Insightful)
Smart. It's almost never worth it to fight for customers who want someone else or are too price fixated.
You've just gone a step further and realized that if you don't fight they'll both remember you well, referring other customers and employees to you.
I'm not in your market, but I think I'd like to work on a project with you anyways.
Re:As an employer, I abhor them (Score:2, Insightful)
People in some positions -- senior designers, engineers, and so on -- have enough inside knowledge, gained over time at one employer, that makes them more valuable to a competitor than to their current employer, as they've already learned some things that the competitor hasn't. It's even worse for salespeople, who can take contacts and relationships built up over years at the expense of the current employer.
I believe there is a place for non-compete agreements, provided they are limited in time, geography and area of business.
Re:apropos (Score:5, Insightful)
We the people with little money ALSO don't give a rats ass about you, we the people with a little money. Perhaps you should realize that most Americans are two pay checks away from being homeless and uninsured. As our economy tanks further and further, you are closer and closer to being on of the folks with no money.
I'm sick of the social Darwinism fallacy. A lot of poor people aren't poor because they chose to be, or because they want to be, or because they made bad choices. A lot of people are just STUCK there, and some of them for no reason besides bad luck. Some of them can get out of it, some of them can't, but most of them are there because society failed them. Don't use this version of the internal attribution error to justify greed, be honest about it at least.
But then again I put individuals above the corporations that hire them. Corporations are a construct, as is economy, on the other hand people (and their life, liberty and happiness) are REAL things. I don't read the Declaration of Independence as an individual manifest, but as a collective statement, we ALL have those rights, and we asserted these rights AS A NATION. They are not an excuse for individual greed and callousness, but follow the tradition of John Locke, and J.S. Mill. Meaning we have these rights, UNTIL they hurt someone else.
I'm getting sick of the term "rights" though. Where did these damn things come from? Rights are a subjective term. Also, your right to greed is suplanted by the more basic rights of others, the right to survival (health, food, water), why aren't these rights? Money and property is a right (somehow), but life isn't? Explain this, please?
Re:apropos (Score:1, Insightful)
Now, if you think you are going to come right out of school with no professional experience and a bunch of great ideas and expect that your efforts in the evening are going to be protected... you better detach yourself from the yoke and either find funding, VC, or talk to Mr. VISA. Otherwise, SOMEONE is bankrolling your efforts... and they expect a payback of at least principal or they expect to reap the rewards.
I would too if I employed you.
If my pay was going towards a mortgage should they expect me to give them a part of my house too?