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Non-Compete Pacts Called Bad For Tech Innovation
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.
Innovation is incremental and people are collaborative. Whenever you stifle that collaboration, the economy as a whole suffers...
This is my sig.
So business school cunts and lawyers are detrimental to the progress of society?
Who would have thought it?
"Why did they cancel my favorite Sci-Fi show? I downloaded ALL the episodes!"
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.
Great minds think alike; fools seldom differ.
The actual detriment to innovation is the business community's failure to regularly bring in new talent. The only folks being offered jobs are those who are deeply entrenched in the business.
He would have been out of work for 18 months with no compensation and no recourse had he not been lucky enough to find something in a non-related area. Even companies in california (where non competes are illegal) declined to hire him because they said they could be sued in MA.
Liberty.
Clearly after being quite competitive with Silicon Valley in the '70s, Mass. has fallen far behind its rival in terms of the number and quality of startup companies, at least in the IT sector.
Anna Lee Saxenian got a lot of it right in her book comparing Route 128 with SV. Her main thesis was that eastern Mass. companies tended to have an NIH, all-encompassing, soup-to-nuts mentality (Apollo Computer, and Ken Olsen's DEC were prime examples), whereas SV has more of a ecosystem where engineers, capital, and ideas flow relatively freely between companies.
Of course, this handicap is not unique to Massachusetts. For example, Microsoft is known to have been strongly influenced by DEC - in fact the Windows NT project was seeded by top engineers from the VAX project.
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.
I really hate non-compete agreements. In an at-will employment state they are indefensible, and Massachusetts would do well to make them unenforceable.
BUT I think that conclusions of this article are very far fetched. With the exclusion of Silicon Valley, Metro Boston is the #1 startup hotbed in the United States. It is one of the best places to create a startup, with immense intellectual capital available from the biggest concentration of 4 year universities in the world. And the geography of the startup area covers 4 states, not just Massachusetts - NH, CT and RI as well.
The article gave no numbers, and no comparisons of the laws of the various states in the region and their effects. Where are the facts, Jack? The article is just speculation without substance to back it up.
I call Bullshit.
The entire concept of a non-compete clause is to discourage brain drain and startup competition from previous employees. Isn't it obvious that this would reduce new startups where enforceable and have no impact where its not? Sorry, but this just isn't news to me.
A couple of 30-somethings embark on the ultimate roadtrip
that fortunately does not exist in Germany. Here the law is simple: A company that wants an N.C.A. to be enforceable, it has to pay at least 50% of the former wages of the employee, otherwise the N.C.A. is void. It also has to be very specific, the new company must be competitor, being an IT-company is not enough, you basically have to provide the same product to the same custumers. It is also limited in time to one year.
When I once left a company that didn't want to let me go I happily told them I would love to sign an N.C.A., but when they saw what it would cost them and would bring them (I would be gone anyway), they quickly reconsidered.
p.
Without order, nothing can exist. Without chaos, nothing can be created.
They stifle innovation in exactly the same way patents stifle innovation. You can create X for us, but if you should leave, you cannot create X for someone else. We hold a monopoly over you. Much like a patent holds a monopoly over a piece of technology. Its created once, and then is never able to be improved upon, unless you have bucketloads of cash. That starts immediately making it exclusive to wealthy (usually business). Innovation can only then be done by fewer and fewer people. Usually with non-competes though, the hell only lasts a few years (and a few chairs. Patents last practically forever. Its stupid and bad for society, but businesses give governments money to do their bidding. Fuck the people is the mission statement.
If you move to where your job was outsourced, is it considered noncompetative? :)
You have to picture what noncompetes come down to as this statement:
"You are good at what you do, someone with valuable skills -- and since we don't want you to do it for us anymore or you have chosen not to do it for us anymore, we don't want you to do it for anyone else. Have a nice day."
Laughter is the Spackle of the Soul.
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.
It's all about the information. And what we do with it.
In short, this guy signed an "Exclusivity" contract. Apparently that's different from a "Non-compete", though how in the world that's possible is beyond me.
Perhaps someone other than the IANAL types can educate me here. But, in short, if this one holds up, you can bet that you're going to see Exclusivity Contracts start popping up among software and hardware designers, instead of just doll designers.
The best way to predict the future is to create it. - Peter Drucker.
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....
Engineering is the art of compromise.
Every tech company in this area wants you to sign a non-compete and they're just getting ridiculous. They cover the earth, moon and stars from the beginning to the end of time. Most times I just can't sign them. It's a little easier when you start your own company and negotiate as a sub-contractor, but now companies and wanting very similar language in b-2-b partner agreements and it's getting to be a real pain.
It's so much easier to work with small groups of independents than try to partner up with any big tech company on projects. You always have to spend two days reading the paperwork and there's one deal breaker and they won't negotiate the language. The irony is that I then spend my time competing with them for business instead of billing hours they could make a margin on. All because of some over-reaching non-compete that some HR person copied off a boilerplate of legal documents.
It's just such a massive waste of effort because they got screwed on one project five years ago and from then on everyone has to jump through their legal hoops. The good news is customers are starting to catch on that a lot of tech companies are bill mills that add cost but not much value and they're entertaining more indies and part-timers. But it's a surprisingly slow transition.
The whole eastern seaboard, at least from Massachusetts to Florida, is a cesspool of snobby lawyers and greedy big money people. But the southeast is worse than anywhere; it is especially laughable that so many states proclaim the "right to work" (without a union, possibly for peanuts or for a tyrannical boss) but you don't actually have a legal right to work in your occupation if you've signed a broad non-compete that forbids it. These are often "at will" states as well, where your employer can fire you and hire someone else to do what you do, but you can't necessarily work for another company doing what you know how to do.
I've lived in VA and in PA most of my life, and I'm just about finished with the eastern US forever. My next home will be either in Europe or west of the Mississippi. By the way, the states that will not enforce non-competes include CA, OR, CO, MT, ND, SD, OK, LA, and probably a couple others. Nearly all of them are in the western US.
As for the most ridiculous non-compete ever, how about a membership agreement for an outdoors club that forbids former members not only from operating a competing club, but even using a google group to organize similar activities? The original version was even worse, if you want to read some lawyerspeak that will make your head spin, and prompted this article in a local newspaper.
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.
I have one of these, and I haven't been impressed with it. First of all, it's very generic, without being specific as to what knowledge I can't use in future employers, etc. It was also handed to me *after* I moved across the country about 4300km to my new employer, and after I had received and accepted the job offer (which I had before I left). Since I had already quit my former job and moved 4300km, there wasn't much I could do but accept. I even asked to append more specific details and was turned down.
Luckily, my company doesn't have any history of trying to enforce these idiotic things, and I have no plans on doing anything dumb like jumping ship and taking company-specific info or customers with me, but I do wonder how enforceable these boilerplate contracts are. From what I've researched, they're not very enforceable if they aren't rather specific (what the actual 'competition' would be, the competitive region, etc) , or if alternate methods would have sufficed (say to prevent stealing proprietary info or customers).
I do wonder of the legality of hitting somebody with this *after* the job offer has already been given and accepted. I had requested the contract before moving but had assumed that it was more or less in the offer.
In Illinois non-competes are pretty much unenforceable. Does this mean the tech & startup environment in Chicago is good? Nope, the tech environment is a joke here and the startup community is at best composed of blow-hards, failure, and new talent that soon finds out that they need to move elsewhere to accomplish anything useful.
Run and catch, run and catch, the lamb is caught in the blackberry patch.
I'd do it myself but have already posted in this discussion.
A noncompete clause is akin to telling a sculptor never to take up the chisel again. These should be illegal. They strangle the ability of someone skilled in an art to earn a gainful living. Stinko.
When I was foolish enough to work for wages, I always took a red pen to the salary negotiations. With it, I struck out every non-compete clause before signing the employment contract. Some HR folks freaked out over it, but it never cost me the job.
If it had ever cost me the job I was seeking, I would have considered it a very cheap exit out of what could otherwise have been a very expensive experience.
Warning: This signature may offend some viewers.
What incentive is there to come up with a better way to do something if you won't be able to use the idea on your next job?
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.
My policy is that I never, ever, under any circumstances even consider thinking about signing an NC. Period. End of story. They are a deal-breaker.
I don't trust anyone who doesn't trust me.
Let's have an inane discussion about what WE think overused partisan cliches mean!
I bet then everyone will thank us for being so (+5) Insightful!
DRM: Terminator crops for your mind!
The whole point of a non-compete is to stifle further innovation in service to profitability of the last idea. The idea being that it will encourage spending on research if we up the gains for a successful research project.
Maybe it works, maybe not and I'm not saying it's a good or a bad thing from a holistic point of view but this is kinda like "discovering" that pesticides act as a deterrent to insects. It maybe bad and cause an imbalance in the ecosystem, it may be good and increase crop yeilds, but the idea that you've discovered that something does what it was designed to do seems silly.
Just like in some country, just regulate them. Here around the law force you to pay the person signing the NCA a fix sum, and is quite clear in how the NCA applies (same customer base, same product).
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...
"Screw Sun, cross-platform will never work. Let's move on and steal the Java language." - Visual J++ Product Manager
Deary me,
We didn't call you "unwashed" old chap, if anything the plumbing is the best system in the United States. We called you "uneducated Barbarians" and could also have used "Philistine" as opposed than "Barbarian" to denote you lack of culture and sophistication.
Hope this has cleared up this little matter my good man.
Tisk, tisk, look at the time, I'm late for tea.
Cheerio.
PS, we Europeans don't like the French either.
PPS, the Romans beat you to a Representative government by 2000 years.
Calling someone a "hater" only means you can not rationally rebut their argument.
I love you :)
This is the sig that says NI (again)
Just to elaborate on this wonderful theme. I'm starting south from Mass. and leaving Maine and New Hampshire out of this, although at least NH probably sucks too.
Massachusetts: You did read the article, right?
<strike>Rhode</strike> Rude Island: A crummy little shithole with some of the worst labor laws to be found anywhere outside the South. Population is split between a boring old city with the most pretentious of the already pretentious Ivy League universities, a bunch of pricey beach towns for the super rich, and run-down industrial towns that make Ohio look up and coming.
Connecticut: Moar like Corrupticut amirite!? Road use restricted, state liability limited, better hope the bridge doesn't fall into the river again. Probably secretly cheering what happened in Minnesota last year since they held the record for bridge disasters until that. Somehow even the wealthiest people in the country, in Fairfield County, can't help the state pay for the cost overruns caused by mafia-run contractors, so the whole place is still falling apart. Gave us Senator Joe Lieberman (formerly D-CT; the D stands for Douchebag), which should be enough to nuke the place clear off the map.
New York: NYC people think they're the only place on earth worth being in, which of course means they're the one place that's definitely not worth staying. The only jobs that are worthwhile involve either moving money around or gluing eyeballs to TV sets. Make sure to take the oath to support nuking Tehran on your way in to claim your AIPAC membership card, which will soon be necessary to vote. Living upstate is also an option, if you want to be one of 1,000 people competing for the remaining 10 jobs.
New Jersey: The butt of every joke in the country, but the joke's on you when you realize it's actually one of the better places to live in the East Coast, as long as you live nowhere near the Turnpike or the oil refineries, which basically excludes 2/3 of the state.
Pennsylvania: Sucks for more reasons than I can count. The state only pretends to have a real state university system or an impartial plan for economic development, having virtually privatized both decades ago. In lieu of making tuition affordable, they set up a student loan lender which became so profitable it was spun off to become one of the biggest holders of student debt in the country.
Delaware: Rogue state. Invented the much-imitated practice of abusing the lack of any federal corporate law to make sure there really isn't any to speak of at any level. Fills their state coffers with bribes to not regulate corporations, plus more than a few of your toll dollars.
Maryland: As a state, probably the nicest places on the East Coast, and one of the few that manages to maintain a halfway competent government. Trouble is, where will you live, in the massively overpriced DC suburbs? Howard/Montgomery County sprawl? The redneck panhandle (with no jobs to speak of), or the boutique eastern shore? (Well, it's not all boutique, but if you live in the part that's not, get used to waking up to the smell of chicken shit.) Nah, here's a better idea, you can always shorten your life expectancy in Baltimore, murder capital of the country.
DC: Taxation without representation!!1! Which means, don't expect the government to actually do anything for you. The only "state" in the country apparently forbidden by the federal government from actually doing anything productive.
Virginia: Really sucks. Don't let the apparent leftward shift in politics fool you, the southern aristocracy runs everything with an iron hand. The legislature meets only two months a year, which is a constitutional guarantee that nothing will move out of the 19th century. Hug trees all you want, there are plenty of them, but don't even think about labor rights here. Even the environmentalists
Productivity is NOT a virtue unto itself. Also just because you (I'm pretty sure erroneously) think that we got democracy before all those damn Eurpeans does not mean we are BETTER... They could have, you know, learned from out mistakes (one of which is the protestant work ethic).
Oh, and am I the only one that finds it ironic that any European would consider an Amarican an "unwashed barbarian"? Ever try standing next to a French woman? She'll have hairy legs and armpits and often reek due to lack of deodarant/showers.
So only our men are unwashed barbarians because they don't shave? Competative swimmers are the only men in western society who are civilized, besides perhaps certain groups of American Indians? How does societal norms for who shaves have any thing to do with cleanliness? Do you (a man, I suppose) shave your armpits/legs?
Of all the defenses of America being "civilized", this is by far the weakest I have ever seen. I would define civilized more by how we treat our fellow citizens, a metric which we fail at.
As an American, I often agree with our European freinds, we really are not as awesome as we think we are. Remember the greek idea of HUBRIS, right? If we continue to think that we're the greatest thing since sliced bread, we probably will have a fairly awesome fall, since we refuse to learn lessons from others.
Looking at America today, I'd say we're really consciously trying to fail as a country. How are we doing against the Euro today, as opposed to a couple years ago?
A patriot must always be ready to defend his country against his government. -edward abbey
Oh, and am I the only one that finds it ironic that any European would consider an Amarican an "unwashed barbarian"? Ever try standing next to a French woman? She'll have hairy legs and armpits and often reek due to lack of deodarant/showers.
Quite regularly in fact. Also used to sleep next to her. Not sure where your information comes from, the 70's?
And while we're bashing the appearance of women, how do american women even *reach* their armpits and legs to shave or apply deodorant, anyway?
People replying to my sig annoy me. That's why I change it all the time.
The corporatist-welfare state oppresses creativity and innovation by law.
The corporatist-welfare state economy provides wealth for few and nothing for US.
The big-brother thought police ... close to ... almost ... damn, it must be there ain't no other way to define this faux-benevolent totalitarian regime corporate-welfare state.
Freedom, Independence, Democracy, Individuality, Capitalism ... all dieing in US, EU .... Mao-China/Stalin-Russia/Godly-Clergy have won nothing and we have gained oppression of free-thought.
Unaccountable leaders are masters, and unrepresented people are slaves. How do US and EU fare?
When I first started in the independent programming business, I ran into this problem. Horrifically exclusive, hands-binding, "We own everything you do while we even remember your name, forever and ever, amen."
Very bad: some of them would've prevented me from ever programming another line for anyone but them!
So I told them no, and sent them my own reasonable work agreement: that what I did for them, they owned; anything else I did was mine; and it all stopped the day I quit being paid.
Not exactly those words, but that's how it worked.
Every single person and company I sent my return agreement to accepted it. No problem. Screw the lawyers and bean-counters.
This will not go on forever... And that "larger population" will suffer thanks to the obtuse lack of foresight and planning of the powers that are.
Actually, despite their month-long yearly vacation, the French have the same productivity the yankees have. This is mostly attribuable to the generous social safety net that makes sure workers are not stressed by the fear of losing their job if they go on vacation and being able to pay the doctor. Record consumer debt levels, as well as national debt levels is a success? Unprecedented hatred of your country thoughout the world is a success? You have strange ways of measuring success!!! Your success, perhaps, is the one that needs to be punished... Only the puritan americans are so offended of the human body to want to suppress such natural things as hair (protects the body) and body odour (sends pherormones to turn-on the opposite sex).But, again, it's true that sex is evil and must be suppressed at all cost...
Oh, go have a look at Latino art. You'll see plump women. This shows you that only the yankee are addicted to malnourished women. Myself, despite being plumpy and middle-aged, I'm a huge success with hot latina women.
This spoken by someone who's likely circumcized because society cannot tolerate that young boys would need to extensively touch their penises to wash them properly, thus ensuing the risk of masturbating in the shower and deriving pleasure from their own bodies...If you ever make it to the Denver Convention Center, there's a great sign upstairs pointing out (in huge letters) the directions to "LOBBY'S A AND B" [sic]...
"Not an actor, but he plays one on TV."
North Carolina: Basically a clone of Virginia with nicer cities *and* shittier weather. Hope you like the ice storms, cuz they're the exception and not the rule three months out of the year.
South Carolina: Behind the genteel southern facade lies the other south. Serial killers in other states trace their ancestry to South Carolina, and the history of violence crosses racial and other demographic lines. Rural SC is an ideal setting for a believable horror film.
Georgia: The legacy of decades of fundamentalism and intolerance. Sodomy laws didn't stop people from having sex, but they did result in one of America's highest rates of AIDS and other STDs. Sex doesn't kill, but the down-low does. "Motor voter" in other states is supposed to help people register and vote; in Georgia, it means you need a car to vote, since until very recently there were no DMV's within 20 miles of Atlanta, and it took threats of prosecution from the federal government to fix that. If you don't have a motor, you're not a voter. Labor laws don't get worse than Georgia, except in Florida.
Florida: A decrepit, corrupt third world country cleverly disguised as an American state. The rest of the country only tolerates them because we like orange juice and Disney World. The rest of the south actually gave up slavery and plantations; Florida just substituted illegal immigrants for the slaves, has continued to keep them under lock and key, and pays them slave wages. Every couple decades there's a national TV documentary on conditions for agricultural workers in Florida, which issue is then promptly forgotten about until the next documentary. The salmonella in your tomatoes came from either Florida or Mexico, and there really isn't much of a difference there. Gave us Jeb Bush and Katherine Harris, who should both be deported to Burma or Zimbabwe, where their brand of politics would feel more at home. Rioting mobs of right-wing preppies invaded the Miami voting office to stop the recount in 2000, giving us Dubya as president.
Hello? Anyone heard of the Right to Work . It is, um, kind of related to the Universal Declaration of Human Rights
Here in Finland it is stated in the legislation that everyone has the right to choose his/her place of work. Any contract violating this fundamental right is automatically void. Thus all non-compete contracts are null. Of course you may not take advantage of your (insider) knowledge should you suddenly choose to work for the closest competitor.
A quote.
Hi,
French _are_ Europeans, if ever.
"I don't like the French"
Well, that's a pity. You are missing something.
Putting a lot of people under the same name, say "the Italian", "the American" or "the French", and then proffering generalities on this set of widely different individuals is generally considered distasteful amongst thinkers. Why? Because it is very inefficient way to understand the world. (translates as "idiotic")
Farewell,
Sylvain
Unless they infring on intellectual property or company secrets of their employer they should be able to use their skills as they see fit. And insisting on such clauses as a condition of hiring is little more than blackmail.