Stanford Study Credits Lack of Non-Competes For Silicon Valley's Success

HughPickens.com writes Natalie Kitroeff writes at Bloomberg that a new study says the secret to Silicon Valley's triumph as the global capital of innovation may lie in a quirk of California's employment law that prohibits the legal enforcement of non-compete clauses. Unlike most states, California prohibits enforcement of non-compete clauses that force people who leave jobs to wait for a predetermined period before taking positions at rival companies. That puts California in the ideal position to rob other regions of their most prized inventors, "Policymakers who sanction the use of non-competes could be inadvertently creating regional disadvantage as far as retention of knowledge workers is concerned," wrote the authors of the study "Regional disadvantage? Employee non-compete agreements and brain drain" (PDF). "Regions that choose to enforce employee non-compete agreements may therefore be subjecting themselves to a domestic brain drain not unlike that described in the literature on international emigration out of less developed countries."

The study, which looked at the behavior of people who had registered at least two patents from 1975 to 2005, focused on Michigan, which in 1985 reversed its longstanding prohibition of non-compete agreements. The authors found that after Michigan changed the rules, the rate of emigration among inventors was twice as a high as it was in states where non-competes remained illegal. Even worse for Michigan, its most talented inventors were also the most likely to flee. "Firms are going to be willing to relocate someone who is really good, as opposed to someone who is average," says Lee Fleming. For the inventors, it makes sense to take a risk on a place such as California, where they have more freedom. "If the job they relocate for doesn't work out, then they can walk across the street because there are no non-competes."

Comments

Steve Jobs is the Monkeywrench

[Baby Duck]

And then there's those Steve Jobs emails that revealed major players in Silicon Valley created their own de facto non-compete policies with each other. The study is incomplete without examining intra-California career stifling.

Refuse

[SumDog]

I have refused to sign any contract with a non-compete in it for IT work starting with my first IT job in 2005. I think I saw something on slashdot back then making me weary of them.

My first company was getting everyone to sign them after sales people were leaving and taking clients, but I just refused and they never asked. With every other company, if I saw it in the contract, I'd tell them "I don't sign non-competes." They would always take it out or give me a new contract. Only one company made a big deal about it, a start up, and it wasn't even the company but their horrible lawyer. The principal investor told me to "sign the contract you want." I wasn't about to writing my own contract and they started paying me anyway...so I basically got paid without a contract. Made it easier to open source what I wrote after the company failed. :)

TL;DR NEVER SIGN A NON-COMPETE. They are unethical.

There's another law, too...

[Ungrounded Lightning]

TFA says:

... the secret to Silicon Valley's triumph as the global capital of innovation may lie in a quirk of California's employment law that prohibits the legal enforcement of non-compete clauses.

Yes, that's important.

But (IMHO even more important) is another "quirk" of California's labor law, which you'll find as a page in the bundle of every employment agreement you're handed in Silicon Valley. This affects patent assignments:

To paraphrase: If
  - you Invent something,
  - you didn't use the company's resources, and
  - building and selling it isn't in the company's current or expected business model
It's yours.

Any patent assignment terms to the contrary are void, overridden by the state's compelling interest. Your employer can't put your great idea on a shelf to gather dust and make it stick. You can partner with a couple of your buddies, move into a garage across the street, and start a new company to exploit the invention.

This makes California an inventor's Mecca. Startup companies bud like yeast. Inventions go to market rather than being shelved or becoming just playing cards in a game of cross-licensing poker. Inventors get rich. This attracts more talent, so the longer it goes on the easier it is to find the "other two guys" with the complimentary talent you need to make your startup work, making things even easier, in continual positive feedback.

Small companies get a hiring advantage over conglomerates, too, because the fewer things an employer is into, the fewer classes of invention the employer can lock up rather than exploit.