People In Massachusetts Pushing To Get Rid Of Noncompetes
from the good-for-them dept
Last year, we had a discussion looking through all of the research showing how harmful noncompete agreements can be to entire industries and regions. In fact, the research suggests pretty clearly that Silicon Valley’s success compared to Boston’s high-tech region is in large part due to the lack of enforceability of noncompete agreements in California. While much of this research had been ignored, it looks like some people in Massachusetts are trying to make more people aware of how much harm noncompete agreements are doing to business in the state.
The problem is most people only think about noncompetes from the perspective of the company offering the noncompetes. That leaves out the perspective of both employees and other companies. With noncompetes, there’s a lot less movement of employees around an industry. That means less cross-pollination of ideas — which is a key element towards faster and better innovation. It also means employees less willing to go work for startups, because if it doesn’t work out, it’s much more difficult for that employee to leave and go work elsewhere. Finally, when everyone’s enforcing noncompetes, it’s much harder for companies (even who use noncompetes themselves) to hire the important employees they need from other companies. All in all, noncompetes are a lose-lose initiative hurting all the companies in a space as well as their employees. It’s good to see a push in Massachussetts to get rid of them.
Filed Under: massachusetts, noncompetes
Comments on “People In Massachusetts Pushing To Get Rid Of Noncompetes”
Having lived in MA, I can tell you that there is a helluva lot more reasons than non-competes dragging down start-ups and innovation in Mass vs. the Valley.
Now that I live in CA, the biggest difference is simply the support and energy you have for innovation out here. And a huge part of it is simply the funding environment — although I know this is tabooo, Boston VC’s suck! They are old-school, non-creative thinking, self-important idiots. They are yesterday.
This is why you have to live on the west coast if you are entrepreneurial and have energy to do something other than build another storage device. Nobody out east even understands the web yet. Out here, VCs are completely open to new ideas and grand innovation and are willing to open their minds to possibilities.
Until MA opens its eyes to supports really new thinking, we will continue to rock out here and watch all the MIT grads continue their western migration!
Re: Boston is the backwater of innovation
I fully agree with “yo ho ho”s comments about Boston and its VCs and the difference in the Valley. I know, since I moved from Boston area to the Valley. The VCs in my prior company in the Boston area were clueless old idiots who didn’t know the ABCs of the industry the company was in and were there just because the CEO was greedy enough to take money from them. They use every trick in the book to keep employees as bonded laborers including non-competes, very long vesting period etc. They are also happy about firing people at will, without any proper reasoning as to what they are doing. The poor employees in Boston are helpless since they don’t have many choices in employment. With its current state of functioning, it is unlikely Boston will ever produce a truly world class company such as Google or Microsoft. All Boston has to show is a bunch of mediocre companies in any high-tech space. I am really glad I got the hell out of there and truly glad to be in California.
Of course it "hurts" the industry - that is the point!
Why should I train my competition? Do you want to train someone who can then just up and set up next to you? PLENTY of BAD ideas come out of MA and this is just another.
Re: Of course it "hurts" the industry - that is the point!
In the long term, that way of thinking is counter-productive, and for quite a few reasons. Firstly, it’s not always a one-way street; if some of your employees end up working for your rivals, some of their employees will end up working for you, which means everybody gets a continuous trickle of new blood and new ways of thinking. There’s also strictly limited value in a non-compete agreement that persists after your latest product reaches the market, at which point anyone dying to find out how it works can simply buy one and reverse-engineer it, whatever local law says about reverse-engineering.
There’s also a wider economic issue at stake. All but the very narrowest non-compete agreements might well force employees to move quite some distance in order to retain their livelihood. That makes companies demanding them less attractive to prospective employees, because people’s circumstances do change; if I discovered that a prospective employer would essentially force me to move several hundred miles if I wanted a bigger house for the kids but couldn’t find anything within reasonable commuting distance, I do believe I’d think twice about submitting my CV. If every single company in the field I was trained to work in within that geographical area was doing the same thing, I’d move someplace else.
Re: Of course it "hurts" the industry - that is the point!
“Do you want to train someone who can then just up and set up next to you?”
The real problem you have is that you do not want to compete in a free market. Why would “your” employee leave your company to go work somewhere else? Higher wages, better benefits, and a better work environment. But you don’t want to offer those because deep down you don’t want to compete in a free market. You want the government to come in and protect you from more successful competitors. And that’s just pathetic.
Re: Of course it
>> Why should I train my competition? Do you want to train someone who can then just up and set up next to you?
If you’re company needs a DNC in order to prevent people from leaving, perhaps the company needs to rethink it’s: poor managers, working conditions, payrate, etc. Instead of thinking up silly legal gotchas to keep good employees, they just need to provide a good job that people won’t want to leave.
Oh and also, skilled labor doesn’t have training. Nuclear scientists are nuclear scientists, they don’t just walk off the street from the video store. The only place where training occurs is simple repetitive labor such as how to assemble a hamburger and how to operate a cash register.
Sorry, but you’re point doesn’t make any sense
Re: Re: Of course it
Oh and also, skilled labor doesn’t have training. Nuclear scientists are nuclear scientists, they don’t just walk off the street from the video store. The only place where training occurs is simple repetitive labor such as how to assemble a hamburger and how to operate a cash register.
That is completely wrong. As a programmer I can tell you beyond any doubt that even if I’m proficient with every technology and language in use at a new employer, there’s a great deal to learn about the business and the software before I’m fully up to speed. It costs the company time and money to train me (or anybody) in this way. I’m sure there are many other high-tech occupations that are the same way. I am in no way defending non-compete agreements, just refuting the claim that skilled workers don’t require training.
Shortsightedness
Typical closed minded thinking here, Norm:
“Do you want to train someone who can then just up and set up next to you?”
Yeah. You get that if you treat your partners and employees like crap. One of my coworkers, the second-in-command for the company, just retired after *40* years (most marriages don’t last that long). At any time he could have just left and taken half of our customers with him. But he didn’t. He liked where he worked.
People also go off to bigger and better things, and they remember where they’ve come from. They remember if they’ve got resources to draw from or not. It just might be your company that gets a contract. Or not.
The golden rule works as well in business as outside of business.
Don’t give people a *reason* to compete against you and you’ve got nothing to worry about.
noncompete = human DRM
It’s taken a while ti come full circle but I think it was here or some other site that mentioned that noncompetes are the equivalent of human DRM.
Not many people notice when they come around. I had a sound talk with my legal department and CEO when they tried to make me sign that crap…ultimately it was take the job or don’t sign the noncompete.
Right now, it’s a really bad thing for innovation but an easy way for some companies to hold leverage.
RE: Shortsightedness
Typical “Stick it to the man” attitude Dave:
People can leave that is no problem, but starting a new business that I trained them to do doesn’t cut it – and I’ll bet you’ve never owned or managed a business have you Dave?
Re: RE: Shortsightedness
I think you miss the point Norm. The point I got from his message was that you as an employer could choose to make working for your organization a fulfilling experience that inspires loyalty from your employees … or you can decide that they are more like human-chattel. If you treat them right why would they want to leave & start up a competing business … ? But if you are focused on the bottom-line with no regard for the needs of the people you are using to achieve those ends, you might as well be a slave-master the only difference is because you have the blessing of the government of the day … you wont be perceived as a pariah.
Re: RE: Shortsightedness
I can see your point there, at least to some extent; a non-compete agreement prohibiting a start-up from bidding against the owner’s former employee is fair and reasonable, as that employee might well have had access to commercially confidential information in their previous role that would convey an unfair advantage.
If I might ask, however, exactly what does your firm do that requires an enormous investment in in-house training? I can think of relatively few industries whose qualifications aren’t fairly standardised these days.
Norm: “but starting a new business that I trained them to do doesn’t cut it”.
Just because you don’t like something doesn’t make it illegal.
Also, training employees does not grant you ownership over their lives. And we say the US is pro “free enterprise”…
Hey Norm...
Who is this Dave you’re talking to? The only name starting with a D is Me. Daniel.
Please point out where anyone said “stick it to the man”
Like Anonymous Coward said…
You don’t own your employees’ lives. And reading the tone of your messages on here, it doesn’t surprise me that people leave you to go elsewhere.
You’ve just convinced me that not only are non-competes a bad idea, but they’re just evil. “My toolbox has wheels underneath for a reason.”
—
Not Dave
“With noncompetes, there’s a lot less movement of employees around an industry.”
I thought I’d give some real world examples why an area without non-compete agreements does better.
There is company A. Two guys at company A have a great idea for a new product. They leave and form company B. They have to hire employees and support staff. Their new product sells great. Two employees at B come up with a great idea for a new product. They leave and form company C. They have to hire employees and support staff, etc., etc., etc. Now you have three successful companies where a different state that enforces non-competes would only have one.
But it gets better. Maybe company C needs the expertise of an employee from company A. They simply use the free market, as opposed to government enforced employee ownership, to offer that employee at A a higher wage to come to them.
That’s the crux of the problem. Corporations love the “free market” but only when it benefits them. When it doesn’t they love regulation and government interference. Non-compete agreements keep wages down because employees are forbidden under the law to compete on wages. And the other benefit is that old corporations never have to compete with young upstarts because those new companies don’t have the expertise needed. So the status quo rules without any innovation.
Re: Re:
Ima, your hypothetical is almost exactly what happened in the early days of the semiconductor industry. Guys started companies that hived off other companies,some of whose employees hived off other companies. The result was a technological explosion and one of the greatest success stories of the 20th Century.
I got to see some of this fairly close up with some of the guys who had been at Fairchild (whose semiconductor operation had been started by people out of Schockley)went to Motorola to start its semiconductor business and Fairchild sued over trade secrets and non-compete agreements.
From where I sat there were two very obvious things about that situation. 1) The big thing the ex-Fairchild guys brought to Motorola was their own creativity. They were doing things at Motorola that they didn’t, or could’t do at Fairchild — things they developed as the result of their own efforts. 2) The main reason they left Fairchild was that they were frustrated that the corporate culture wouldn’t let them pursue their ideas.
Norm to the contrary, this was a long, long way from these guys simply being trained on how to do something. Each generation brought its own significant advances to the industry and in the process developed a culture that encouraged risk taking and innovation to a remarkable degree.
Techs actually pay attention to non-competes?
Really?
The techs I know switch jobs more than good chefs in Europe, woo’ed away by better hours, better pay, better benefits, better working environment… My hubby has worked for three different companies in the last three years, including a Fortune 500 company, had non-competes with all of them, and no one has said a word when he’s moved on. Just put in his notice and ‘Good luck, man!’. He’s even gotten several calls from his last employer about different client issues. One had lost passwords that he still remembered, etc.
You know, employers should look at it the other way around. What if *you* weren’t allowed to hire employees that might compete with your current employees? You’d have to hire people with completely differentt skills or potential than your current employees or no one at all because they might outdo your current employees and you might want to let them go, which would hurt them financially.
Where you think of time and training wasted, the employee can think about thier rapport with clients, and how they’ve done awesome work with your company, or how they’ve expanded your client base.
Sounds pretty aburd, huh?
The better your employee does, the more you should pay him. If you train your employees, either charge for training or ask them to sign an agreement saying that they’ll either stay for a year at the lower wage, or that they’ll pay x amount for the training they received. Either way, after the year is up, if you don’t treat them like the rest of the market will, they are gone no matter how much you whine about it.
Shortsightedness
“Do you want to train someone who can then just up and set up next to you?”
Ummm, If you were to hire me, I would assume it would be based on my experience, which had nothing to do with you when I walked in. My college graduation had nothing to do with you, nor my years of experience upon the hire. Somehow YOU own this ? hmmmmm Sounds like the one sided argument For IP protection. All gain for the employer and a legal minefield for the average salary earner.
RE: Shortsightedness by Jake
Jake,
you said: as that employee might well have had access to commercially confidential information in their previous role that would convey an unfair advantage
In that case you make your employees sign a Non-Disclosure Agreement. Then, if you can prove they took and used proprietary data, you sue the pants off of both the employee and their company. 🙂
Comment back when you actually run or manage a business
Imagine you lay carpet. You take on someone and train them in your business and show them the ropes and the trade – kinda like going to a school for them. Is it really unreasonable to say that if they leave they can’t start their own business withing 25 miles of you for a year?
Sure pay more, better benefits, better perks so they won’t leave – any idea of the costs this entails?
Don’t be naive small business owners WANT to keep employees, but there is only so much pie.
Re: Comment back when you actually run or manage a business
Most businesses like that don’t HAVE non-compete agreements. Besides, we are, mostly, talking about tech companies here.
Re: Comment back when you actually run or manage a business
“Don’t be naive small business owners WANT to keep employees, but there is only so much pie.”
Uh-huh… And I spend half of my week in a failing industry in which I haven’t had a raise in two years and have zero benefits, for an amount that will be eerily close to minimum wage this time next year. Why? Because it’s a great working environment. Because I have a too much loyalty to my employers to quit when they’re down. Literally. It’s not *all* about money.
But if there’s not enough work for both companies to reasonably profit, then one will fail. If the company with the repuation and experience fails, then it has more problems than an employee’s new start-up. If neither fail, then what are you complaining about? They’re not eating *your* pie.
Re: Comment back when you actually run or manage a business
You take on someone and train them in your business and show them the ropes and the trade – kinda like going to a school for them. Is it really unreasonable to say that if they leave they can’t start their own business withing 25 miles of you for a year?
Wouldn’t a regular old employment contract handle that? Have them sign something that says if they quit within x time, they owe a certain amount of money for their training. And/or hire them at a lower initial wage since they’re unskilled, with a raise only after they’ve completed training. There are ways to safeguard the employer from some of the risk of a new hire without unduly stifling competition. Maybe these solutions aren’t quite as good as a non-compete for the original employer, but they’re not the only ones we have to worry about. There’s the new hire, and the market as a whole whose interests should be considered as well. Non-compete clauses are after all inherently bad for the competitive market – it’s right there in the name!
Non-competes make sense in only a very, very limited number of situations…high level executives and managers who can go to a new company and take with them an intimate familiarity with the business plans of their former employer. It is quite another matter to apply it across the entire spectrum of a company for many of the reasons noted above.
In the aerospace industry the almost universal practice is to eschew non-competes (except for high level executives and managers) if favor of trade secret based instruments. Unfortunately, in the State of Florida non-competes are given force and effect, with perhaps the most egregious example forbidding lawn service and insect control “worker bees” being foreclosed from going to work for a competitor for an extended period of time and within quite large geographical areas. None of these persons has any trade secrets to take with them, and to limit their mobility is in my view clearly overreaching.
Re: Re:
“Non-competes make sense in only a very, very limited number of situations… high level executives and managers who can go to a new company and take with them an intimate familiarity with the business plans of their former employer.”
I disagree even in that circumstance. If the “high level” employee knew of some secret, that’s a trade secret that would be protected under the law. Adding a non-compete law on top of that would be pointless.
And if the “high level” employee had knowledge of something that was not protected under the law, then why should the company receive protection for something that is not protected under the law? Asking for legal protection that doesn’t exist is nonsense.
Re: Re: Re:
You may not have considered situations where a CEO leaves to take the helm of a direct competitor, not situations where the executive in charge of strategic technology and/or business development leaves for the same purpose. Other examples abound.
The drawback in these situations on relying solely upon trade secret law is that the assertion of a trade secret is easily attacked for any number of legal reasons, and is indeed a slender reed upon which to preserve one’s strategic plans. There are, of course, numerous other reasons why courts, even in California, have carved out limited exceptions to the general rule that non-competes are unenforceable as a matter of public policy.
Re: Re: Re: Re:
“You may not have considered situations…”
Those examples simply do not matter. There is simply this question: Is there something in the law protecting that information, yes or no? If there is, then that law should protect the information and then there is no need to prohibit a person’s employment. If there is not, then as there is nothing under the law protecting the information, there is no basis to prohibit the employee from doing or saying anything. Why should the employee be punished for giving out information, when there is no law protecting that information?!
You say that it’s sometimes hard to prove a violation of a trade secret. That’s not the employee’s problem.
It is sometimes difficult to prove the charge of murder against someone accused of murder. That does not mean the government has the right to make up a new charges to get a second bite at the apple when the alleged murder is found innocent.
And let’s cut to the chase. Why would any employee, even a “high level” employee leave one company for another? Higher wages, better benefits, and better work conditions.
Thus, the only reason an employee would leave the first company is if that first company refused to pay higher wages, give better benefits, or provide a better work environment.
Thus it is clear that the first company simply does not want to compete with the second company on wages, benefits, and work environment. The first company would rather the government step in and forbid any competition. So much for the argument that corporations love a free and open market. They only love it when they profit from it and demand government regulation when they do not.
“there is only so much pie.”
No, that’s wrong. The value and wealth is created by innovative and talented individuals and companies where there was none before. Using this analogy, the key point is that in areas where non-competes aren’t enforced, the “pie” gets bigger, whereas it stays the same or shrinks when they are.
Every business trains people to leave them with experience
Norm, if your employees aren’t learning valuable skills while on the job with you, why bother hiring them? As well, there’s only so much that your business, regardless of what it is, can offer any employee. If the employee is with you so long but has a vertical ceiling, it’s time to get fresh blood and fresh ideas into your organization, and let your now decreasing-in-value-to-you talent find better pastures.
It is unreasonable to tell them not to start their own business within 25 miles for a year. Either they will have good results because you taught them or they will fail because you taught them poorly. In the first case, you might suffer a bit, but you might probably find time to focus on the customers that actually make a difference to you, and find new customers. In the second case, you might simply benefit, but at what real cost to your reputation?
You can’t keep employees indefinitely, and if you do, you’re likely doing you, your company, and your employees a disservice because you carry the weight of long term employee lock-in which cannot be easily or cost effectively remedied. Competition merely allows you to hone your skills and stop being complacent. Even with only so much pie, don’t *you* want to pay for cheaper labor and get the experienced, more costly labor off your debt sheet?
I’ve actually seen the reverse in a smaller business community. Smaller companies and startups sometimes get looted by bigger, richer competitors.
Also, in the case where a consultant leaves a firm and goes back to clients they worked for as an independent, I can see the company case. The company did the hard work to find and sell the work, and an employee leaves to do the exact same job, but cuts the company out. Of course, you can only do this once, and from then on you are stuck finding your own opportunities.
So while I see their use more in consulting, it still doesn’t mean they’re a good idea.
Show of hand.
How many of you actually own or manage as small business and have to make payroll and benefits decisions?
Re: Show of hand.
So your argument is “I own a business and you don’t, so I know more”?
I understand owning a business is hard work but you don’t own the employees. You don’t even own your clients. If either want to go to another company it isn’t your choice to stop them.
Re: Show of hand.
How many of you actually own or manage as small business and have to make payroll and benefits decisions?
Norm, I do… and I’m the one that wrote this article and presented all of the research and evidence that you seem to ignore.
History and experience have shown that noncompetes DECREASE innovation for both you and your wider market. You are unable to hire the people you want, both because the noncompetes make your job less valuable *and* because the good employees you need can’t work for you because of their own noncompetes.
The noncompetes you’re such a fan of are hurting you.
Re: Show of hand.
I’m in the process of setting myself up as a contractor, with a long-term view to forming a limited company. Does that count?
Re: Show of hand.
I do! I do!
And I still work part-time for people who own thier business. I know thier business inside and out. That’s where I received my hands-on training in how to run a small business. I knew nothing about it before I started working there. I was a sales girl with an interested in computers and graphic design.
Thier business is having alot of trouble right now because of industry changes. They’re rolling with it (Thank God!) but in the meantime they have very little money for our usual raises and bonuses.
You know how many employees have quit? Zero. The company I work for pays the least in the area. Why do we have loyal employees with a tiny turnover rate? Because it’s not all about money. It’s about relationships. And non-competes are only about money, ignoring relationships.
When your employees are ready to move on, they will. So are you going to trust a piece of paper or real, live loyalty to keep them from hurting your business?
Fairchild Semiconductor
The history of knowledge transfer from Bell Labs to Shockley Semiconductor to Fairchild Semiconductor and so on and the achievements of the Shockley and Fairchild alumni are a pretty convincing demonstration of the benefits of employee mobility for the economy as a whole.
State Of WA law says...
Noncompetes are valad IF they have the following items:
Area of effect must be to protect the business.
“Worker Bee’s” are generaly not able to be given Noncompetes.
Noncompetes must be to protect the business, not harm the employee.
In essence, for the aggreement to be good it cant unfairly target the employee simply for leaving the company. Top managment can and do still get them, mid level employees are still asked to sign them, but my lawyer has basicly said to owners and whatnot that there no good.
A 2nd thing thats common is for one company who wants tallent to simply buy off the Noncompete. One cost I heard was 6 months profit the given employee would make.
I do feel a bit sad when the east coast allows slavery, because telling a dentist he cant be a dentist in the US if he leaves company X is basicly slavery.
“…lack of enforceability of noncompete agreements in California”
I live in CA and have signed a non-compete. Is there a link showing evidence of a lack of enforceability? A Cali supreme court ruling? State statute?
thanks,
Re: Re:
California Business and Professions Code, Section 16600. Recognize, however, that there are a few exceptions…but they generally do not apply to those at the low end of the company “ladder”.
Re: Re: Re:
thanks–it doesn’t get much lower than me, but i’ll check it out…
Re: Re: Re: Re:
Give thanks to God that you do not live in Florida.
Why do some of you refer to this as "owning employees"?
Apples and oranges folks. IF YOU ARE PLANNING OR WANT to start a business in the area then don’t sign a non-compete clause. Simple. Work where you want when you want.
I also think a non-compete clause does not affect all businesses the same. You can’t make a blanket statement that it’s bad for all businesses in all areas.
Re: Why do some of you refer to this as "owning employees"?
I never actually intended to do so, and I apologise if my original post failed to make that clear. In certain circumstances, non-compete clauses make a certain amount of sense; it’s the kind that go beyond merely safeguarding trade secrets or other sensitive information and move into depriving rivals of skilled labour that are harmful.
In My COMMONWEALTH......
Men can marry men and women can marry women. Doesn’t that tell you something about how dopey this place is?
Yes, I know California has same sex marriage too, but the voters there will get a chance to (and will) vote it down. We didn’t get that chance in MA because legislature and the homo lobby is strong and as corrupt as they come (or is it cum?)
MA is a sh*t state run by liberals. If you want to see what a liberal society is like, visit here. Leave your kids at home, because in MA we think it’s OK for pervs to be on the streets. Any thinking person (re:conservative) is often shunned here by the so-called great universities and colleges, because they just don’t fit in. The higher eduction in this state is corrupt too.
Re: In My COMMONWEALTH......
Hi, troll! Better luck elsewhere.
No love.
-Me
The corruption starts at the top
I’ve lived in MA all my life and have worked as a software engineer from the start. I think I was seriously close to losing my mind a few years ago working for one of these VC funded companies, until I gained some perspective on how things truly work around here. In short, everything is compeltely corrupt, and these companies aren’t designed to succeed in the way that a Microsoft or a Google would. They’re purpose is to grind along for as long as possible and provide good income and lifestyle for certain individuals. It’s really just an extension of the MA governement.
These companies are all heavy in Marketing, Support and Sales. Not too heavy on engineering – because it’s not really so important. You build a half assed product, and then you bring in lots of sales and marketing folk, with the idea to bring in just enough to sustain yourself. Use the lure of stock options (that will never be worth anything) to keep naive engineers alive with hope. Use non-compete and other mechanisms to keep salaries low. It doesn’t matter, your company, the local politicians, the higher level people in the company – they’re all on the same team as one hand washes the other.
Sooner or later the engineers work for support as the whole operation becomes about keeping existing customers happy and bending to the wishes of sales in order to make new sales. Never is it about changing the world with innovation and solid engineering.
Wouldn't work for Norm
Seems to me that Norm’s problem isn’t the non-compete, it’s that he doesn’t know how to manage a business.
I have no non-compete. The reason is simple: My boss knows that I WANT to work for him, and the environment in which I work is such that I have no desire to leave. Treat your employees right and it’s not a problem.
“Only so much pie”? Well, I suppose that’s true, if you’re too incompetent to grow your business.
BTW: I’m CTO where I work, so I have some idea what I’m talking about from the management perspective. You know something? We’re not worried about competition, because we’re confident about what we’re doing.
Norm ....
A little late … but who said that you get a piece of the “pie” and someone else can’t …. Where did you learn your trade skills?