There Are Several Dimensions to Non-Competes

Employers, large and small can be damaged by employees moving to the competition. When this happens, it is not only the “employers” that are damaged, but also fellow employees, co-workers and team members who may be damaged by both losing the expertise of the co-worker and by potential weakening of the overall company effort in that business area. I have had to sign non-competes and have been on both sides of this issue throughout my business and technical career, as an employee and employer.

When an employee goes to a competitor, the competitor accrues the advantage of the training and experience that employee gained at the original employer, often at great expense to the employer. The employee can have initmate knowledge of customers, marketing methods, work processes, other employees and many intangible corporate assets not covered by strict IP rules such as patents, copyrights or trade secret laws. This knowledge may be unfairly transferred to another company, even if it is not illegal to make such a transfer.

If an employee does not want to be bound by a non-compete, he doesn’t have to sign it and can decline to work for a company. If a non-compete is such an onerous thing, in a competitive market those companies requiring them will find it harder to recruit employees or have to pay more to get them. This turns into an employee advantage.

I think eliminating non-competes weakens companies and makes it harder for them to make certain tyoes of investments. I would not want to base broad legal positions on the business practices of the venture capital industry. In fact, in every venture capital funded company that I have worked for or with, the VC’s were the first to require non-competes, so whoever is reporting their institutional displeasure with the concept is perhaps running into some institutional marketing on their part.

Non-competes have a scope that can be limited in time, commercial activity, technical discipline, recruiting (personnel raiding) and other dimensions. Companies have a right to tradfed-off compensation versus employment restrictions, and employees have a right not to sign such agreements.

We live in a state where the Governor is about to sock all of us with a hugh tax increase, and make the state less competitive and more difficult to work in. Frankly, Senator, I always admire your effort and focus, and the way you approach your material (as with this forum). However, I’d suggest that this is not a crisis topic. The Governor’s tax increases are. I predict they will unleash a backlash that will set community and state and business relations back twenty years. It might be better for our business environment to focus on that iissue.


Published by charliefoskett

Arlington resident and Town Meeting Member

3 replies on “There Are Several Dimensions to Non-Competes”

  1. >I think eliminating non-competes weakens companies and makes it harder for
    > them to make certain tyoes of investment

    This is all totally speculative and there is no reason for that. We have states with non-competes that we can look to for actual data. It would strengthen your argument no end if at some point in your text you could say “and see what happened in California. Non-competes have put their businesses on the ropes.” However you cannot say this because it did not happen. What conclusion do you think we should draw from that?

  2. I concur with Fred that there’s little evidence I’ve seen that NCAs benefit anyone (except lawyers). One thing I will note that telling prospective employees that they are free to refuse taking a job is a non-starter in today’s economy, in which only elite performers have the luxury of choosing where to work. It’s like Walmart saying it doesn’t offer health insurance, so take it or leave it, pal.

    Rather than repeat myself, please see my brief reply regarding John Green’s similar attitude in Chris Peer’s thread.

  3. Charlie, thank you for this thoughtful response. I agree this is not a crisis topic! But we try to keep some long term issues going while dealing with the ever-present crises.

    There are indeed a lot of dimensions to how reasonable non-competes should be shaped. The problem in practice is that many companies use very over-broad agreements and employees often are effectively unable to contest them. That’s why I’ve developed the perception that we should do something to fix the situation, although I agree it is not a crisis.

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