Why subsidize corporations through noncompetes?

Recently I spoke with a colleague who has been unemployed for 6 months after being laid off from a large publicly traded employer.  He was an individual contributor engineer, working on implementing new features in a fairly mature piece of software; certainly not a position you could consider in any way as having access to strategic or competitive information key to  his former employer.

In his six months of unemployment he has had 3 serious conversations about a new job, all of which were terminated on the first discussion when the prospective employer  found he was covered bya a noncompete.  During this time the state continues to pay unemployment benefits to this individual, does not get income tax revenue from him, and he continues to experience economic hardship.

So why should the state be paying out money, and subjecting a citizen to such stress simply to create a trivial competitive roadblock for this company?

I have seen some arguements that employees can just not sign noncompetes.  That statement is not supported by today’s reality.  At low to mid-levels if an employee trys to either get the non-compete waived or modified, the HR representative will simply tell them “everyone has to sign these”; we have lots of other candidates waiting to take this position.”  At the top levels of the organization employees are typically given severance packages if they are involuntarily separated; providing a means of compensating the senior level employees for the potential of a lengthened search period.

So what is the solution?  The most effective solution would be to follow California and make noncompetes unenforceable.   Other alternatives that are less effective for the state, but would be a move in the right direction might be to:

1) Make noncompetes unenforceable if the company initiates the termination.  There is no reason the state and the employee should be shouldering the burden of unemployment costs if the employer felt the employee was not strategic enough to be retained.

2) Require equity in severance packages across all levels in an organization if a non-compete is to be enforced.

3) Require the employer to finance the ful burden of the non-compete, if they choose to require it, as is it is solely for their benefit.

Why should the state and the citizens of MA be shouldering the burden of the costs for non-competes rather than having the company that benefits shoulder the full economic cost?

2 replies on “Why subsidize corporations through noncompetes?”

  1. You make an excellent point! These agreements can cost the state money. This is an argument I have not heard made. Are you aware of the hearing on October 7? It would be great if you could plan to testify.

  2. I completely agree. Now consider the same situation with a 6 month contract worker where the agency that placed him/her is restricting his/her ability to find work.

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