Non-Competes As the DRM of Human Capital

An anonymous reader writes "Techdirt has an interesting look at how non-compete agreements are like DRM for people, doing just as much damage to innovation as DRM has done to the entertainment industry. It includes links to a lot of research to back up the premise, including some studies showing that Silicon Valley's success as compared to Boston's can be traced in part to the fact that California does not enforce non-compete agreements."

Florida

[Jaysyn]

Florida is great. I'd have to actually leave & take my current employer's customers with me for them to have any chance of enforcing a non-compete here. I think this holds true in most right-to-work states.

Non-compete

[canuck57]

I really don't have a problem with extened non-competes with in some limits.

But then the company also has to pay your wages in full during the non-compete period and a generous severance beyond that period.

That is, you allegiance or commitment to any non-compete ends when the pay cheque ends.

Re:Florida

[ShawnCplus]

I don't think it's defined per state. My non-compete says that I can't solicit any of their clients for 2 years for any work. As long as I don't snatch up someone they've been working with the non-compete doesn't inhibit any of my actions.

Hear! Hear!

[Per Abrahamsen]

That non-compete agreements are damaging is well known to anyone with any economic understanding, a market economy is based on competition. If you take that away, you are left with something as even worse than the old communist economies. A planed economy without the planning part.

Whether you call it anti-compete agreements, guilds, trusts, or five year plans, the result is the same. Short time gains for a few, long time economic stagnation for everybody.

Anyone wanting the state to enforce non-compete agreements is either deeply corrupt, or deeply incompetent. There is no third possibility.

The economic case against DRM is far less clear cut. The strongest arguments against DRM are not economic, but moral, and concerns the loss of consumer rights. And are as such much weaker, going against economic theory is just stupid, going against a specific moral theory is obviously a value judgment.

Tragedy of the commons

[nickovs]

It seems to me that non-competes are a classic example of what economists refer to as the Tragedy of the commons [wikipedia.org]. For any individual company it makes sense to get your staff to sign a non-compete, to stop them taking elsewhere the knowledge you've paid them to acquire. For a technology cluster as a whole (e.g. Silicon Valley or Route 128) the overall effect is negative due to stagnation in the workforce. The problem is that existing firms don't have an immediate incentive to worry about stagnation in start-ups; they are more concerned about loosing good employees to their competitors.

The Tragedy of the Commons crops up all over the place - the most frequently seen cases are things like over-exploitation of natural resources. Generally there are only two ways to deal with the problem; one is to legislate against the behaviour that is detrimental in the longer term and the other is to convince the players to take a longer term view. What's interesting about this debate is that there are people who do have a longer-term interest as well as some sway over the companies: the venture capital firms that invest in not just one start-up but many start-ups over a period of time. They have an incentive to make the environment the best for all companies to thrive. I hope Bijan Sabet manages to convince a few more of them!

This is one of those oddities that should be

[zappepcs]

taken care of in the manner of one trade secret at a time. Every time that you, as an employee, are exposed to information deemed a 'trade secret' then the employer should have you sign a specific agreement on THAT piece of information. The catch all non-compete is like agreeing to binding arbitration. Both are overly broad, and designed to give the other party the upper hand in all cases where the future brings conflict. Making such a promise is no more enforcible than the marriage vows many people take. Marriage was once viewed higher than today, but today, you can get a divorce with little or no real effort. The same should be for any particular 'business agreement' where money has not exchanged hands.

That is to say that if a court can find in favor of the non-compete agreement, you should be able to get a divorce, or sue for compensation. I do not know if this has been tested, but I'd bet a couple of court cases is all that would be required to break that camel's back.

Re:Why not..

[bhmit1]

I'm an independent consultant, so our equivalent is the "work-for-hire" clause which says everything I do belongs to them. I typically start the statement of work off on my paper/template that says the following:

Client appreciates the value of reusing works created by Consultant at previous engagements and understands the need for the Company to reuse non-confidential portions of works created during this engagement with future clients. Any work, including but not limited to, patentable works; designs; drawings; specifications; models; software; source codes; and object codes, created by Consultant during this engagement shall be provided with a non-exclusive, perpetual, worldwide, royalty-free license, with no rights to sublicense, to use in the context of this engagement to the Client at no additional cost to the Client.

Translation: they get the knowledge I developed at other customers if other customers get the benefit of knowledge I developed with them. When HR/legal tries to change the agreement, I start off by saying these are the terms I use when dealing with IP. If they push harder, I tell them that I'm willing to use their terms, but:

• My rate will increase because I can't use this work elsewhere and could potentially be working at another client where my work could be reused and make me more valuable.
• My time estimates will at least double since I have to recreate everything I've done elsewhere that I had previously planned on using for this project

When companies realize they get a benefit from not using non-competes, they quickly change their mind, and so far, not one has forced their version of the IP agreement on me.

"that's not what we're intending"

[Per Abrahamsen]

> The HR people all invariably say "that's not what we're intending"

That one is particularly easy, cross out the relevant part of the contract, and write "what they were intending" in the margin.

If have never personally experienced problems with modifying the contracts, usually the "hiring officer" will accept them. The same laziness that makes most people accept the outrageous contracts, also works on the people on the other side of the fence.