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Non-Competes As the DRM of Human Capital 193

Posted by kdawson
from the free-flow-of-people-and-ideas dept.
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."
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Non-Competes As the DRM of Human Capital

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  • by WoodstockJeff (568111) on Thursday December 06, 2007 @10:01AM (#21597033) Homepage
    Non-compete has existed for decades, long before DRM. It would make a lot more sense to reverse the comparison, but some people have no concept of what came before their own awakening to the ways of the world...
    • Hear! Hear! (Score:3, Interesting)

      by Per Abrahamsen (1397)
      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 ag
      • Re:Hear! Hear! (Score:5, Insightful)

        by Alsee (515537) on Thursday December 06, 2007 @12:55PM (#21599719) Homepage
        The strongest arguments against DRM are not economic, but moral, and concerns the loss of consumer rights.

        Trying to define the "strongest" arguments is itself an additional layer of value judgment, but setting aside that, one should not underestimate the various economic arguments against DRM.

        Just to cite one example, the recording industry slit their own throats when they got the Audio Home Recording Act to legislatively mandate DRM be included in all new audio recording devices. It strangled the audio hardware industry, which in turn strangled music sales. The Audio Home Recording Act's imposed DRM in Digital Audio Tape and in the Minidisc and in all technology for an entire decade. It effectively exterminated all new devices and strangled hardware sales and strangled music sales for an entire decade. People sat around holding onto their CD collection and NOT buying (or re-buying) music on DAT formate and Minidisc formate or anything else, because no one owned or wanted a DAT player and no one owned or wanted a Minidisc player or anything else. The DRM-extermination of all hardware and formats since the CD is one of the major contributing factors in declining Recording Industry sales numbers.

        The hardware industry was economically devastated and by direct follow-on the content industry economically harmed by DRM for an entire decade. It was only with the introduction of the MP3 player that ANY economic and technological advance has been possible in the audio hardware industry (and the far far too lagged sale of MP3 content), and the sole reason it was possible for the MP3 player to break that DRM-imposed economic wasteland is that the MP3 player slipped through a loophole in the Audio Home Recording Act's DRM mandate. The sole reason that we are seeing economic and technological stimulus in the hardware industry... and the all too delayed stimulus in music industry innovation and sale of old and new content in MP3 format... is exactly because of the escape from the negative economic effects of DRM.

        I certainly agree with the "moral" consumer arguments against DRM, but don't let the situation sound like some wishy-washy "moral" anti-DRM battle against pro-DRM economics.

        DRM is anti-consumer.
        DRM is anti-technology.
        DRM is anti-economic.

        -
    • by jesdynf (42915)
      But DRM is understood to be worthless, contemptible, and without value. Now that we've come to an understanding about that, it could be considered worthwhile to compare it to other things that exist, to see if our new understanding about one aspect of our world has any implications on other aspects of it. So the comparison is working in the right direction after all.
    • Seriously. The reason it took Morimoto a long time to open up a restaurant in NYC was because his former restaurant (for which he was not the head chef) had a non-compete clause. He could not open up a restaurant within NYC for a specified number of years. So he opened his flagship restaurant in Philadelphia, and only recently has opened up a restaurant in NYC.
    • by Alsee (515537)
      Right...
      We should only use examples and ideas about cars to think about and say things about rocket ships.
      We can never use examples and ideas about rocket ships to ever say anything new about cars.

      Sheesh, kids these days don't even know cars existed before rocket ships.

      -
  • Florida (Score:2, Interesting)

    by Jaysyn (203771)
    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.
    • Re: (Score:2, Interesting)

      by ShawnCplus (1083617)
      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.
      • He is saying that state law supersedes the contract, not that the contract only applies within his state.
      • by Alsee (515537)
        I don't think it's defined per state.

        Yes, state by state.
        Some states will enforce non-compete clauses, others will not (on the basis that an employer cannot deny you the right to make a living in your skilled profession, rendering the non-compete clause null and void).

        I'm not an expert in the subject, but a do not "solicit any of their clients for 2 years" is less severe than some other non-compete contracts, and that clause might be upheld in some cases and in some states that might nullify a contract whic
    • Re: (Score:3, Informative)

      by negative3 (836451)
      How does right-to-work laws apply to non-compete agreements? To quote wikipedia, right-to-work laws "prohibit agreements between trade unions and employers making membership or payment of union dues or 'fees' a condition of employment, either before or after hire." Unless Florida has added more to the concept of a right-to-work law.
  • Non-compete (Score:4, Interesting)

    by canuck57 (662392) on Thursday December 06, 2007 @10:11AM (#21597173)

    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.

    • by swillden (191260)

      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's going a bit far. If you quit, why should they pay you severance? The wages during the non-compete period I could see, but what's to prevent an employee from quitting specifically to exploit this? Hot dog! My employer had me sign a four-year non-compete agreement, time for me to go get a master's degree!

      Your suggestion is not well thought-out, unless your purpose is really to say "non-competes are okay as long as we make sure that no sane company would ever ask anyone to sign one".

      • by Bert64 (520050)
        And no sane person would ever sign one...
        I mean you work in a given industry doing a given job, if you move companies chances are your going to be doing the same or a similar job because thats where your skill set lies. A no compete clause, if even enforceable (they are illegal in some countries, restriction of trade) basically prevents you getting a job doing whatever it is you do for the duration of the clause.
        Therefore, an employer making you sign such an agreement should have an obligation to pay you fo
        • by zotz (3951)
          "I mean you work in a given industry doing a given job, if you move companies chances are your going to be doing the same or a similar job because thats where your skill set lies."

          Hey! You wanna join the band as drummer? Sure, here, sign this non-compete.

          You mean I can't work as a drummer anywhere for 5 years if you kick me out of the band or if it doesn't work out and I leave?

          Right! Everyone does it!

          all the best,

          drew
      • There's no sane reason to take away someones way to make money.

        The only response to that is by a non-compete reversal: If the company deems that you are too valuable, they SHOULD pay you to not work. After all, it is a contract, which means for a certain loss, there almost always is the opposite gain in another way.

        It really comes down to this: Lump it or leave it.
        • by Alsee (515537)
          The only response to that is by a non-compete reversal

          Lets see... yada yada yada.... according to this clause if I am terminated or I quit I cannot do this same job working for someone else for the next X years. OKEY DOKEY! No problem! I'll sign it right away, I'll just add this other clause in here:
          If I am terminated or I quit then your company cannot hire any other programmer during said term.

          Okay, I've signed it. Now you sign it too and we've got a contract.

          -
      • Re: (Score:3, Informative)

        by canuck57 (662392)

        Your suggestion is not well thought-out, unless your purpose is really to say "non-competes are okay as long as we make sure that no sane company would ever ask anyone to sign one".

        Having been under a few, and had to fight one, and won with prejudice I can can say most non-competes are rope around your neck documents. Often they want you to sign after accepting the job or change rules 3 years into employment. Puts people in the situation of having to comply or be on the outs. Fortunately where I live,

      • Re: (Score:3, Insightful)

        by apt142 (574425)

        That's going a bit far. If you quit, why should they pay you severance? The wages during the non-compete period I could see, but what's to prevent an employee from quitting specifically to exploit this? Hot dog! My employer had me sign a four-year non-compete agreement, time for me to go get a master's degree!

        I don't see a problem with people exploiting this. After they've done it enough times, it'll become obvious that they are a scammer and then will become either non-employable or unfit to work with t

      • > That's going a bit far. If you quit, why should they pay you severance?

        Because the value of you *not* working for the competition is more worth to the company than the money in question naturally. It system is actually in use for the upper levels of management, where the people are too smart to sign a non compete agreement with no compensation. It is a significant part of what's behind Golden handshakes.

        The problem is that most engineers are lousy businessmen, and thus willing to sign away something
      • by AusIV (950840)
        I think it's reasonable for a company to have a contract that is a non-compete if the employee decides to leave and a non-compete + compensation if the employer dismisses them. It isn't reasonable that an employee should be able to get a job for a few months, then quit and have the employer pay them for years because of the non-compete agreement. If an employee in a non-compete decides to leave, presumably they have something else in mind.

        On the other hand if the employer dismisses the employee, they can'

  • Don't sign them! (Score:4, Insightful)

    by FredDC (1048502) on Thursday December 06, 2007 @10:12AM (#21597179)
    DRM ? Don't buy it!
    Non-compete? Don't sign it!

    It's that simple... If a company wants you to sign such an agreement, it says alot about the corporate culture of that company. It means management thinks it completely owns the people who work for them.

    It could also mean some people have already left the company to work for competitors and they're trying to protect themselves from this happening again. That tells me it's probably not a nice place to work at, if people leave to go and do the exact same job somewhere else!
    • by aaarrrgggh (9205)
      Most non-compete agreements are an HR issue more than a real management initiative. Having been on both sides of the argument, up close and personal, I have to say that I prefer California's interpretation. At-will employment and non-compete agreements have no place together.

      Now, if an employer and employee have the expectation that it is a lifetime engagement and not something terminated at the whim of a quarterly profit projection, a non-compete agreement is much more logical. Not a whole lot of indivi
      • by Snocone (158524)
        Here in British Columbia the courts have held that a signed non-compete agreement can only be enforced for as long as the company pays the full termination salary of the non-competee. If they won't pony that up, then they can't stop you earning a living with your skills as you see fit.

        Far as I'm concerned, that's the PERFECT legal interpretation of a non-compete agreement. You can pay me full salary to do nothing, or you can piss off and stay out of my way; hey, sure, take your pick, ex-boss!
    • DRM ? Don't buy it! Non-compete? Don't sign it!
      And then, if all "intellectual property" that is sold is DRMed, and all jobs require you to sign a non-compete, you're screwed.
    • by attam (806532)
      "dont sign" is not always an option. my first job out of school was at a proprietary trading firm where we did not have non-competes. at the end of my second year, we were presented non-compete forms which we were REQUIRED to sign in order to have our bonuses disclosed to us. in that industry, your bonus can be anywhere from 50-90% (or more) of your total pay, so I would have been forgoing a lot of cash by not signing. pretty much extortion, yes, but thats the biz.
  • it's all an example of the corporatization of our creativity and our culture

    it's sort of the opposite of communism, where it was believed that by expelling selfishness as a motiviation in life, all will be enriched. when in reality, communism just makes all of society as poor as its poorest member, as selfishness is a motivation to succeed and do better, and this enriches society in indirect ways

    meanwhile, business law thinkers know that innovation is the wellspring of all of their profits. so the idea is t
    • Absolutely, moreover, if you manage your capitalistic corporation in a communist way (everyone except the leaders get crappy pay, and they better have to thank us), people either don't want to innovate or don't work to innovate FOR YOU.

      As said by Gibbons in Office Space: "It's a problem of motivation, all right? Now if I work my ass off and Initech ships a few extra units, I don't see another dime; so where's the motivation?"
  • by nickovs (115935) on Thursday December 06, 2007 @10:29AM (#21597433)
    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!

    • by Rogerborg (306625)
      And isn't it peculiar how when you leave FutureTek Inc to join TeknoFuture Inc, that your new employer never cares if you have - or respected - a non-compete with your previous employer, while at the same time falling over themselves to make you sign one with them.
  • I don't know that you can link the difference between Boston and Silicon Valley to enforcement of non-compete agreements. Here's some other equally likely candidates:

    San Jose [meteo.fr] has better weather than Boston [worldweather.org]. Maybe people with a choice of where to work choose a nice place to do it.

    San Jose [salary.com] pays programmers slightly better than boston [salary.com]. Maybe people like to be paid more.

    Why are people always so eager to boil complex situations down to a variance in a single variable in an attempt to prove a point?
    • by Anonymous Coward on Thursday December 06, 2007 @10:59AM (#21597885)
      Yeah, because those stupid statisticians at Stanford etc. don't consider other variables when they do their statistical analysis

      For example - from the article.
      Gilson looks at a few of the other possible explanations for the difference and shows how they're all lacking, leaving the difference in noncompetes as being the key difference between the two regions in terms of the flow of information and ideas leading to new innovations.

      You can even follow through and read the sources linked from the original article
      eg.http://papers.ssrn.com/sol3/papers.cfm?abstract_id=124508

      Why are people on the internet always so eager to think that highly qualified economists at world class Universities will have failed to consider the one blindingly obvious thing to consider about a situation, simply based on reading a one line summary of the relevant paper, in order to prove some clearly stupid point?
      • by pclminion (145572) on Thursday December 06, 2007 @01:11PM (#21599963)

        Why are people on the internet always so eager to think that highly qualified economists at world class Universities will have failed to consider the one blindingly obvious thing to consider about a situation, simply based on reading a one line summary of the relevant paper, in order to prove some clearly stupid point?

        I call it the "101 phenomenon." It goes something like: "Any moron learned in physics 101 that that's not possible..." Or "This is statistics 101 stuff, what a bunch of idiots..."

        People take course XXX 101 and think they are now experts. When in fact, the true experts took not only 101, but 201, 301, 401, and probably all the way to "40001." And then they TAUGHT each of those classes. And then they wrote a book on it. They know all the little places where XXX 101 actually made simplifications or glossed over complex topics, or made statements that were NOT strictly true but did so for the sake of teachability. In other words, they know so much more than you do that they already thought of your petty objection within the first microsecond and addressed it not much more than a millisecond later. They counter your objections in their sleep, with no conscious effort -- literally.

        Usually the hard science is left out of the reporting. That doesn't mean it isn't there. But everybody loves to be an expert just because some journalist worded something badly or took it out of context. If your exposure to a topic is only "101 level," you really have no clue at all and certainly no basis to make a meaningful criticism.

      • by Alsee (515537)
        Why are people on the internet always so eager to think that highly qualified economists at world class Universities will have failed to consider the one blindingly obvious thing

        Why not?
        The highly qualified biologists at world class Universities have all failed to consider the [various] one blindingly obvious thing that proves evolution wrong and impossible.

        Chuckle.

        -
    • And maybe the corps in Boston benefit in hiring people who cannot afford to go to San Jose and treating them like crap.

      Somehow, it always falls down to a simple balance: do the people accept a job because it is a good one or because they have no other choice?
    • Having worked almost all of the 19 years of my professional career in Boston, only once have I ever been asked to sign a noncompete agreement. Before signing it, I checked with a few professionals (including, informally, a lawyer) and was told that it could only apply if I voluntarily left the employer with whom I had the agreement to go to a competitor, and it only applied for 3 months anyway.

      Noncompetes just aren't common in Boston.
    • by Surt (22457)
      Why are people always so eager to boil complex situations down to a variance in a single variable in an attempt to prove a point?

      They have an agenda, and it works?
  • Human nature (Score:2, Insightful)

    by Ghubi (1102775)
    People don't like to compete. People like to win. People are forced to compete in order to win. Competition brings out the best in people. Given a choice between competition and a guaranteed win, people will almost always go for the guaranteed win.

    Patents, non compete agreements, and organized crime are all designed to provide an automatic win without the need for competition.

  • by zappepcs (820751) on Thursday December 06, 2007 @10:49AM (#21597721) Journal
    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.
  • Huh?

    Advice for EVERYONE: Don't sign these things, ever. Never, ever sign a non-compete. Just don't do it. I did and luckily it wasn't a super-long term. Also, if a company forces you to use a non-compete, find out BEFORE accepting the job offer. If a company that you've been working for comes along and asks you to sign it, call your lawyer immediately.

  • Writing annoyingly bad titles is an art form onto itself. What'ya think, can my subject line compete with the article title, or should I throw in a ", says industry analyst" for good measure?
  • Every "non-compete" agreement that I have ever signed or given someone to sign is first and foremost a statement of ethics. The employee understand they are going to have some valuable materials at their disposal and to either share these with a competitor or to run out and start a business using them would be unethical. And possibly lead to legal sanctions.

    The second part is assignment of inventions which is almost alway completely separate. Or at least it should be. If you are employed in a "creative"
    • by Surt (22457)
      Wow. Just wow.

      The second part is assignment of inventions which is almost alway completely separate. Or at least it should be. If you are employed in a "creative" capacity where it is your job to come up with new things, do you honestly believe that you should have the right to (a) come up with something new that is within the scope of your job, (b) quit, and (c) form a new company to exploit this new idea?

      If it's a non-patentable idea, then absolutely, yes. If it's patentable, there's no problem to begin
  • ...unless you're some key scientist at a major corporation.

    For "average" techies who have to sign them, how do they know where you go to work when you quit and how much effort will they put forth to actually enforce it?

    I work for a small consulting company (20 people) and they made new guys sign non-competes and tried to get existing employees to sign them (I said sure, for $10k consideration and a full salary and benefits guarantee during my non-compete period, they said not to worry about it then).

    But if
  • It's all BS (Score:4, Informative)

    by joeyg1973 (1199299) on Thursday December 06, 2007 @11:50AM (#21598665)
    I have dealt with this before. My lawyer told me that only one or 2 of these cases have ever made it to the court. Judges throw these cases out as soon as they see them. Your previous employer cannot tell you where you can and cannot work. It is taking away your ability to earn a living. I had worked for a company for 2 years, went to their direct competitor for more money for a year, then came back to the first company. Both times I got a very official and long letter from the former company's law firm chastising me about the non-compete and asked me to respond within a certain time limit to some questions in the hope that I would write something that was actionable. Both times I ignored the letters, the time limit came and went, and nothing further happened. I have a friend who was in a similar situation and his former company decided to press the issue. It never made it to court, judge just threw it right out. I believe that the only way that a non-compete can be enforced is if the company can show significant monetary damage has occurred. Working for whomever you want is still perfectly legal in the USA!
  • I see at least one essential difference between DRM at non-competes. Where both non-competes have a limited lifetime and thus eventually will stop holding you back, DRM makes your content inaccessible for _ever_.
  • No person shall..

    a) Contest a plaintiff who sues based on a non-compete agreement

    b) Hire a lawyer to get advice about a non-compete agreement

    c) Traffic in information about non-compete agreements or laws that concern non-compete agreements (including this law)

  • Does Washington state enforce non-compete agreements? What's it like at Microsoft and Amazon compared to Silicon Valley?
  • To contrast the horror stories of noncomplete clauses, the company I work at (large insurance company) has written into their contract that anything I do at home is explicitely mine, and if I want another job after this one, I am only restricted from using customer data and source code from here when I go there, which is perfectly reasonable.
  • My take on these is that if I leave on my own to seek a better job I might be subject to the terms of such an agreement. OTOH, if I'm laid off of fired for some BS reason (such as to save money), I would consider any such agreement I might have signed null and void.
  • by Wansu (846) on Thursday December 06, 2007 @01:18PM (#21600071)

    One outfit I interviewed with was wanting me to sign an agreement which stipulated, among other things, that I not work for any competing companies for a year after termination of employment with them, even if they fire me. I balked. They withdrew their offer. A few years later, they shuttered their operations here.

    Is this enforceable? I don't know. But the way I look at it, if they're doing stuff like this during the interview process, what will they be like later?
  • by BrianRagle (1016523) <bragle@@@gmail...com> on Thursday December 06, 2007 @02:10PM (#21601119) Homepage
    According to my wife's business law class, a NCA is largely enforceable only under certain conditions. Market location, trade secrets, and client base are the major factors. For example, if I work for a small advertising shop in Florida, which only works within the Florida market, and I move to Washington (state), an NCA would be nonsense, even if I signed it. It would prevent a reasonable expectation to earn a living. Now, if I worked for Microsoft (as if) and left to work for Apple (yay!), an NCA would probably be enforceable.

    One thing I have noticed is NCAs being employed in places you wouldn't expect them. My son went to work for a local paintball field as a game helper and referee. This is a small-time outfit operating out of some guy's house. He had to sign an NCA. He showed it to me and I just laughed.

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