Non-Compete Agreements - Bad for Any Economy

Non-Competes - Bad for Any EconomyIn today’s Boston Globe, staff writers Callum Borchers and Michael B. Farrell wrote a great article on the topic of non-competes in the Commonwealth of Massachusetts saying, “Governor Deval Patrick on Thursday will propose sweeping legislation to make it easier for workers in technology, life sciences, and other industries to move from job to job by banning the non-compete agreements companies use to prevent employees from jumping to rivals.”

As both an entrepreneur and former technology executive at several publicly held companies in Massachusetts, I have always found non-competes to do more harm then good. They tend to stifle recruitment of top talent, create an unfair atmosphere of “have and have not” employees in large companies with offices in California, and put undue burden on employees. They result in ‘1st day on the job’ situations where employees are deluged by paperwork and blindly ‘agree’ and sign corporate documents without the advice of counsel. This is an unsettling truth given that everyone who has been in this situation knows that these legal documents are 100% written in the employer’s favor.

see_related_blogsWhat I find most interesting are the arguments against doing away with non-competes.  While as a business leader myself I completely agree with not enabling a former employee to spread business secrets, steal intellectual property of any kind, or willfully steal clients, I have found these worries to often be overblown. Most budding entrepreneurs are smart and honorable people, who want to set out with their own new ideas, join another great company, or simply don’t want to work for their old employer anymore for various reasons. Why shouldn’t the Commonwealth of Massachusetts do away with this outdated, non-competitive and archaic law on the books? Does anyone disagree that California and Silicon Valley are eating Massachusetts’s lunch in the most competitive parts of the global economy?

The opposing side’s arguments presented in the Globe article are a complete sham if you think deeper into their position.  For example, the article mentions Andrew Botti, an employment lawyer for companies and former chairman of the Small Business Association of New England.  He is quoted as saying “This has been the law in Massachusetts for 200 years, and I’d say the Massachusetts High-Tech economy has grown pretty well in the past 200 years.” Ask yourself how many discriminatory laws in the Commonwealth have been changed and outlawed as completely illegal and immoral over the same 200 years?  The Civil War ended less than 150 years ago and the Civil Rights Movement is just 50 year old.  Is that really the opposing side’s argument – Because that’s how we have always done it?  Why should 200-year-old rules govern today’s realities? I’m not exactly sure how old the Life Sciences, Biotech, and the High-Tech industries in Massachusetts are, but I’m willing to bet it’s less than 200 years.

What I have seen and heard most recently is striking.  There are a series of businesses in the Commonwealth, small and big alike, who think that just because they were clever enough to hire talented and highly educated employees in competitive fields in the Boston area that they are rightfully and under the law able to act like overseers of the serfs they employ. These companies demand complete authority to ‘allow’ or ‘disallow’ a former employee to gain useful other employment in their own field to which they spent $100,000-$200,000 on to get a degree.

Added to this injury are the positions of corporate counsel and hired gun attorneys. These attorneys believe that since these employees are well educated they can easily seek ‘other’ non-industry employment. This is a clear legal abuse of the law and underscores how outdated it is. Consider the situation of a talented woman with a master’s degree in computer science or biology who is forced by non-compete to work in a different filed such as semi-conductor manufacturing or at a professional services company. Why would we ever think this is good for the economy? Wouldn’t this same woman be better served to help create the next best drug or computer program to help the Massachusetts economy?  Wouldn’t this create more jobs?  It is my belief that in fact it would.

Unfortunately as it stands today we allow big company executives and puny company CEOs to create mini serfdoms of their liking. Employees are either beholden to them needlessly for a job, face a 12-24 month stint in a nonsensical job, or face thousands of dollars in legal costs and possible damages.

The Globe states “Governor Patrick appears mindful of the concerns. His legislation would allow businesses to continue limiting certain activities by former employees, such as stealing clients; nondisclosure clauses, which prevent former employees from talking publicly about private matters, also would be unaffected.”  In addition, he continues “In exchange for banning non-compete agreements, Massachusetts will adopt the Uniform Trade Secrets Act, which prevents workers from taking companies’ intellectual property to other businesses but leaves them free to join or launch competitors whenever they want.”

This is the right approach and no matter which side of the Democrat or Republican aisle you sit on we are all Americans and deserve to pursue our inalienable rights; among which are life, liberty, and the pursuit of happiness.

About Ralph Rodriguez

Ralph Rodriguez is the CEO and Research Fellow of Blue Hill Research and an industry expert across cloud, mobile and security technologies. Ralph brings over 25 years of experience spanning IT management, research and entrepreneurship in a variety of executive CxO roles. Previously Rodriguez served as COO of Nucleus Research, Inc., SVP and Research Director at Aberdeen Group (NYSE:HHS), CTO of Brooks Automation (NASDAQ:BRKS), EVP-CIO of Excelon Corporation (NASDAQ:EXLN) and EVP-CIO of C-bridge Internet Solutions (NASDAQ:CBIS). Rodriguez is currently a Fellow at Massachusetts Institute of Technology (MIT) and holds a Sc.D. in information systems and a graduate of the management program GPMD-MBA at IESE Business School, Barcelona Spain. Rodriguez is a veteran of the Persian Gulf War.
Posted on by Ralph Rodriguez

One Response to Non-Compete Agreements - Bad for Any Economy

  1. Of course the arguments are a sham, and EMC should be ashamed of itself. After all, EMC has a large presence in Silicon Valley. Why would it do that if noncompete terms were so damaging to the company?

    Since the Governor has said California is being used as a model, I posted a comparison between California law and the proposed Massachusetts law here:

    http://noncompetehelp.com/california-massachusetts.html

    There are a number of differences and I have attempted to illustrate how they play out in different factual situations.

    While the proposal certainly moves Massachusetts forward in invaliding some noncompete terms, the Governor may find the failure to fully adopt California’s ban on noncompete restrictions results in little, if any, headway against Silicon Valley.

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