Non-Competes Can Hurt Your Hiring

In yesterday's Boston Globe there was an article, Start-ups stifled by noncompetes, which had a wonderful quote (go to the second page):

Luckily, we have an academic here in Massachusetts who has dedicated the past few years to looking at the impact of noncompetes. Matt Marx, who recently joined the faculty of MIT’s Sloan School of Management, has made three important findings about what noncompetes do.

First, he looked at Michigan. During the decades of that state’s greatest economic growth, from 1915 to 1985, noncompete agreements were illegal. In 1985, the law changed – and Marx found that inventors were suddenly less likely to move from one company to another, and specialized inventors were much less likely to move. (I’d observe here that the last 25 years in Michigan have not been a good era to emulate.) Marx has also surveyed inventors in the speech recognition industry around the country and found that about 25 percent of those who were bound by noncompetes often took “occupational detours’’ into other technology sectors reluctantly, to avoid getting sued.

Finally, Marx’s research has found that employees bound by noncompetes tend to take jobs with large companies rather than small start-ups – in part because they believe that a larger company might be able to defend them against a potential lawsuit.

Holy moly! I knew I didn't like non-competes, but I had no hard data on how a non-compete can work against you in hiring and in innovation.

FYI: Scott Kirsner, the columnist, has a blog, Innovation Economy, and several other articles about non-competes. See Should We Make Non-Compete Agreements Illegal in Masssachusetts? as just one.

If you are a hiring manager, learn about your non-compete agreements and see if they are preventing innovation in your organization or preventing you from hiring the people you want.

My non-US readers: are there non-competes where you work? Are they enforced?

5 Replies to “Non-Competes Can Hurt Your Hiring”

  1. In government circles, government employees try to sole source contracts instead of having competitions. The reason is that having a competition is not any fun and usually produces a bad outcome.

    Given the Federal Acquisition Regulations – the competition usually does not award a contract to the firm that produces the best product. The award almost always goes to the firm that wrote the best proposal. There is a difference among the two.

    The most desired outcome of a competition is to do it in such a way as to not cause a protest from a losing firm. To avoid these, you check off all the boxes in the most stringent process available. Making stupid decisions is not grounds for a protest, but failing to dot an “i” or cross a “t” is grounds for a protest.

    The system, the regulations are the cause of the pain and the reason for not competing contracts.

  2. In the US there has been an increase in the enforcement of non-competes (recent MS/Google tiff), but most states really don’t enforce them. I believe that MD and CA are the states that are more prone to enforce. Tip is to take the vague ‘non-compete’ that is boilerplate and WAY TOO BROAD and make it specific to the product that you are working on.

  3. http://venturelaw.blogspot.com/2007/01/non-compete-clauses-canada-vs-us.html
    This article provides a good overall discription of how non-compete laws differ between Canada and the US. In short, non-compete restrictions are enforced by Canadian courts for employees in fiduciary positions (senior execs), even if there isn’t an explicit non-compete contract. On the other hand, courts tend not to enforce non-compete restrictions for general employees, even if its written in a contract, but will enforce a non-solicitation agreement.

  4. I live in Denmark(Europe) so I had to go wiki “non-compete” and I am quite horrified by the power this gives the employer. My current company has this restriction which is quite common in denmark:

    “For a period of 6 months after resignation, the employee cannot pursue a position at any company affilited with the current company in the field of your work…”

    This is basically what is says. However, in order to inforce this policy, the company must pay 50% of salary to the employee for those 6 months.

    In most cases I believe it is more like @Karen Siwak states, here in Danmark as well.

  5. I have seen the same sort of agreement in the UK, however I am not sure its enforceable in law. Some years ago there was a judgement in a court case where the judge ruled that it was the legal right of any person to work for anyone who would employ him, thus making such agreement unenforceable. however I never heard where this case went after that, whether it was appealed or whether companies found ways round it.

    There is a more general principle in English law which goes something like an employee does owe a duty of care to their employer, and this concept could be applied to people leaving one company and taking intellectual property to another. So taking these concepts together it may be you can’t enforce a no complete as such, but you can sue if IP is transferred, and most companies will have to be careful about how they use staff poached from other companies.

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