Noncompete Agreements Simply Slow the Slide of Corporate Dinosaurs Into the Tar Pits

Earlier this week, Governor Deval Patrick indicated that he will move to ban enforcement of noncompete agreements in Massachusetts.  This is one part of a larger piece of legislation designed to promote innovation – job creation – in the state.

Said Greg Bialecki, the Commonwealth’s Secretary of Housing and Economic Development and someone to watch in Massachusetts politics: “We feel like noncompetes are a barrier to innovation in Massachusetts”.

Bialecki is correct. Noncompete agreements suppress wages, stifle innovation, and hurt economic growth. They serve to protect entrenched incumbents from having to compete for talent in a free market.

How do they do this? They restrict employee mobility. They can prevent people from working in their chosen fields for a year or longer after they leave an employer.

When I raised venture money and started a software company called Acentas, I did not ask employees to sign noncompete agreements. My belief was that we should compete for the best talent on the merits of our company culture, on the merits of the work we were offering, and on the merits of our ideas. Let the best employer win.

Noncompete agreements can be ridiculously broad and restrictive. I have been subject to one. Here, in part, is how it read:

“Employee will not compete  . . . directly or indirectly anywhere in the world . . . in any . . .  business engaged in or contemplated . . . in any . . . capacity or manner whatever.”

 Which activities were prohibited?

”Being associated with any person or entity as owner, partner, employee, agent, consultant, director, officer or stockholder.”

So, if this company contemplated being a bank, I would be prohibited from working for a bank, in any capacity, anywhere in the world, for a period of one year, no matter why I was leaving the company. If it contemplated the wealth management business, I would be prohibited from working in wealth management for one year, in any capacity, anywhere in the world.

Leaving your employer shouldn’t mean taking the next year off, without compensation. But that’s exactly what it could mean, today, if you take a job or start a company in Massachusetts.

Proponents of noncompete agreements may try to confuse the issue by conflating noncompete agreements with nondisclosure agreements. Eliminating noncompetes doesn’t mean you’ll be able to take trade secrets and customer lists to a new employer, and to suggest differently is a canard.

If a better company offers you a higher salary or more interesting work, you should be free to go there – tomorrow. You, and our state’s economy, will both be better off.

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Read more about the legislation, including the worthy Global Entrepreneurship in Residence idea, here: http://j.mp/1jw8lVG. BostInno compiled some great responses from the entrepreneurial ecosystem to Patrick’s plane here: http://j.mp/PYBiiV