Are non-compete clauses anti-capitalist?

[Bitek]

NYT article discussing the rising use of non compete clauses in employment and it's potential damage to free markets.

Noncompete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign...


“There has been a definite, significant rise in the use of noncompetes, and not only for high tech, not only for high-skilled knowledge positions,” said Orly Lobel, a professor at the University of San Diego School of Law, who wrote a recent book on noncompetes. “Talent Wants to be Free.” “They’ve become pervasive and standard in many service industries,” Ms. Lobel added.

Because of workers’ complaints and concerns that noncompete clauses may be holding back the Massachusetts economy, Gov. Deval Patrick has proposed legislation that would ban noncompetes in all but a few circumstances, and a committee in the Massachusetts House has passed a bill incorporating the governor’s proposals. To help assure that workers don’t walk off with trade secrets, the proposed legislation would adopt tough new rules in that area.

Supporters of the pending legislation argue that the proliferation of noncompetes is a major reason Silicon Valley has left Route 128 and the Massachusetts high-tech industry in the dust. California bars noncompete clauses except in very limited circumstances.

“Noncompetes are a dampener on innovation and economic development,” said Paul Maeder, co-founder and general partner of Highland Capital Partners, a venture capital firm with offices in both Boston and Silicon Valley. “They result in a lot of stillbirths of entrepreneurship — someone who wants to start a company, but can’t because of a noncompete.”

Backers of noncompetes counter that they help spur the state’s economy and competitiveness by encouraging companies to invest heavily in their workers. Noncompetes are also needed, supporters say, to prevent workers from walking off with valuable code, customer lists, trade secrets or expensive training.

In of the opinion that they are damaging to free markets and flow of labor. Even the backers defense basically cede this. Their response could be restated as "we don't want to have to pay our workers enough to stay, so well just make it impossible to find another employer."

I'm struggling for any reason to justify these other than greed or protection of uncompetitive companies. Hardly seems worth any damage to innovation or flow of ideas.

 

[Cozarkian]

In of the opinion that they are damaging to free markets and flow of labor. Even the backers defense basically cede this. Their response could be restated as "we don't want to have to pay our workers enough to stay, so well just make it impossible to find another employer."

In struggling for any reason to justify these other than greed or protection of uncompetitive companies. Hardly seems worth any damage to innovation or flow of ideas.

Like anything they are subject to abuse, but in some limited situations, they help improve the market by providing insurance to companies that seek to invest in their employees.

No company wants to hire a low-level employee, train them into a skilled employee, and then have them run off to join a competitor or start their own company. Without non-compete clauses, companies have no means to protect against this. Already-trained employees become extremely valuable and companies bid for their services driving up wages. The companies compensate for these increased wages by offering even lower wages to low-skilled employees or refusing to pay for educational or licensing courses.

The low-skilled employees are then forced to save to finance their own training at a low wage. Those that are disciplined will succeed and eventually earn the high wages. Those that aren't will be stuck in a low-end job.

Ultimately, the uncertainty that employees will leave after being trained at their employers expense creates a larger wage gap. With non-compete clauses, you end up with a less sever progression and a labor force that is, on-average, more skilled. If employers are allowed to abuse the non-compete clauses, however, you end up with underpaid employees.

 

[mrjminer]

The argument of client lists / trade secrets / etc. is bullshit. Those are covered by confidentiality clauses, and code by copyright. If a business chooses to invest in employees, they should do so wisely and be prepared to face the consequences of choosing poorly, and not be permitted to hold employees responsible for the poor decision making of the business. When a business chooses to invest in an employee, the business benefits immediately and perpetually. If the business then chooses not to properly compensate the employee for the additional continued benefit to the business, there is no reason the employee should be forced out of their industry -- the business, however, should if they repeatedly make the poor decision to inadequately compensate their talent, or put them in substandard conditions in the workplace.

Further, training and education may be paid for -- but who invests the time in the learning? Typically not the employer; the paid compensation for the education garnered by the employee offsets the time investment of the employee in a fair and legal way, and non-competes simply shift the otherwise "fair trade" from both standpoints into the favor of the business rather than leaving it an equitable arrangement for both parties. For training during working hours, I can understand the issue, but it still falls back on the business making the correct decision of who they choose to train. Even a poorly compensated employee will stay with a business if they are treated fairly overall; people are always loyal to those they perceive to be deserving of loyalty. For some, it's the money, but for others, if their business would just let them do something simple like have a radio going during working hours, that's enough for a lot of people to see the benefit of working at a particular employer.

Non-competes for employees should be deemed illegal and unenforceable by the courts. Since they are permitted, though, you would have to be a stupid business owner not to use them for your employees. I'm pretty surprised that some businesses don't use them, honestly. They should be used for everyone, janitor, cashier, etc. Businesses not using non-competes are the real threat to capitalism because they aren't following capitalistic behavior.

 

[dmcowen674]

6-9-2014

http://finance.yahoo.com/news/noncompete-clauses-increasingly-pop-array-235037452.html

Noncompete Clauses Increasingly Pop Up in Array of Jobs



Colette Buser couldn’t understand why a summer camp withdrew its offer for her to work there this year.




After all, the 19-year-old college student had worked as a counselor the three previous summers at a nearby Linx-branded camp in Wellesley, Mass.

But the company balked at hiring her because it feared that Linx would sue to enforce a noncompete clause tucked into Ms. Buser’s 2013 summer employment contract.

Noncompete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.

Daniel McKinnon, who had been a hairstylist in Norwell, Mass., lost a court battle with his former employer who claimed that Mr. McKinnon had violated the terms of his agreement when he went to work at a nearby salon. Mr. McKinnon said that he did not think the original restriction — to wait at least 12 months before working at any salon in nearby towns — still applied because he had been fired after years of friction with the manager there. Shortly after being fired, he went to work at a nearby salon.


But a judge issued an injunction ordering him to stop working at his new employer.


“It was pretty lousy that you would take away someone’s livelihood like that,” said Mr. McKinnon, who for the following year lived off jobless benefits of $300 a week. “I almost lost my truck. I almost lost my apartment. Almost everything came sweeping out from under me.”
He resisted the idea of traveling miles from his apartment to a new salon, saying that would have meant an unpleasant and costly commute.


“The salon where I worked was doing just fine — I don’t see why they needed to do this,” he said. “I basically had to give up a year of working.”

Because of workers’ complaints and concerns that noncompete clauses may be holding back the Massachusetts economy, Gov. Deval Patrick has proposed legislation that would ban noncompetes in all but a few circumstances, and a committee in the Massachusetts House has passed a bill incorporating the governor’s proposals.

 

[dmcowen674]

What about the personhood that has been given to Corporations?

This clause essentially turns the Corporations into holding the people as property after they are no longer working for that Corporation.

 

[Cozarkian]

What about the personhood that has been given to Corporations?

This clause essentially turns the Corporations into holding the people as property after they are no longer working for that Corporation.

Are you really trying to compare non-compete clauses, which can also be used by partnerships and sole proprietorships, to slavery? That strikes me as tremendously disrespectful to people and cultures that have experienced slavery.

 

[MrColin]

Are you really trying to compare non-compete clauses, which can also be used by partnerships and sole proprietorships, to slavery? That strikes me as tremendously disrespectful to people and cultures that have experienced slavery.

Making commodity grade, low-skilled workers sign noncompete contracts is a step toward slavery. It strips the only bargaining tool they have which is the option to go work elsewhere.

This needs to be stopped.

 

[Harabec]

That's fucked up. If I'm not mistaken, such crap is mostly illegal in Israel due to one of our base laws that assures workers have the right to work freely and without restrictions.

Non-compete clauses CAN restrict you in the sense that you cannot use private company information etc...but that is about it.

Summer camp? That goes along with the wonderful logic of Zero Tolerance idiocy.

 

[PokerGuy]

I can see the rationale for the use of non-compete clauses in certain specific instances, but using them outside of such specific instances seems abusive. It reminds me of the use of forced arbitration clauses: there are certain scenarios where they make sense, but companies figured out that they could abuse them to protect themselves from any accountability.

I think non-competes should be very limited in scope, and should only be applied to executive positions. Expansion of non-competes to everyday positions with no strategic knowledge/risk etc harms the job market and the consumer. That practice should be stopped.

 

[IndyColtsFan]

The agreement I signed just states that I can't work for an existing customer for 6 months after I resign. I'm fine with that, since my current customers are not local and I understand the concern since I do have strategic business knowledge relevant to our consulting practice. If, however, it said I couldn't work for any company in the same industry for 6+ months, I'd tell them their choices were to: 1) Give me a severance equal to the salary lost over the period where I couldn't work 2) pound sand or 3) good luck trying to enforce it.

 

[WackyDan]

I had a non-compete signed with one company back in the mid 90's. Left them in 98 to work for a competing company fielding me doing essentially a similar role.

The non compete stated I could not work for a competitor and that I could not work for a client already on my current employer's list.

Well, I went to work for that competitor and I was working for the same corporate clients though different business divisions of those clients.

I was threatened and essentially told them...

- The new job is out of state
- You don't currently hold or are bidding on the project I'll be working on
- Different business unit of said client
- You can not prevent me from working in my established career role/path within this industry so feel free to sue me.

Nothing ever came of it.

 

[Genx87]

Like anything they are subject to abuse, but in some limited situations, they help improve the market by providing insurance to companies that seek to invest in their employees.

No company wants to hire a low-level employee, train them into a skilled employee, and then have them run off to join a competitor or start their own company. Without non-compete clauses, companies have no means to protect against this. Already-trained employees become extremely valuable and companies bid for their services driving up wages. The companies compensate for these increased wages by offering even lower wages to low-skilled employees or refusing to pay for educational or licensing courses.

The low-skilled employees are then forced to save to finance their own training at a low wage. Those that are disciplined will succeed and eventually earn the high wages. Those that aren't will be stuck in a low-end job.

Ultimately, the uncertainty that employees will leave after being trained at their employers expense creates a larger wage gap. With non-compete clauses, you end up with a less sever progression and a labor force that is, on-average, more skilled. If employers are allowed to abuse the non-compete clauses, however, you end up with underpaid employees.

Companies have a way to protect themselves from training an employee only to have him\hr run off to a competitor. Compensate them well enough they wont stray. Their employee is an investment. Training them is one part of the investment. The other is compensating them for that skill set they just learned. In this scenario a non-compete clause protects the company from following through on the rest of their investment. Govt protects them from having to compensate an employee based on their new skill set.

 

[IndyColtsFan]

Companies have a way to protect themselves from training an employee only to have him\hr run off to a competitor. Compensate them well enough they wont stray. Their employee is an investment. Training them is one part of the investment. The other is compensating them for that skill set they just learned. In this scenario a non-compete clause protects the company from following through on the rest of their investment. Govt protects them from having to compensate an employee based on their new skill set.

Exactly. A non-compete is the lazy way out.

 

[PokerGuy]

Without non-compete clauses, companies have no means to protect against this. Already-trained employees become extremely valuable and companies bid for their services driving up wages.

I think you're missing one fundamental aspect of the equation. As an employer, if you're going to invest in your biggest asset (your employees), wouldn't you want those employees to actually want to stay there instead of trying to force them to stay? If your wages are competitive in the market, and you provide a good work environment, your employees are more likely to want to stay.

 

[SMOGZINN]

I think you're missing one fundamental aspect of the equation. As an employer, if you're going to invest in your biggest asset (your employees), wouldn't you want those employees to actually want to stay there instead of trying to force them to stay? If your wages are competitive in the market, and you provide a good work environment, your employees are more likely to want to stay.

Not really, corporations have learned that in the never ending search for more efficiency fear is a better motivator and has a better ROI then paying your employees more. Increasing their pay does not increase their efficiency all that much, but make them think that they are in a competition for their job they will work themselves to death trying to get one up on the next guy.

 

[Newell Steamer]

If it benefits the business, it's A-OK.

For example; want big government out of business? If the government does something to hinder the business' growth - Yes. If the business needs a bail out/welfare/subsidy - No.

It is no different than conservatards who lose their shit over abortion, yet are perfectly OK with taking the life of someone knocking on their door at 2am, looking for help, with a shotgun blast to the face. Yes, life is sacred,.. when I say so, just like how capitalism is absolute,.. when I say so.

 

[JimKiler]

A lot of states are right to work states which overrides any non compete clauses. My work is in MN and i saw a affidavit on the copier from an ex employee who potentially violated the non compete clause and heard he was able to work there due to the MN law about being a right to work state. I have never been able to find the law using google search. Sometimes you need to know the right keywords to get the information you need from the interweb.

As others have said copyright and patents protect a company. So if I work for a company anything i invent or patent is their property so why can't i work for a competitor for a year, what is the harm?

 

[Cozarkian]

I think you're missing one fundamental aspect of the equation. As an employer, if you're going to invest in your biggest asset (your employees), wouldn't you want those employees to actually want to stay there instead of trying to force them to stay? If your wages are competitive in the market, and you provide a good work environment, your employees are more likely to want to stay.

Training is an actual cost to the company and competitors without that cost will always be able to offer higher wages to draw away trained employees.

If a company pays $10,000 to train you and then offers you a market wage, a competitor can pay you $1-$2 per hour above market at a cost of only $3,000 - $5,000. Then they just give fewer raises and/or smaller bonuses until the salary returns to market price.

 

[SMOGZINN]

Then they just give fewer raises and/or smaller bonuses until the salary returns to market price.

Which then causes this valuable employee to move on to a company that will give him appropriate bonuses and raises.

 

[PokerGuy]

Training is an actual cost to the company and competitors without that cost will always be able to offer higher wages to draw away trained employees.

If a company pays $10,000 to train you and then offers you a market wage, a competitor can pay you $1-$2 per hour above market at a cost of only $3,000 - $5,000. Then they just give fewer raises and/or smaller bonuses until the salary returns to market price.

So? Isn't that the case in just about every industry where there is training, and they've managed to do handle it just fine without non-compete clauses? All of a sudden now they're becoming all the rage. I can understand the need in certain particular scenarios, but their general use is a very bad thing.

 

[nehalem256]

Training is an actual cost to the company and competitors without that cost will always be able to offer higher wages to draw away trained employees.

If a company pays $10,000 to train you and then offers you a market wage, a competitor can pay you $1-$2 per hour above market at a cost of only $3,000 - $5,000. Then they just give fewer raises and/or smaller bonuses until the salary returns to market price.

So if a company spends $10,000 training me. I then spend 5 years working at the company. Doesn't it seem like the company got their money's worth?

Just because a company provides you with training doesn't mean they own you. Pretty sure slavery went out of fashion in the 1800s.

So? Isn't that the case in just about every industry where there is training, and they've managed to do handle it just fine without non-compete clauses? All of a sudden now they're becoming all the rage. I can understand the need in certain particular scenarios, but their general use is a very bad thing.

Maybe because businesses have spent decades showing no loyalty to their employees, and so now their employees feel no need to show loyalty to them.

 

[JEDIYoda]

If you want to enforce a non-compete clause you should be forced to pay that former employee for the year that you are enforcing the non-compete clause....

 

[Cozarkian]

Which then causes this valuable employee to move on to a company that will give him appropriate bonuses and raises.

You realize the employee is at all times making at least or better than market wage? The employee isn't unhappy about not getting the raises and bonuses, because there isn't another job he could find that would pay him more.

 

[Cozarkian]

I can understand the need in certain particular scenarios, but their general use is a very bad thing.

Great, now go back and read my very first post where I said they are subject to abuse but useful in limited situations. We are on the same page.

 

[Cozarkian]

Pretty sure slavery went out of fashion in the 1800s.

It didn't. Government-sanctioned enslavement of an entire race of people went out of fashion, but slavery is alive and well in the black market.

That said, slavery isn't close to a non-compete clause since the person could A) keep working at the company and get paid, B) do a different type of work, C) move to an area where the non-compete clause doesn't apply (such clauses are limited to reasonable time and distance).