Home » Contracts, PG's Thoughts (such as they are) » To Compete Better, States Are Trying to Curb Noncompete Pacts

To Compete Better, States Are Trying to Curb Noncompete Pacts

30 June 2016

From MSN Money:

In today’s on-your-own economy, workers are urged to be entrepreneurial job hoppers, constantly adapting and searching for the next opportunity.

But an estimated 30 million Americans — nearly one fifth of the nation’s work force — are hobbled by so-called noncompete agreements, fine print in their employment contracts that keeps them from working for corporate rivals in their next job.

Now a number of states are looking to untangle workers from these agreements. The Massachusetts House of Representatives is scheduled to vote this week on a noncompete reform bill. The state is also the location of a union organizing campaign on the noncompete practices of the EMC Corporation, a large technology company based in Hopkinton, Mass., that is known for its aggressive application of these employment contracts.

Other states are also taking steps as noncompete agreements have spread to summer interns and sandwich shop employees. Hawaii banned noncompete agreements for technology jobs last year, while New Mexico passed a law prohibiting noncompetes for health care workers. And Oregon and Utah have limited the duration of noncompete arrangements.

. . . .

The issue hits Massachusetts with particular force because of its technology heritage and failure to keep up with Silicon Valley. In the early 1980s, the Route 128 corridor outside Boston, birthplace of the minicomputer industry and long-gone tech giants like the Digital Equipment Corporation, was seen as the Silicon Valley of the East.

Noncompete pacts were only one ingredient in the recipe that worked against Massachusetts and to the advantage of Silicon Valley, where employees can depart and start their own companies mostly without fear of a lawsuit. But they mattered. In California, companies are generally prohibited from enforcing noncompete agreements because of a worker-friendly statute from the 19th century.

“It’s hurt our economy in the past, and it’s a statement of values about entrepreneurship and mobility that Massachusetts has noncompetes and California does not,” said Stephen Kraus, a partner at Bessemer Venture Partners and president of the New England Venture Capital Association.

. . . .

Technical workers in Massachusetts would be paid about 7 percent more if the state’s noncompete practices mirrored California’s, said Evan Starr, an economist at the University of Maryland’s Robert H. Smith School of Business.

Job mobility is reduced, according to other research, and workers are more likely to detour from their original career paths. Sometimes companies sue departing employees, but those cases are the exception.

“It’s not about the lawsuit, but about the far larger chilling effect,” said Matthew Marx, a professor at the Massachusetts Institute of Technology Sloan School of Management.

In 2008, Brian Connolly, an engineer with years of experience writing software for medical devices, joined a start-up developing diagnostic technology to identify biohazards, First Light Biosciences. After the financial crisis hit, the start-up laid off 12 of its 14 employees, including Mr. Connolly.

Shortly after meeting with a new company, Mr. Connolly got a call from his previous employer, telling him the noncompete prohibited him from joining any company in diagnostic devices, even if the application and the technology were different.

“I understood noncompetes were common practice, but I didn’t think they would enforce it, and that broadly, after a layoff,” he said.

Link to the rest at MSN Money and thanks to Kat for the tip.

PG has discussed the problems that non-compete clauses in publishing agreements present for authors on several previous occasions.

Assuming that the publisher would never enforce a non-compete clause against an author (even when the editor representing the publisher says this is the case) is a bad idea. Typical publishing contracts are assignable and, even if the statement is true with respect to the publisher’s current owners, it may not be with the publisher’s future owners.

With the disruptive changes sweeping through publishing, PG says you can expect more and more traditional publishers to merge, file for bankruptcy or hold fire sales of their assets. Those assets will include all the publishing contracts authors have signed with those publishers. The publisher who holds rights to your books in 2040 will almost certainly be substantially different than the publisher you sign with in 2016.

During the life of a “full term of the copyright” publishing contract, it is certain that the management of publishers will change and very likely that the ownership of publishers will change. It’s a bad idea for an author to accept any contract provisions that aren’t exactly right for the author’s long-term career prospects.

One of the many advantages of self-publishing is that, following Amazon’s lead (and pursuant to standard practices for tech companies using click-to-accept online contracts), self-published authors can expect their contracts will permit them to terminate the agreement with their distributor/etailer at any time.

However, don’t assume this is the case. You need to read those click-to-accept contracts, AKA
Terms and Conditions, when you decide to work with a distributor/etailer to license your ebooks or sell your physical books.

PG is sorry this is the case. He knows you would rather swallow worms than read that turgid lawyerese. He knows that outlandish terms in such contracts might be overturned by a judge if challenged, but his advice stands.

PG will also reveal that more than one tech company has failed to read or understand the Terms and Conditions contract it received from its attorney and just posted the document on its website. If you see something you don’t like in the contract, send an email to the company to tell them it’s a deal-breaker. You may be surprised learn that management of the company agrees with you.

Contracts, PG's Thoughts (such as they are)

4 Comments to “To Compete Better, States Are Trying to Curb Noncompete Pacts”

  1. Noncompetes have to go. If an employer doesn’t want an employee to work in a competitor’s business, then pay them so they can stay home and watch anime. People have to work. It is pretty much a no-brainer they will work in the field where they have experience. You want to keep them from competing: pay them well, don’t lay them off, or give them such a huge severance they have no reason to go to a competitor. Or just deal. People gotta work.

  2. I was fascinated to learn that non-competes are illegal in California both for employees and for independent contractors. However, many publishing contracts state that the laws in New York apply to them.

    I never signed one of those horrible clauses. I would love to see them all go down in flames. People shouldn’t exploit other people who are in a vulnerable position, which 99 percent of writers are.

    • Well, 99% of employees are, period, probably. Especially when employers can fire mostly at will or lay off at will. So, boom, out of a job. When you dump an employee, you should have no say on where they work. If there are legitimate industry secrets–then that should be spelled out in an agreement: what very specifically cannot be divulged to another company. Specific. Big severance if they sign. No severance if they don’t. That would be incentive to severance up laid off folks, who’ll need the dough big time.

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