
Non Compete Clauses Reduce Innovation - spenrose
http://marginalrevolution.com/marginalrevolution/2014/06/non-compete-clauses.html
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lukifer
I completely agree, and yet I feel thinking this way misses the point: non-
competes are blatantly disrespectful of human rights, and so on some level,
the effects on innovation shouldn't matter.

If you take voluntary contracts to the extreme, it would include the ability
to sell one's self into servitude, which is something that used to happen, in
addition to the more violent and coercive forms of slavery that are more often
remembered. Today we would consider the notion of owning someone, even with
their permission, to be morally repugnant, and so we have defined limits on
how much of yourself you can sell, both in the present and the future.

I understand that it is a problem to invest in people and have them leave. But
them's the breaks: you don't get to have your cake and eat it too when you
want to harvest the ruthless efficiency of a capitalist market. Maybe those
employees _should_ have that much negotiating leverage, or maybe the greater
economy is better off if they poach a few coworkers and start a new company.
If you can't stand the heat, get out of the kitchen; someone else will be
happy to take your place, and give your workers a good enough deal such that
they have no interest in leaving.

~~~
sheepmullet
"I understand that it is a problem to invest in people and have them leave.
But them's the breaks"

In reality it is easy to keep the people that you have invested in. Pay them
significantly above market rate and treat them well.

If an employee who has been with you for 3+ years isn't worth 5x market rates
to you then you haven't invested in them and trained them properly. If they
are worth 5x market rates to you then pay them 2x market rates and most will
stay.

~~~
javajosh
I like what you're saying, and wish companies thought like that, but most lots
of companies look at devs like fruit to be squeezed until dry, then discarded.
This is particularly true in game dev. Granted, the devs are partly to blame
for going along with this terrible plan, allowing themselves to be pushed to
work 80 hour weeks, all-nighters, etc. A smart employer would actively prevent
their employees from working like that, because you're right when you say that
a dev can be worth a great deal more if they stick around a while.

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USNetizen
Non-competes that remain in effect beyond the term of employment are useless
in 90% of current use cases, and only create legal headaches for both employer
and employee. They are often ambiguous and may vary in terms of your ability
to enforce them from state to state (or country to country). They also have a
tendency to be drawn up merely to satisfy the insecurities of paranoid
executives.

Don't waste your time with long term non-competes unless you're doing
something so cutting edge that it is the commercial equivalent of performing
work for national security. To put it plainly, if you're that concerned about
a person who USED TO work with you competing against you, then you're not
exactly very confident in the core capabilities and innovation potential of
your company.

Intellectual property is one thing, but non-competes beyond the tenure of
one's employment are too often a complete waste of time, money and effort to
create and enforce.

~~~
jpatokal
The linked-to NYT article has a story about a hairdresser whose previous
employer went to court and succeeded in banning them from working for any
"nearby town" for a year -- even though this is unreasonable by any sane
standard.

[http://www.nytimes.com/2014/06/09/business/noncompete-
clause...](http://www.nytimes.com/2014/06/09/business/noncompete-clauses-
increasingly-pop-up-in-array-of-
jobs.html?hpw&rref=business&module=Search&mabReward=relbias%3Ar&_r=0)

Insert "cutting edge" joke here, but at the end of the day, if you've signed a
non-compete, there is at the very least an element of risk in willfully
ignoring it.

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tptacek
This blog post makes a pretty good public policy case against engineers and
product designers being subjected to noncompetes, but I don't think the logic
ports over very well to salespeople --- who, correct me if I'm mistaken, are
the most important targets of noncompete enforcement.

~~~
cloverich
Yes - that and any client-based operation where an employee can leave and take
their clients with them. The Dentistry field is notorious for this; my wife is
barred from working in an entire half of the city for several years after the
end of her contract.

~~~
tptacek
Even in these cases there's a balance of interests that probably needs to be
evaluated. A dentist might be responsible for generating substantially all of
the value in their customer relationships, and there might be no good public
policy case to support noncompetes for them. On the other hand, an insurance
brokerage might as a firm be generating 95% of the value in their customer
relationships.

~~~
marcosdumay
At first glance, I agree with you. But then, customers are quite good on
knowing what they get value from, and submiting their choice to the direction
of the company they currently contract is a sure way to get suboptimal
results.

If they get 95% of the value from the company, they simply won't change
business that easily.

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twic
I recently signed a contract with a sort of non-compete clause in it, so i'm
quite interested in how enforceable they are under English law.

Some lawyers reckon [0]:

"When considering restrictions the general rule is that they are void as they
are in illegal restraint of trade and therefore against public policy.
However, the courts recognise that some legitimate interests can be protected
by reasonable clauses. [...] Although the types of business interests capable
of protection are not fixed the usual ones that are protected are customer
connection and goodwill, trade secrets and confidential information and the
maintenance of a stable workforce (no poaching). Preventing competition is not
really a legitimate interest on its own but a non-compete clause may be upheld
if it may be the employer's only means of protecting the business."

So, under English law, it's quite likely that there would have been no
Fairchild Semiconductor. I believe the crucial test would have been whether
the Traitorous Eight were basing their new business on _trade secrets_ they
had learned at the Shockley Semiconductor Laboratory, or on _know-how_ they
had acquired there. The distinction between those is probably a topic for
another day.

[0] [http://www.steenandco.co.uk/thomas-v-farr-plc---important-
co...](http://www.steenandco.co.uk/thomas-v-farr-plc---important-court-case-
on-non-compete-clauses-_60/)

~~~
ggreer
It sounds like Shockley would have had a decent chance of winning in the UK.
In that case, he would have tied things up in court for years to drain
resources. Even if he didn't win, Fairchild (and the rest of us) would lose.

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swasheck
Maybe I'm ignorant or maybe I'm skeptical but I'd always assumed that was
their sole purpose: to protect current employer's interests by legally
forbidding novel approaches to solving problems within their current purview.

~~~
gphil
I think the most common use case of a non-compete is to prevent employees who
have developed strong customer relationships during their time at a firm from
leaving that firm and bringing those customers with them.

~~~
danielweber
That's what non-solicitation is for, yes?

Sometimes employers even know that they aren't enforceable but are still doing
them "because our lawyers say so." Which is a standard negotiating tactic, but
there you go.

~~~
gphil
I'm certainly not an expert on this, but I think what hnal943 said is the
general motivation behind these types of agreements. The one "non-compete"
agreement that I've signed in my career covered both non-competition and non-
solicitation all in one, and I was using the term to cover all of that.

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hga
Discussion of the NYT article:
[https://news.ycombinator.com/item?id=7866634](https://news.ycombinator.com/item?id=7866634)

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inanutshellus
non-competes are like antibiotics. You want to be the only one that uses them.

~~~
trhway
until you understand Nash equilibrium.

Protection of moonlighting and non-recognition of non-competes is that makes
CA leaving other "Silicon Valley wannabes" in the dust. Creative free people
who flock to whoever pays better and/or offers more interesting job vs.
enslaved ones who wouldn't be able to get a new job if kicked off from the
current one - your choice.

~~~
wavefunction
There are a fair number of intelligent people (and me) who think that Silicon
Valley is a joke.

~~~
chroma
It has its problems, but I'm laughing all the way to the bank.

~~~
wavefunction
Well, we all have our priorities. Congrats on achieving yours!

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cwbrandsma
In my state (Idaho) they are legally unenforceable....but still exist in many
employment contracts. So, you can add the non-compete to a contract, and sew
for infringement, but there is no way for the corporation to win the suit.

I've only seen the threat of lawsuit hit once. An employee left to work for a
company he was contracted to work with (it was a year prior, but with a
different department of a large corporation). The consulting company
threatened lawsuit against the former employee. At that point, a number of
employees threatened to quit, the story went viral in town, and that company
had enormous trouble hiring for several years after that.

TLDR: unless you are a company that people are dieing to work for, non-
competes will only work against you.

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jroseattle
There is some discussion about the validity of non-compete agreements in
Washington state at the moment. I'm completely on the side of eliminating non-
compete agreements, but as with everything there are always scenarios where
it's not so clear.

Case in point: when Kai Fu Lee left Microsoft for Google, Microsoft sued
Google and Lee to enforce their non-compete. It took a bit to sort things out,
some injunctions and whatnot, and they eventually settled out of court. By
hiring Lee, Google was able to establish presence in China. When Microsoft
originally hired Lee, he moved to China and established their (MSFT) research
division in Beijing. Presumably, Microsoft had to invest resources to learn
how to do business in that part of the world and for Lee to learn what was
necessary to succeed.

Did Microsoft have a claim to say that what Lee learned in China during his
employment with them was a competitive advantage? Certainly, but Lee _also_
could lay claim to those skills as well (after all, it was he who had to learn
them.) He had a reasonable expectation to be able to move to another company,
but Microsoft likely should have a reasonable expectation to protect their
investment in learning how to procure and develop that market as well.

In some scenarios, I can appreciate arguments from both sides.

Source: [https://en.wikipedia.org/wiki/Kai-
Fu_Lee#Move_from_Microsoft...](https://en.wikipedia.org/wiki/Kai-
Fu_Lee#Move_from_Microsoft_to_Google)

~~~
nitrogen
_...Microsoft likely should have a reasonable expectation to protect their
investment in learning how to procure and develop that market as well._

Shouldn't it be enough that they got a head start with their research
division, and that the research division would still be there after its
founder left the company?

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qnaal
Any artificial limit on intellectual property will reduce innovation, and we
can only hope that targeted government efforts to regulate/legislate (eg
patents) have a net-positive effect on the environment, for very specific
reasons (eg allowing small competitors time to develop their network before
letting market-breaking 'big business' forces use the technology).

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igorgue
That's such a genius statement...

