Do Non-Compete Clauses Hurt Business?


Scott Kirsner has an intriguing piece in today’s Boston Globe about non-compete clauses.  He focuses the piece on New England — and how most venture backed companies require executives to sign non-compete clauses.  He notes the west coast did anyway with them years ago.  A state representative in Massachusetts just filed legislation to do away with them here.

It’s a good idea.

Kirsner – who has worked as a journalist in both California and Massachusetts covering technology – said he has seen non-compete clauses used more for spite than for any real threat to a company.  Then he notes:

“On the west coast, talent is more fluid. Good people gravitate toward good ideas and bring along other good people with whom they have worked with in the past. This greatly increases a company’s chances of success . . . One argument that has been made in favor of non-competes is to prevent a cadre of engineers from leaving a company en masse to start another potentially competing company. I actually witnessed this first hand while at Shiva and I still don’t like non-competes. It was a mistake to lose these great engineers in the first place. The second mistake was not investing in their business and getting a seat at the table in the event that they were successful, which they eventually were.”

I’ve witnessed this spite in action. I have a good friend in Colorado who left his company to start his own venture.  His old company sued him based on his non-compete clause.  He was tied up in court for years and spent a fortune on lawyers to defend himself.  He eventually won and his company has since been a success.  My friend had a happy ending, even though he’s still bitter about the experience.  But there are many other entrepreneurs who can’t afford the legal costs or the stress of being sued.  That’s really unfortunate, especially in this age of the economic meltdown and hundreds of thousands of people being laid-off.

Non-compete clauses stifle innovation.  Plain and simple.  Here’s hoping that Massachusetts doesn’t buckle under the pressure from old guard companies and venture firms and does the right thing: pass legislation to kill non-compete clauses.

2 Responses to “Do Non-Compete Clauses Hurt Business?”

  1. Hi George,
    We’re talking about a lot more than stifling innovation, execs leaving to start competitors, etc. We’re talking about basic rights individuals have in a right-to-work environment that allows them to move along if they so wish. If employers are nervous about proprietary information going out the door then they should seek relief from those specific problems through an appropriate non-disclosure or intellectual property agreement. But it just isn’t the way things are being interpreted in the current environment to preclude a person from seeking a better opportunity. Some of this is intangible and subtle. Client/AE relationships are very much leveraged by personal customer service and input, and that is proprietary PERSONAL property, personality traits that belong more to the individual than the company.

    Simply put non-compete agreements are overly broad, specific agreements about IP, etc. may be more enforceable and appropriate.

    Congrats on opening your own shop. Best wishes.

  2. Thanks Eric. I agree with most of what you’ve outlined. Non-compete clauses are inherently unfair for many different reasons. Hopefully, Massachusetts will get smart and eliminate them all together.

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