Good Riddance, Non-Competes!

By Jennifer Graham

It has been so interesting over the past few days to hear the different reactions from business leaders to the new legislation prohibiting non-competes for non-executive employees. I have heard everything from “It’s about time!” to “Now my competition can steal an employee that I’ve spent years training!”

My Feelings On Non-Competes

As someone who has spent three decades running a small business in the employment market, I’ve had a front row seat to this issue from both the employee and employer. During that time, I have talked to way too many decent people who feel enslaved by a contract that won’t allow them to pursue their career dreams. I’ve seen hard-working individuals tied up for as long as three years in draconian contracts with companies who underpay and disrespect them. I’ve seen great sales reps who brought in millions of dollars in revenue for their employer be forced to leave the industry they are educated and experienced in, just to ride out the terms of a non-comp contract. I’ve reached out myself to people with new opportunities that aren’t even directly competitive, that would develop their careers and bring in a fatter paycheck for their families, only for them to realize that their hands are tied by an overly broad employment agreement.

I’ve also seen well-meaning employers who– after determining that a potential employee’s non-compete was not prohibitive– were still embroiled in a legal battle spending as much as $100K to defend their new employee and themselves. And, worst of all, I’ve seen employees who were left unemployed when a vindictive boss buried them and their new company (small/family owned) in legal action to the point that the new employer had no choice but to let the unfortunate employee go, tarnishing his resume and hurting his family.

So, let me address the pro-non compete arguments one by one:

Complaint 1) I’ve invested time and money in training this person. He shouldn’t be able to take those skills to a new employer.

Reality Check: The law will be applied evenly. You will also be able to hire those employees who have been trained by your competition.

Complaint 2) I have proprietary information. An employee shouldn’t be allowed to work for a competitor where release of that information can hurt us.

Reality Check: Good point, but a non-compete is different from a non-disclosure. Of course you should be allowed to protect private information about formulas or financials. Require candidates to sign an iron-clad non-disclosure, but don’t make them stay with you beyond when they want to.

Complaint 2a) Yes, but if they go to the competition, how can we track if they are sharing proprietary info?

Reality Check: Guess what? They will still be in possession of that knowledge when the non-compete term ends, so how protected is that information anyway? Hire individuals with character whom you can trust to do the right thing, and use a strong non-disclosure. Entrapping them is not the answer.

Complaint 3) If this law takes effect, I’ll lose half of my sales force! (I actually heard this one yesterday!)

Reality Check: If the only thing holding your employees to your company is a contract that forces them to stay, maybe you should look at your company’s relationship with them. How are your employees being treated? Are you paying them fairly? Are you offering development opportunities? As a small business owner myself, if I thought that any of my employees are only here because they are contractually bound, I would take a long hard look at our management and our culture.

Complaint 4) Our contract only prevents the individual from going to direct competitors. We aren’t stopping them from going elsewhere.

Reality Check: Where is an employee likely to receive a healthy pay increase? In a directly related position or in a brand new market? In our work, we see the answer to this every day. Employers will pay way more for someone with relevant experience. If an individual can’t capitalize on their expertise, then they can’t reach their full earning potential. Also, as non-competes are all drastically different from one another, the language is often hard to decipher and the interpretation is left up to those who have a vested interest in the outcome.

Complaint 5) No way around it; this is going to cost us money.

Reality Check: This is the silliest argument. All boats rise when we allow individuals to better themselves with higher salaries or by expanding the market with new start-ups. You will be able to hire talented, experienced employees who would have been off-limits to you before increasing your own production.

Without launching into a complex social argument here, it is very simple. When individuals earn more, they have more to spend. When new businesses are launched, the economy benefits. If we allow for a free market where individuals can reach their top potential, we will all win.

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