Non Compete Clauses Reduce Innovation | Hacker News Reader

Non Compete Clauses Reduce Innovation

marginalrevolution.com

102 pointsspenrose52 comments

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.

"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.

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.

> non-competes are blatantly disrespectful of human rights

No, they aren't, and this kind of statement trivializes things that actually are. The world is full of truly appalling rights violations, and voluntary actors signing noncompetes really are not among them.

Compare: A: "I want to come work for you!" B: "OK, but we have a lot of secrets here, so if I hire you, no working for my competitors for a while, OK?" A: "OK!"

with

A: "Anyone who criticizes the regime shall be imprisoned!"

These are not merely differences of degree.

I beg to differ; at the risk of appealing to authority, Article 23 of the UDHR [1] states that free choice of employment is a basic human right. Just because an injustice is mild compared to extreme cases, it does not mean it is not injustice.

Even if non-competes are only intended to prevent Wonka employees from selling recipes to Slugworth, the end result is vendor lock-in for humans. If your skill set involves deep specialization, the transaction cost of seeking new employment is abandoning your skills completely, and/or stalling your career for N years. Though I can understand guarding specific trade secrets, I don't think anybody has the right to dictate how another human spends their productive hours.

[1] http://www.un.org/en/documents/udhr/

You have free choice to avoid employment with companies that require non-competes.

Moreover you are even welcome to start a company that does not require non-competes and later on have the pleasure of investing in professional development of people who may later turn their talents against you.

Not if there are no (desirable/worthwhile) companies that take people on without a non-compete.

And what if you work for such a company but want to strike out on your own? The non-compete clause doesn't differentiate between an existing competitor and one you found yourself.

You also have the choice to bad mouth non-competes live in states where they are mostly invalid(like California) and support laws banning non-competes.

Waiver of a right != denial of a right

If someone takes your apples, it makes a huge difference whether you agreed to trade them for the taker's oranges.

A right that you cannot waive is not a right; it is an obligation.

In that case: am I allowed to voluntarily pledge every minute of my life to you for the next 7 years in exchange for an all-expenses trip to the other side of the world? If I change my mind, are you allowed to imprison and torture me until I comply to the terms of the agreement?

While this is textbook ad absurdum, there is some point at which a line is drawn on which rights may be voluntarily surrendered, especially as regards selling one's future self. (Or if you believe that all rights can be voluntarily sold/surrendered: Can I voluntarily surrender my right to surrender rights? Can I sign a contract that says I may no longer sign contracts?)

Indeed, there is a line; the existence of a right to free choice of labor ain't it though.

You tell me where you think the line should be drawn:

(a) You agree not to leave Apple* for Google, for 3 years.

(b) You agree not work for Google, ever.

(d) You agree not to develop software for anyone besides Apple, ever.

(e) You agree not to do any kind of work for anyone besides Apple for 3 years.

(f) You agree not to do any kind of work for anyone besides Apple, forever.

Personally, I don't think any of those contracts should be enforceable by law, regardless of what people foolishly choose to sign.

* (the choice of Apple being entirely arbitrary)

However I draw the line, it would not be grounded in appeal to the existence of a right to choice in labor, as you attempted to justify it.

There are good arguments for prohibiting certain arrangements; the one you gave wasn't one of them. That's all I was trying to say.

For philosophical reasons, I like using the idea of fundamental human rights to justify things more than simple pragmatism. It makes it easier to build a solid foundation of things that can be taken for granted in a human existence, making more cognitive effort available for other matters.

People also have a universal, fundamental right to some level of property ownership. But if you equate that with the obligation never to waive it in exchange for something else (e.g. sell or give their stuff), as the GGGP was doing, then "you're doing it wrong".

There are good reasons to oppose the specific exchange of rights involved in these non-compete agreements. Pointing out the existence of the rights is not one of them, because the entire dispute is about why it should not be waive-able.

You're making shit up.

There's nothing in the legal definition of "right" that implies it must be waiveable. From Black's Law Dictionary: "An interest or expectation guaranteed by law". There are inalienable (or inherent rights) which cannot be transferred or surrendered (though they might be terminated): life, liberty.

And there are rights which cannot be waived. The right to sue, for example, though you might lose your right to trial by jury if you agree to arbitration.

>There's nothing in the legal definition of "right" that implies it must be waiveable. From Black's Law Dictionary: "An interest or expectation guaranteed by law".

I wasn't speaking of legal definitions, just making the uninteresting observation that, if I can't trade a right for something more valuable to me, then it is functionally an obligation, and not the bundle of goodness typically associated with rights. Again, consider the difference between a property right in your apples when you can vs can't sell/give them.

>There are inalienable (or inherent rights) which cannot be transferred ...

>And there are rights which cannot be waived. The right to sue, for example, though you might lose your right to trial by jury if you agree to arbitration. ...

You're assuming exactly what's under dispute. I don't accept that such rights should exist, so asserting that they do tells me nothing more than that you agree with the (IMHO misguided) legal classification certain rights have.

I certainly agree that some rights need a higher standard of proof, waiting period, etc before giving up, to establish that it's valid consent and the person is thinking clearly and so on. (We definitely dont do this right when it comes to police searches.) But that's miles away from certain rights being unconditionally inalienable by the holder.

Have you ever thought about why others should always be able to veto my sale of a right altogether?

Edit: I'd appreciate a more constructive response than downvoting.

I'm not among the downvoters (it's not possible for responses to ones' own posts), but you're continuing to argue for something that's not at all supported under legal doctrine, as well as highly disfunctional in reality, though you're at least doing so under the cloak of personal belief, rather than trying to claim some sort of authority.

Your definitions continue to be fabrications without foundations in broader legal or political theory.

Me: A right you can't waive is burdensome.

You: Well, Black's law disagrees. Under current precedent some rights can't be waived.

Me: But my point is just that such laws are stupid. To the extent that waiving a right can lead to bad situations, the problem is the lack of true, informed consent and so should be addressed at that level.

You: Current legal precent refutes that.

Me: ???

I don't care to get into this debate now because reasons.

But you might want to look up why certain rights are generally considered or legislated to be non-waivable.

Guiding hint: it sets up perverse incentives, creates tremendous power imbalances (and exacerbates existing ones), and, net net, is seen as a negative for society.

You haven't made any points, you've asserted them, backing up along an increasingly narrow and slippery, and steep platform as you're cornered with a set of inconvenient facts regarding your case. Among the reasons I find any discussion with you to be, in all likelihood, to be tremendously unproductive.

So I'm out, but you're welcome to research further on your own.

>But you might want to look up why certain rights are generally considered or legislated to be non-waivable.

I'm intimately familiar with them! It's why I've come to my conclusion: all of the reasons are either confused, would invalidate the right to sell one's apples, or are an issue of informed consent that only justify greater scrutiny, waiting periods, etc rather than a blanket "lol you can't trade that right".

Had you read my responses, you could have articulated -- perhaps even substantiated -- those reasons in your own words the first (not fourth) time around, rather than dwell on the orthogonal issue of how many jurists agree with you. Then we could have had a productive discussion and probed each other regarding the basis for our beliefs, and perhaps learn something from each other.

But as it stands, you chose to condescendingly lecture me about issues that don't speak to those I raised, as per my previous reply.

Next time, would you mind focusing on the substance, rather than on citing Black's Law to refute that "a right ... is not a right" and such?

For example, you could have said something like, "well, inalienable rights can definitely feel like obligations, but capping what people can waive has the following benefit ..." And then gone on about the stuff you're only now saying. See how much more productive that is?

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.

Don't forget that the threat of legal action can often be a deterrent even if the legal action has little chance of succeeding.

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...

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.

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.

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.

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.

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.

If it's the employee generating value and that value includes customer relationships, shouldn't the customers follow that employee to their new job?

Then make the noncompete subject to very specific actions, and compensate the individual for the period of the noncompete at a multiple of present earnings.

If it's worth it for you to deny someone their livelihood, then pay for the privilege.

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...

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.

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.

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.

I think that these are specific examples of the same general case: there are some assets that are easy to "walk out" of a company with, and a non-compete is a way to deal with that fact.

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.

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.

Discussion of the NYT article: https://news.ycombinator.com/item?id=7866634

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

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.

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

as long as you type your opinion into a computing device and it is distributed over the *Net - the more participants and diverse opinions - the higher traffic and the bigger the joke :)

Sure, perhaps, but it has brought a whoooole lot of tech and wealth into this world.

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

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

Silicon Valley is a place, just like any other. There's a fair amount of dysfunction in the Valley, along with a fair amount of brilliance. It's full of perks (beautiful weather, lots of job opportunities in tech, so much to see and do) but also downsides (cost of living, cliche startups trying to be "Uber, but for cruelty free soy products", all the people).

The "Minnesota Model" on IP owership is also very important.

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.

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...

...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?

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).

That's such a genius statement...

Reply on news.ycombinator.com