In the tech industry in California, the vast majority of the time your secrets are unstealable. Google didn’t have just one weird trick that made their search engine better, it was a huge amount of datasets and code, too much for any one person to hold in their head.
Noncompetes are just very easy to abuse, at least in the tech industry. I have seen them in play many times with employees from other states. Employers use them to threaten employees who leave, and the stress of dealing with a potential lawsuit is often enough to keep people from leaving. It’s like CEQA is used to thwart a new development for nimby reasons 100x more than it’s used to protect the environment.
How can California be so innovative (despite weak enforcement of non-competes)? My impression is that companies there rely more on statutory protections for trade secrets. Under the Uniform Trade Secrets Act and similar laws, stealing IP is illegal and can subject a person to absolutely ruinous damages whether or not they have signed a non-compete.
As a practical matter, the reason that non-compete clauses are valuable is that it is fairly easy to plausibly show a violation. That is enough to get you into court and survive a motion to dismiss. That gets you discovery, which you use to develop evidence of what you actually care about: use of your trade secrets by former employees. That’s what you really want to prevent. Organizations are often reluctant to try to enforce a non-compete where they find no confidentiality being violated — that’s a case to settle and get out of. Source: personal experience and talking with other attorneys.
I think this argument ignores transaction costs. What matters is the default transaction. If typically everyone signs a noncompete, even though most employees aren't going to just take all the knowledge and leave without working long, then we end up with an inefficiency because it's not worth most employees to fight the non-compete on their contract.
As I understand it, the real reason for non-compete agreements is to keep your competition from poaching your employees. You hire someone, train them and reveal to them how your business works, and you don't want a competing company to then offer them a significantly higher salary to lure them away. And these clauses don't tend to apply (or be enforced) for the rank-and-file employees in any case. They are mostly for top performers or managers.
As opposed to a non-compete clause, the better approach is to create a congenial work environment and the opportunity to feel that you are really making a difference. Almost all the really good employees (given that they are already well paid) are motivated more by positive work environment than by more money. An exception might be in the financial industry, but in STEM fields, happy employees don't tend to move around.
Bryan Caplan beats Hans Herman Hoppe on all things immigration. But he trails behind Hoppe's proper understanding of the nature of "intellectual property rights", non-compete agreements, etc.
I don’t necessarily think this is wrong but in some cases people are roped into signing noncompetes. You agree to work somewhere and when you show up on day one you get a bunch of stuff to sign including a non compete. This happened to me although I don’t think they intended to enforce it.
This isn’t an argument in favor of a ban but rather in favor of forcing businesses that use them to be upfront about it during hiring.
> By reassuring businesses that if they invest in new ideas, their employees can’t steal them at the first opportunity. What’s the point of creating or implementing new ideas if your hired helpers can readily betray you?
Is this not what patents already do? If you come up with an original idea, with have a system in place to make sure you profit from from it. It doesn't matter if your hired helpers betray you since that would violate your patent protections.
Even in cases where an idea can't be patented (for whatever reason), if it's really worth putting into action (because it cuts costs or improves the product), won't a company still be incentivised to pursue it regardless of whether it is public knowledge or not?
You should look at how non competes are used in Chicago prop trading and hedge funds.
Same idea. You have identified a market inefficiency and a systematic method of making money. You hire smart people to do the hard work of trading. And then they want to leave to take the combination of the market inefficiency, the methodology, and their smarts and experiences to another firm or their own.
To fix this Illinois allowed non compete agreements so long as the enforcer compensated the employee. So you get paid base salary to sit out 6 to 12 to 18 months.
It’s not a coincidence that the tech industry was engaged in a massive employer non-poaching collusion agreement in the absence of non-competes.
In the tech industry in California, the vast majority of the time your secrets are unstealable. Google didn’t have just one weird trick that made their search engine better, it was a huge amount of datasets and code, too much for any one person to hold in their head.
Noncompetes are just very easy to abuse, at least in the tech industry. I have seen them in play many times with employees from other states. Employers use them to threaten employees who leave, and the stress of dealing with a potential lawsuit is often enough to keep people from leaving. It’s like CEQA is used to thwart a new development for nimby reasons 100x more than it’s used to protect the environment.
How can California be so innovative (despite weak enforcement of non-competes)? My impression is that companies there rely more on statutory protections for trade secrets. Under the Uniform Trade Secrets Act and similar laws, stealing IP is illegal and can subject a person to absolutely ruinous damages whether or not they have signed a non-compete.
As a practical matter, the reason that non-compete clauses are valuable is that it is fairly easy to plausibly show a violation. That is enough to get you into court and survive a motion to dismiss. That gets you discovery, which you use to develop evidence of what you actually care about: use of your trade secrets by former employees. That’s what you really want to prevent. Organizations are often reluctant to try to enforce a non-compete where they find no confidentiality being violated — that’s a case to settle and get out of. Source: personal experience and talking with other attorneys.
I think this argument ignores transaction costs. What matters is the default transaction. If typically everyone signs a noncompete, even though most employees aren't going to just take all the knowledge and leave without working long, then we end up with an inefficiency because it's not worth most employees to fight the non-compete on their contract.
As I understand it, the real reason for non-compete agreements is to keep your competition from poaching your employees. You hire someone, train them and reveal to them how your business works, and you don't want a competing company to then offer them a significantly higher salary to lure them away. And these clauses don't tend to apply (or be enforced) for the rank-and-file employees in any case. They are mostly for top performers or managers.
As opposed to a non-compete clause, the better approach is to create a congenial work environment and the opportunity to feel that you are really making a difference. Almost all the really good employees (given that they are already well paid) are motivated more by positive work environment than by more money. An exception might be in the financial industry, but in STEM fields, happy employees don't tend to move around.
Remember when the tech industry was found to engage in massive collusion through tacit non-poaching agreements? Probably a lesson in that.
Bryan Caplan beats Hans Herman Hoppe on all things immigration. But he trails behind Hoppe's proper understanding of the nature of "intellectual property rights", non-compete agreements, etc.
I don’t necessarily think this is wrong but in some cases people are roped into signing noncompetes. You agree to work somewhere and when you show up on day one you get a bunch of stuff to sign including a non compete. This happened to me although I don’t think they intended to enforce it.
This isn’t an argument in favor of a ban but rather in favor of forcing businesses that use them to be upfront about it during hiring.
> By reassuring businesses that if they invest in new ideas, their employees can’t steal them at the first opportunity. What’s the point of creating or implementing new ideas if your hired helpers can readily betray you?
Is this not what patents already do? If you come up with an original idea, with have a system in place to make sure you profit from from it. It doesn't matter if your hired helpers betray you since that would violate your patent protections.
Even in cases where an idea can't be patented (for whatever reason), if it's really worth putting into action (because it cuts costs or improves the product), won't a company still be incentivised to pursue it regardless of whether it is public knowledge or not?
You should look at how non competes are used in Chicago prop trading and hedge funds.
Same idea. You have identified a market inefficiency and a systematic method of making money. You hire smart people to do the hard work of trading. And then they want to leave to take the combination of the market inefficiency, the methodology, and their smarts and experiences to another firm or their own.
To fix this Illinois allowed non compete agreements so long as the enforcer compensated the employee. So you get paid base salary to sit out 6 to 12 to 18 months.