Non-Competition Agreements: The Business Form of Scarlet Letter
Thursday, October 01, 2009
In the goal to protect goodwill, confidential information and trade secrets, the typical non-competition agreements that companies use damage the targeted employee in measures far beyond the benefits – the business equivalent of a scarlet letter. But in an environment where non-competition agreements remain enforceable, those businesses seeking to compete on a level playing field have little incentive to rise above the lowest common denominator. Worse, they may face significant obstacles if they change their practice. Massachusetts should raise the bar and restrict the use of non-competes for the benefit of employees, businesses and the Commonwealth.
The problem with non-competes rests with a faulty presumption: working for a company that might engage in competitive activities is bad, regardless of the precautions. Although confidentiality agreements and intellectual property laws serve well to protect those legitimate business interests, many companies still insist on non-competition agreements in their front line arsenal. A typical belts-and-suspenders approach in an environment where the power balance between employer and employee tilts substantially in favor of the employer and where competitors use them, too, the non-competition agreement has a far more chilling impact. Employees who ultimately agree to such clauses often find themselves unable to find new work, even years later due to the disruption, and companies seeking to hire find themselves similarly frustrated. This remains even where there are no legitimate business interests at stake, because the risks of costly and distracting litigation that may result from the hire, may price such decisions out of the market relative to other available candidates.
The result: a mobility crisis, where employees find themselves unable to switch and must uproot themselves to find work. The brain drain hurts businesses, too, as geographically based talent pools fail to develop, stifling any multiplier effect for all.
For the benefit of businesses, employees and the Commonwealth, the Legislature should pass legislation restricting the use of non-competes.