One of the most talked about issues with people changing jobs or selling their companies is the necessity and validity of non-compete agreements. This employment law varies by state with California being the strictest against people signing them. Are they and should they be legal is something that the FTC is discussing and their decision could affect 30 million people.
On the Small Business Radio Show this week, I talked with Frank Cullen who is executive director of the Council for Innovation Promotion. This organization is a bipartisan coalition dedicated to promoting strong and effective intellectual property rights that drive innovation, boost economic competitiveness, and improve lives everywhere.
This is what Frank and I discussed:
The history of non-compete agreements goes back 500 years in America and is ingrained in American business.
The question of whether these agreements are good or bad for business? Frank states that noncompete agreements are signed by approximately 80% of high-level executives so to outright ban them would impact these companies tremendously.
Are there any advantages to these agreements for the people that sign them? How do you balance a non-compete with people’s right to work? Can a company prevent a former employee working for a competitor if they are not using their former employer’s intellectual property? Frank states that some employees can negotiate higher compensation or severance when signing these agreements.
Frank discusses how non-competes do not need to be banned since there are current legal precedents that protect against over-reaching agreements already. For example, agreements that extend over a few years or are too broad can be invalidated by the courts.
Frank emphasizes that noncompete agreements prevent trade secret theft and thereby protect American innovation in vital sectors like technology and engineering. He gives examples of how noncompete agreements have prevented trade secret theft in the past.
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Image: Frank Cullen
Like most things, there needs to be a balance. For a long time non-compete agreements were too broad and applied in situations that weren’t appropriate. I think it’s healthy to swing the pendulum back a little.
Sara
These have always been a boon for the employer, and a limit to workers rights. Our employment culture is based around experience in a particular field. Limiting that for even a year after separation is downright strangling. It doesn’t get put out there much because its always been this way, and most companies don’t act on it, but it drives decisions whether to leave or change jobs for most people who have signed it. The real benefit is not to protect against intellectual theft. The benefit is hampering workers rights and making sure that innovation and money stays with the company. The other thing that goes along with that, is if I work in a cog company answering phones, and I have some crazy idea about how to make cogs better, my idea goes to the company, not to me.