We know noncompete agreements are prohibitive, but a new study suggest it doesn’t just hurt an employee’s ability to find meaningful work. South Carolina and other states are losing prized researchers, scientists, inventors, and maybe even sandwich makers, to states that ban such contracts.
John Warner, founder and CEO of SwampFox, was recently on South Carolina Business Review. He discussed how the resources found in Silicon Valley, Boston and Austin, Texas, are different from what can be found in our state, namely the amount of capital available and philosophies on investing.
We can add one more thing to John’s list. You know what California, New York, Texas and Florida all have in common? They’ve changed their policies on noncompetes.
A new study in this month’s Research Policy journal suggests a secret to Silicon Valley’s success is that California prohibits the legal enforcement of noncompete clauses.
“Firms are going to be willing to relocate someone who is really good, as opposed to someone who is average,” Lee Fleming, a professor at Berkeley who co-authored the study, told Crain’s Detroit Business. “For the inventors, it makes sense to take a risk on a place such as California, where they have more freedom.”
As an example, Michigan began enforcing noncompete agreements in 1985 after a longstanding prohibition of noncompete agreements. The rate of emigration among inventors was twice as high as it was in states where noncompetes remained illegal.
Noncompetes were almost exclusively seen in information-based industries, like engineering or architecture. But now the trend has begun spreading to industries that don’t seem like they would need them.
Sandwich chain Jimmy John’s has been in the news recently for requiring employees to sign noncompete clauses. This specific agreement bars the employees from working in a competing sandwich chain, defined as a sandwich shop within three miles of a Jimmy John’s location, for at least two years after leaving Jimmy John’s.
While some may argue signing a noncompete agreement as a software engineer is drastically different to signing one as a sandwich maker at Jimmy John’s, let’s go back to Silicon Valley.
In 2010, the United States Department of Justice filed a civil antitrust complaint against Apple, Google and others who conspired not to compete between them for highly skilled employees. The U.S. Justice Department argued the non-poaching pact “diminished competition to the detriment of affected employees who were likely deprived of competitively important information and access to better job opportunities.”
Beat Your Noncompete
Whether it be a well-paid engineer or a minimum wage sandwich maker, noncompete agreements obstructs good people from finding meaningful work. If you have a noncompete to beat, call the Law Office of W. Andrew Arnold at 864-242-4800.