Let’s get rid of employee non compete agreements once and for all

This morning Governor Deval Patrick will make it clear he is seeking an end to employee non compete agreements in our state

Employee non compete agreements are not enforceable and are deemed illegal in California. Yet the opposite is true in MA. They are used and enforced. And because of this they stifle innovation and terribly problematic. 

Here are the issues:

1. The opposition likes the status quo because it’s a often a tool for wage suppression

2. These agreements encourage new grads to leave the state. Bright minds come and get educated at MIT. They specialize in things like speech recognitoin or robotics. There is a high probability their first job out of school won’t be their last. Knowing this, do they take a job locally where they will be locked up in a broad non compete that follows them or do they take a job in the bay area and have freedom if things don’t work out with their first employer. 

3. Non competes stifle innovation because the companies can’t hire the best talent. Silicon Valley companies hire the best people without limitation. It’s a big problem if you can’t hire the best and brightest.

4. Non competes are not the same thing as non solicitation and confidentiality agreements. I’m amazed at how often the opposition will try to bundle these altogether. That is nonsense. I’m an advocate for confidentiality and non solicitation agreements. They are enforced in California and yet allow for innovation and mobility. 

5. The opposition will shout that this will hurt their business but they have been unable to suggest why silicon valley tech companies can thrive without non competes. Why do east coast VCs fund west coast startups if non competes are so harmful. The answer: non competes aren’t harmful….in fact that leads to a new point — banning non competes hurt company culture.

6. Non compete agreements hurt company culture. Imagine running a company where your employees are only at the company because they signed a non compete agreement. Every day those employees wish they were someplace else. And their employer doesn’t have to inspire them because they know the burden to leave is too high. Also managers will treat employees better if they know they can leave

7. Non competes are often vague and broad. If challenged maybe a judge will throw it out but VCs aren’t interested in dealing with litigation. We want to support new ideas not deal with courts. Boston VCs have tremendous capital under management. Much more than NYC VCs. Yet we invest mostly out of this state. We see founders all the time that want funding but we aren’t prepared to deal with legal risk so we pass on those opportunities.

8. Chilling effect. It is well known that companies like EMC will go after former employees for violating their non compete agreement. It creates a chilling effect where people are less likely to challenge it even if they want to pursue a market that EMC is weaker in or doesn’t participate in. 

With respect, we need to do less to protect companies like EMC and figure out ways to create 100 new EMCs in our state. 

After living in California for 10 years and investing for nearly the same amount of time from across the country, it is clear to me and many others that employee non compete agreements are stifling innovation in the state of Massachusetts. 

I’ve been passionate about this issue for a long time and shared my thoughts on this blog several years back. I’m proud of our Governor and members of the state legislature that were brave enough to take a stand on this issue. Thank you. 

I’m also proud of our portfolio company RunKeeper. As of this week they are no longer requiring employees to sign these agreements and past agreements are essentially being thrown out. My heartfelt respect and gratitude to the founder and CEO Jason Jacobs. I hope we see others follow Jason’s lead.

And last but certainly not least, a big shout out to Jeff Bussgang who is a partner at Flybridge. Jeff has been tirelessly advocate for open innovation and bringing an end to employee non compete agreements. Well done sir. 

So now we need you to act and do your part. If you live in the state of MA, call your local rep and let them know you stand with the Governor and on the side of open innovation.