A recent flurry of activity in the Legislature is raising hopes for statewide restrictions on noncompetition agreements, which prevent workers from switching jobs within certain industries. This buzz is exciting. Noncompetes are antiquated and the New England tech scene would be well served by their extinction.
Generally speaking, noncompetes prohibit employees from working for competing business in a specific geographic area for a certain time, usually a year or two. California prohibits the noncompete agreement in just about every form, while states from New York to Maine enforce them. Noncompetes restrain trade and stifle innovation in the New England tech corridor. Allowing more employee mobility is the best way to increase innovation in the Northeast.
California’s practice of nonenforcement has created a unique employment ecosystem that thrives on employee movement. Getting rid of noncompete agreements allowed creative ideas to flourish in start-up companies. Energized by such “high-velocity employment,” these start-ups produce products cheaply, forcing companies to specialize on specific tasks instead of a whole, integrated supply chain.
This system allows entrepreneurial individuals to build on what they have learned in previous positions, and quickly adapt to changing product cycles. It amplifies the rate of innovation in Silicon Valley.
High-velocity employment reduces the protection of an individual company’s business know-how, but major trade secrets are adequately protected by the Uniform Trade Secrets Act. The act is a standardized set of laws that each state can adopt through a vote of its legislature.
Restrictions on employee mobility, while more protective of employer trade secrets, have generally inhibited the development of the New England region. Since employees risk significant time away from a given industry if they change employers, they have little incentive to act on creative new ideas. Knowledge does not permeate from company to company. The region, as a whole, cannot quickly respond to the fast pace of technological change.
Proof that the New England region can recreate the success of the Silicon Valley can be found in the Bedford-based iRobot. In the past few years, iRobot allowed a number of employees to found their own robotics start-ups. Instead of enforcing the existing noncompetes, iRobot lets the companies flourish without litigation. Now, in an economy that is struggling, the New England robotics industry has sales nearing $4 billion, much of this spurred by the young minds who were trained and vetted in the iRobot offices.
Nonetheless, it would be a mistake for the state to leave noncompete enforcement in the hands of individual companies. By enforcing its noncompetes, iRobot could stop the flow of creativity and deal a crippling blow to the New England robotics industry.
Finally, Massachusetts appears interested in ending the decades of noncompete enforcement. Gregory Bialecki, Governor Patrick’s secretary of housing and economic development, recently stated at a legislative hearing that the governor favors elimination of noncompetes combined with adoption of the Uniform Trade Secrets Act. People at the top of the Massachusetts government are moving in the right direction.
Alas, the ringing endorsement by Patrick is still countered by some opponents within the high-tech industry. The hearing was convened to discuss the third attempt in recent years to modify Massachusetts’ noncompete legislation. This time, the attempt was only to limit the duration of a noncompete agreement to six months. Even if this bill succeeds, it appears that repeal of the law is at least a few legislative cycles away.
While a change in law is the best way to guarantee an end to noncompetes, there is much that the tech industry could do on its own. Members of organizations like the Massachusetts Technology Leadership Council and the New Hampshire High Technology Council seem to be split on noncompetes, so, understandably, neither is taking the lead on this issue. But individual companies can still be agents of change.
Those within the tech lobby fighting to maintain the status quo need to stop looking at a piece of paper as the only way to retain employees. Tech executives would make better use of their time by building a dynamic work culture — one that the most talented people find irresistible.
One great tech success story in New Hampshire is EqualLogic, which eventually was sold to Dell for $1.4 billion. Despite its success, its list of spinoffs is short for the simple reason that no one wanted to leave. To me, this seems like the more democratic way to retain talent: Incentivize people to stay instead of making it difficult for them to leave.
If we collectively undertake the challenge of not only promoting innovative products but implementing innovative processes, then there is no limit to the ecosystem we could build in the Northeast. For years our brightest minds have thought outside of the box. Now it is time for them to stop checking boxes on unnecessary paperwork.
Jeremy Hitchcock is the CEO of Dyn, an Internet performance company.