Jeremy Hitchcock is the CEO of Inc. 5000 company Dyn.
Technology has made imagination the only limit to human potential. Through technology, people--regardless of age, ethnicity, gender or income--can access ideas, education and culture. Eventually this access will lead to innovations across the entire spectrum of society improving the way we live, communicate and care for each other.
Yet it is very surprising to learn that the free flow of ideas that has made technology such a public gift do not apply to many of those who work so hard privately to create that technology in the first place.
That is why I am a firm believer that we need to take collective action--within both the public and private sectors--and, once and for all, universally eliminate non-compete clauses. They are antiquated relics that belong to the industrial revolution and share no values with today’s ideas revolution.
What Are Non-Competes?
Generally speaking, non-competes will prohibit an employee from working in a competing business in a specific geographic area for a certain period of time, usually a year or two. California prohibits the non-compete agreement in just about every form while the vast majority of states enforce them. I've been thinking about the ramifications of the non-compete and how best to grow innovation in emerging tech ecosystems throughout the country. The best way to increase innovation in the US is to increase employee mobility. The best way to do that is to get rid of or change the non-competition agreement.
While many people think of California as progressive because it is home to Hollywood, it is actually the state’s (accidental) view on non-competes that makes it forward thinking. California's enforcement of non-enforcement has created a unique employment ecosystem that thrives on employee movement.
How does this work? Getting rid of non-compete agreements allowed creative ideas to flourish as startups. Termed "high-velocity employment," the movement made vertical integration largely impractical as startups produced products cheaply forcing companies to specialize on specific tasks instead of a whole supply chain.
On the other hand, the restriction on employee mobility, while more protective of employer trade secrets and know-how, has generally inhibited development in other regions throughout the country. Since employees risked significant time away from a given industry if they changed employers, employees had little incentive to act on creative ideas related to their employment. Knowledge did not permeate from company to company as workers moved around and regions, as a whole, could not quickly respond to the fast paced world of high technology.
Of course, this works in Silicon Valley because there is a level playing field. Facebook doesn’t enforce a non-compete but neither does Twitter. And it should be noted that the Californian legislation took the decision out of these companies’ hands.
For the rest of the country, this is where this noble idea breaks down. While it would be great if we were all bold and principled and willing to eliminate non-competes within our own offices, we know the reality is we must protect our individual businesses. That is why true change will only happen through collective action. And action is preceded by conversation.
What Can We Do?
We have already, mostly completed the initial step to wean us off the non-compete agreement. Forty-seven states have voted to implement versions of the Uniform Trade Secrets Act. With Massachusetts introducing a version to its legislators this year, only New York and Virginia remain to address the issue.
The act is a standardized set of laws that each state can adopt through a vote of its legislature. It adequately protects major trade secrets. Combined with a general prohibition on the non-compete, this system allows entrepreneurial individuals to build on what they have learned in previous positions, amplify the rate of innovation, and quickly adapt to changing product cycles.
Critics may say that manufacturing processes, pricing schedules, or sales methods are not considered "trade secrets," and that they still need the non-compete to protect them. But they're actually referring to non-disclosure and/or trade secret agreements.
Others are concerned about companies outright stealing clients and employees. Non-solicitation agreements, which are more narrow than non-competes, adequately cover this risk. Protections for these sorts of agreements should be appropriate, perhaps based on tenure and seniority in an organization.
There are others who may believe my argument is biased toward the high-tech industry and I will admit that is the world in which I inhabit. That being said I would love to hear feedback from any industry, saying that non-competes improve it. I am not being snarky. I am interested in having the broadest discussion possible.
Many of us within the business community are hesitant to outsource this decision to the government. However, this is an issue where collective disarmament will create a better and more level playing field. In the mean time, there are proactive steps we can do while simultaneously pushing for political change.
For starters we can stop looking at a piece of paper as the only way to retain employees. Instead we should spend time building a dynamic work culture--one that top talent finds irresistible and which they simply have no desire to leave.
To me, this seems like the more democratic way to retain talent: incentivize people to stay instead of forbidding them to leave. It’s actually the more appropriate lens in which to look at this issue, as employee mobility is high. Knowing that employees may leave should motivate employers to invest in their greatest asset--their people. Yes, a few of them may leave and start their own companies and create jobs but this is something they will probably do anyway. This should not be condemned but applauded.
To those who would believe the issue of non-competes is trivial, I would adamantly disagree. The movement to end these clauses should be the labor movement of the technical age. In an era of knowledge workers we must remember we do not own talent--we lease it. Detractors of technology say it is creating a generation of apathetic individuals. Here is our chance to prove them wrong.
Let the conversation begin.
Jeremy Hitchcock is the CEO of Dyn, an Internet performance solutions company.