When Workers Sign Non-Compete Agreements, No One Benefits

On the surface, it seems like common sense: keep your employees from taking what you’ve taught them and bringing it to your competition by making them sign non-compete agreements. Logical, right?

Not so fast.

Every analysis of this burgeoning practice is showing that not only is this a terrible thing to inflict on workers—who are ensnared in a kind of servitude where they must stay with a bad job or risk leaving their profession entirely—but it destroys innovation, economic growth and entrepreneurship.

Employment and labor law Professor Orly Lobel of the University of San Diego School of Law wrote in today’s New York Times just what non-compete clauses really mean to the burgeoning ranks of the 30 million employees who have signed them. According to Lobel, instead of just requiring non-competes from the top echelon of employees, now one in six workers without a college degree are also forced to sign them. “By including them in employee contracts, employers can use the threat of litigation to constrict wages and employee mobility,” she says.

The effect this has on the workplace can’t be underestimated. Psychologically healthy, safe and fair workplaces don’t shackle employees’ ability to freely leave their jobs for better wages and benefits, to advance a career, or to accrue working capital. Parents are especially penalized when they can’t move to a state that doesn’t enforce non-competes because of the need to live near family, their children’s education or their spouse’s employment.

For the clearest proof as to how non-competes hurt industry, Sobel cites the example of California and Massachusetts, both of which benefited from an early boom in high-technology. California, which does not enforce non-competes, is now a thriving hub of tech innovation. Massachusetts on the other hand, which enforces them, had its tech boom die out. If employees wanted to stay in the industry they had to leave the state—much to the state’s detriment.

In From Bully to Bull’s-Eye: Move Your Organization Out of the Line of Fire I discuss how psychologically healthy, safe and fair workplaces are fertile breeding grounds for creativity, innovation and productivity. If you want the exact opposite of all these things, introduce a non-compete agreement. But beware. The employee you exploit the most may wind up being yourself.

Photo credit: BIGSTOCK