In a decision that has interesting repercussions for the web industry, the California State Supreme Court has ruled that non-compete clauses in employment contracts are not enforceable in California.
Non-competes, for those who have never dealt with them, restrict employees who leave their existing jobs from taking a similar role in another company or to start a new company for a set period of time. The idea being that an employee cannot immediately use skills or knowledge gained from one employee for the benefit of others until a cooling off period has passed.
The court found that state law since 1872 has forbidden non-compete clauses that restrict management employees’ options after they leave a company, with lawyer Richard Frank telling the Chronicle that the decision “advances the strong California policy favoring open competition and employee freedom…Those have been drivers of the state’s economy, especially in the technology area.”
BoingBoing quotes an interesting study on the effects of a non-compete in generating innovation and growth:
I’m reminded of the study from the Duke Center for the Public Domain that concluded that the reason that the tech corridor on Route 128 near Boston had grown so much more slowly than Silicon Valley was that Massachusetts has enforceable non-competes, while California does not. The researcher concluded that in California, the best talent moved to the best companies, while on Route 128, crummy companies could lock up great people for years at a time through non-compete agreements.
I can see the side of the employer in this case: you invest in an employee, they gain intimate knowledge in the sector they work, but can walk out and use that knowledge to compete against you immediately and without restraint. Mark Zuckerberg worked on ConnectU then built Facebook while still working (sort-of) for ConnectU, a product both similar and a direct competitor.
From an employee viewpoint is it fair that employment contracts extend beyond the period of employment? In a free society, the freedom to move from one job to another without restraint should be a fundamental right, a right that encourages open freedom in corporate innovation.
I’ve been under a non-compete before, and despite it being a contract clause in a foreign country, so quite possibly unenforceable in my own country, I respected it none the less, because I believed it the right thing to do. However I walked away with some small financial reward so I was fortunate in not needing to find alternative employment, but my situation is rare. People are entitled to eat, and if their skill sets are defined within one specialty, a non-compete restricts the ability of employees from leaving a company and being able to put bread on the table, and no fair minded person could support that.