Garmentory has eliminated non-compete clauses from employment agreements and we’re appealing to other Seattle companies to do the same. (Sorry lawyers).
The recent controversy around bills in the Washington state house that fueled a Twitter spat between the WTIA’s head Michael Schutzler and my favorite investor, Chris DeVore of Founder’s Co-Op, opened my eyes and changed my mind.
The two debated a contentious bill to ban non-compete provisions from employment agreements in Washington state.
Non-compete clauses are like running a coal-fired power plant next to a hydroelectric dam. The problem is already solved, but it creates nasty side effects that hurt the entire region.
The theory of a non-compete is logical: They protect the intellectual property that forms part of my company’s competitive advantage. Or they protect the customers we’ve worked so hard to build. An employee going to a competitor hurts my entire team; all of us who hustle and sacrifice against the odds every day.
But intellectual property is already protected by confidentiality clauses. Employees aren’t allowed to reveal trade secrets to a new employer, or anyone, for that matter. (Editor’s note: That’s the crux of a bitter and expensive lawsuit between Zillow and Move Inc. that’s playing out in the Washington courts right now). If they do disclose trade secrets, former employers have similar legal remedies to non-compete clauses. The non-compete is redundant.
But including them pollutes our local economy and makes us less competitive, the very thing a non-compete is intended to preserve.
The most toxic side effect is the inhibition of labor mobility.
From a macro-economic perspective, I’ve found the weight of evidence to support labor flexibility, for both employee and employer. I’ll go so far as to say Europe can fiddle with monetary policy ad nauseum, but until they liberalize their oppressive labor laws, they won’t see strong economic resiliency or growth. The free flow of labor allows people to work in the jobs they love most, create the greatest economic impact, and build the most competitive companies.
Talent, like economic growth, is the opposite of a zero-sum game. The more you have, the more you get.
Seattle is an incredible place to build a company because we have access to world-class talent, who attract more world-class talent. But we are a fraction of what we can be. Let’s not throw sand in the gears.
D.C. does plenty of that already by capping highly skilled immigration and sending international students with new Masters or Ph.Ds home.
From a micro-economic perspective, the effect has a real impact on personal decision making.
There are well documented cases of the big employers in the region going after former employees. And I personally know people who forewent job opportunities or entrepreneurial ventures out of fear of litigation.
Forget tech, it’s even worse for people in a trade. My wife’s hair stylist worked for a salon with non-competes, that was pursuing legal action against dozens of former stylists that left. Her stylist’s non-compete said he couldn’t work within 50 miles of one of their salons — which is the entire metro area. The stylist isn’t allowed to solicit former customers. That’s already barred and acceptable.
Does forcing this stylist to work at a grocery store for two years actually help the former employer or the regional economy? No.
The reality of non-competes is that Garmentory’s intellectual property and customers are already protected.
The non-compete is a tool for companies with huge legal budgets to retain employees and stifle competition.
That’s not good for any of us, even those big employers, as they deny themselves access to the very talent that could help make them great.