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Forbes: Your Company Should End Noncompetes - But Is it True?


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2/14/2019
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A February 13, 2019 Forbes article by German Chastel, a member of Forbes' New York Business Council claims that U.S.-based companies should kill their non-competes.

But is he right?

The Argument for "Killing Non-Competes," According to Chastel

Chastel's arguments for eliminating non-competes outright can be boiled down to four (4) points:

(1) Job-Hopping is Essential - Citing a New Yorker article, Chastel claims that “Silicon Valley was built on job-hopping,” and knowledge transfer between companies - worldwide - has never been more fluid. Chastel further asserts - without any supporting data - that Silicon Valley's stunning success in producing startups is directly correlated to the flow of talent, knowledge and technology between neighboring companies;

(2) Fragmentation of the Workforce - A large segment of today's workforce (as large as 1/3), particularly in the technology sector, has side jobs developing their own products, a number of which proved rather successful, as those "side companies" were later acquired by some of the corporate tech behemoths, like Google. Obviously, that can't happen (or at least easily happen) if the employees are chained by restrictive non-competes; 

(3) Non-Competes Hurt the Companies/Industries Themselves - This is quite an interesting claim. According to Chastel, by unshackling employees from these restrictive covenants, employees are freed to "spur innovation at whichever company they choose." I suppose that may be true, but such a blanket statement without concrete examples or specifics renders it hard, if not impossible, to evaluate the truth of this claim; and,

(4) Top Talent Will Shun Jobs with Non-Competes - In a parallel vein, Chastel asserts that "Companies that don't offer this benefit [i.e., not being bound by a non-compete] will find that candidates turn away in favor of companies that embrace the culture of the side gig." Again, that may be true, and it may not be true. But without specific examples that are vetted for accuracy, there is no way to really know.

The Takeaway

Without question, Chastel raises issues that are food for thought and long overdue for a reasoned, public discussion regarding policy - both on the corporate level, and perhaps even on the legislative plane, as many states have done, and are actively doing. That said, the bald statements about how non-competes inhibit innovation, without any research-based - or even anecdotal - evidence to back it up does nothing to advance the discussion.

I readily concede that conducting such a study (or studies) would present daunting challenges, if for no other reason that even on an individual level, the reasons for people changing jobs can rarely be attributed to one reason alone; as I know from personal experience (and that of my friends), there are almost always a combination of reasons for doing so. But a concerted effort to address this important policy issue from a more educated platform is necessary - especially if the hope is to effect positive change with predictable results.

A Final Thought

In the final analysis, and sadly, Chastel's premise - that non-competes should be killed - may very well be correct. But the article fails to marshal the evidence necessary to support the argument.

 

 



Category: Non-Compete & Employment Agreements

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