4 ms·

> But the history of these covenants suggests that there’s a strong economic case for banning them entirely This is an example of starting to make a good poin

> But the history of these covenants suggests that there’s a strong economic case for banning them entirely This is an example of starting to make a good point and carrying to an extreme that makes it unreasonable. Non-competes exist for a reason, and saying they need to be deleted is a silly argument. "This common business practice could use modification" generates less clicks, I suppose. <Insert rant about journalism>

ghaff 8y ago
They're mostly bad but the paper referenced also isn't that convincing. There was something of a shifting of the tech center of gravity from the East to the West coast. But, as the paper even notes, there were a lot of differences in business practices between east and west (long-term employment vs. job-hopping) that were at most only somewhat correlated to non-compete law. (I worked for one of the big "Route 128" companies for many years and never had a non-compete until acquired by EMC.) There is a lot of research that suggests knowledge transfer among companies increases innovation but it's not clear how much non-competes retard that transfer in practice. As a sidenote, Massachusetts finally put significant restrictions on non-competes over the past year or so.
LanguageGamer 8y ago
What, to your mind, are good reasons for non-competes? To me it just looks like rent-seeking. Do you see any negative consequences in states that have banned them almost entirely, such as California?
- ghaff 8y ago
  I'm not sure they're ever good in an absolute sense. I do think that individuals above a certain level can reach mutually beneficial agreements with potential employers when they sign an employment contract if it contains provisions for significant garden leave and the like. I'd mostly like to see minimum requirements embedded in law if non-competes aren't largely unenforceable (which is fine by me too).
- TallGuyShort 8y ago
  In some cases an employee might be able to build up a base of loyal customers more easily with a larger firm than they could alone, leave and take much of that business with them, and enjoy the continued productivity with much higher margins. The resources of the larger firm then become a stepping stone to the loss of their own business. I know of one case (in which I am actually mostly sympathetic to the individual bound by the non-compete) in which that's actually exactly what happened.
  - lordnacho 8y ago
    If the customers prefer a new business, that suggests non-competes are damaging, just like the article says. We can all see why the company wants the clause, but it's equally clear that it's in society's interest to not allow it.
    - TallGuyShort 8y ago
      There's an actual cost the company is trying to avoid though, and that actual cost will have to go somewhere eventually. Either it will actually result in companies having higher overhead to maintain their business, or the employees who used to have non-competes having to pay for some of the firm's business generation one way or another. Reminder that the question was "what are good reasons...", which suggests that not everyone knows why the company wants them, unless you assume all companies are inherently evil which is not reasonable. They invest in their brand. Employees get the benefit of that to help establish their own brand. And then they can take that brand elsewhere to the detriment of the original investor.
brownbat 8y ago
I agree journalism can exaggerate points for clicks, but this is a strange comment here when you look at the actual research cited. They are pointing to multiple economic studies based on natural experiments where the total prohibition of NCAs can be compared with their use under similar circumstances. The studies strongly suggest that total repeal is better than permitting these contracts, and it's not obvious a simple modification would have the same results. You might worry those studies are not representative of all the literature on this, or more work needs to be done, fine. But I don't think we can dismiss the argument as silly offhand. The author makes at least a prima facie case.... Better than that, there's evidence supporting it from different contexts.
namlem 8y ago
California banned them and has only benefitted as a result. Why should other states not do the same?
cryptonector 8y ago
Banning them is a simple act. Improving them invites writing legalese terms into law that probably won't help the situation. Big players have the political power to make such things happen, while everyone else only has the political power to get the practice banned.
woolvalley 8y ago
Non-competes are an asymmetric, negative externality imposed by employers on to employees. Employers like it because it decreases employee job liquidity and thus brings down the price of hiring for almost nothing. It's like not charging factories for the polluting smog they create as it floats over your house, but in this case, it's the general economy.

ghaff 8y ago

They're mostly bad but the paper referenced also isn't that convincing. There was something of a shifting of the tech center of gravity from the East to the West coast. But, as the paper even notes, there were a lot of differences in business practices between east and west (long-term employment vs. job-hopping) that were at most only somewhat correlated to non-compete law. (I worked for one of the big "Route 128" companies for many years and never had a non-compete until acquired by EMC.) There is a lot of research that suggests knowledge transfer among companies increases innovation but it's not clear how much non-competes retard that transfer in practice. As a sidenote, Massachusetts finally put significant restrictions on non-competes over the past year or so.

LanguageGamer 8y ago

What, to your mind, are good reasons for non-competes? To me it just looks like rent-seeking. Do you see any negative consequences in states that have banned them almost entirely, such as California?

ghaff 8y ago
I'm not sure they're ever good in an absolute sense. I do think that individuals above a certain level can reach mutually beneficial agreements with potential employers when they sign an employment contract if it contains provisions for significant garden leave and the like. I'd mostly like to see minimum requirements embedded in law if non-competes aren't largely unenforceable (which is fine by me too).
TallGuyShort 8y ago
In some cases an employee might be able to build up a base of loyal customers more easily with a larger firm than they could alone, leave and take much of that business with them, and enjoy the continued productivity with much higher margins. The resources of the larger firm then become a stepping stone to the loss of their own business. I know of one case (in which I am actually mostly sympathetic to the individual bound by the non-compete) in which that's actually exactly what happened.
- lordnacho 8y ago
  If the customers prefer a new business, that suggests non-competes are damaging, just like the article says. We can all see why the company wants the clause, but it's equally clear that it's in society's interest to not allow it.
  - TallGuyShort 8y ago
    There's an actual cost the company is trying to avoid though, and that actual cost will have to go somewhere eventually. Either it will actually result in companies having higher overhead to maintain their business, or the employees who used to have non-competes having to pay for some of the firm's business generation one way or another. Reminder that the question was "what are good reasons...", which suggests that not everyone knows why the company wants them, unless you assume all companies are inherently evil which is not reasonable. They invest in their brand. Employees get the benefit of that to help establish their own brand. And then they can take that brand elsewhere to the detriment of the original investor.

brownbat 8y ago

I agree journalism can exaggerate points for clicks, but this is a strange comment here when you look at the actual research cited. They are pointing to multiple economic studies based on natural experiments where the total prohibition of NCAs can be compared with their use under similar circumstances. The studies strongly suggest that total repeal is better than permitting these contracts, and it's not obvious a simple modification would have the same results. You might worry those studies are not representative of all the literature on this, or more work needs to be done, fine. But I don't think we can dismiss the argument as silly offhand. The author makes at least a prima facie case.... Better than that, there's evidence supporting it from different contexts.

namlem 8y ago

California banned them and has only benefitted as a result. Why should other states not do the same?

cryptonector 8y ago

Banning them is a simple act. Improving them invites writing legalese terms into law that probably won't help the situation. Big players have the political power to make such things happen, while everyone else only has the political power to get the practice banned.

woolvalley 8y ago

Non-competes are an asymmetric, negative externality imposed by employers on to employees. Employers like it because it decreases employee job liquidity and thus brings down the price of hiring for almost nothing. It's like not charging factories for the polluting smog they create as it floats over your house, but in this case, it's the general economy.