Time to Kill Noncompetes
Don’t do that/Do this
The company that codes cutting-edge voice recognition software. The tattoo parlor with distinctive designs. The competitive sandwich chain. Many businesses use noncompete agreements, which prohibit employees from joining or founding a rival company, to protect their assets and retain talent. This might sound like a no-brainer, but don’t be too quick to draw up that contract, says Matt Marx, an associate professor of strategy and innovation. He studies how these contracts stifle innovation and stall career mobility for the 30 million US workers currently locked into them. “Let me put it this way: I’ve interviewed a lot of people, and I’ve never met a single person who said, ‘I’m so glad I signed that noncompete,’” says Marx, who spent a decade working in Silicon Valley and Boston software start-ups.
Don’t Do That Noncompetes can make employees feel trapped and demoralized; those who leave their companies are often forced into career detours. In the meantime, their skills atrophy. By keeping people on a short leash—or out of the industry altogether—you’re compromising the growth of your industry.
Do This End noncompetes to foster employees’ creativity and allow them career flexibility, which in turn drives the innovation that feeds your industry. Happy employees are more productive and tend to stick around longer, so instead of threatening those who might leave your company, give them good reason to stay. “You never stop hiring somebody,” Marx says. “Just because they get in the door doesn’t mean they’re yours.” For example, in California, which bans noncompete agreements, companies offer benefits like stock options and foster enlightened management practices, such as Google’s “20 percent time” that encourages employees to develop side projects. You still need to protect your intellectual property, Marx says. He suggests using a nondisclosure agreement, which allows employees to move on, but prohibits them from sharing confidential information. That way, they’ll keep their skills, but leave your secrets.
