Legislating noncompetes

The battle over noncompetes is a modern-day rendition of an age-old trope: the big corporation versus the little employee; Goliath versus David.

The only difference? In the fable, Goliath was brutish and slow, and everyone knew he was the bad guy. Today, Goliath is smart and backed by an All-Star team of lobbyists, and he’s doing his level best to convince us it’s David we should be worried about.

Goliath, in our story, is Big Business. And David? Well, David represents the millions of workers trying to make a living, pursue a passion or start a new venture. Without legislation to rein them in, these large corporations wield noncompetes indiscriminately, tying down everyone from interns to fast food workers, from hairdressers to software engineers. With their lobbyists, they’ve crafted a narrative where noncompetes are “necessary” — conniving workers, they’d have us believe, are just waiting for an opportunity to steal whatever intellectual property they can get their hands on.

In reality, noncompetes aren’t “necessary,” they’re just “available.” True IP theft, while damaging, is perpetrated by a minority of employees. With the arsenal of trade secrets protections and litigators at the disposal of Big Business, the damage to corporate interests that noncompetes mitigate is far outweighed by the damage they do to individual workers, and the economy at large.

In the absence of regulation, noncompetes are a surefire hack to minimize recruiting and training costs, and a great way to suppress employee wages once they’re locked in. Just look at the recent Jimmy John’s lawsuit, where the New York Attorney General called it “unconscionable” that the sandwich chain was “limiting mobility and opportunity for vulnerable workers” and “bullying them into staying with the threat of being sued.”

It’s not just sandwich makers who suffer unfairly: software engineers, for example, make nearly 20 percent less in markets like Boston than they do in California. In comparing those regions, factors like access to innovation, talent and capital are comparable, but in Boston, noncompetes are enforceable, while in California they are literally a relic of the 1800s.

If total immobility for low-pay employees and 20 percent wage suppression in the high-skill market doesn’t get your blood boiling, think about the bigger picture. These agreements don’t just hurt workers, they hold back the entire economy, especially as it relates to the tech sector.

The data show two things, beyond a shadow of a doubt: people innovate in their fields of expertise, and cross-pollination is good for all parties involved. To clarify: The best startups spin out of incumbents, and the idea exchange and network effects associated with the free flow of talent actually raises productivity across the board. When talent is tied down by noncompetes, all that potential growth is lost (or it just heads to California, where noncompetes can’t get in the way).

These agreements don’t just hurt workers, they hold back the entire economy.

With our research centers, biotech clusters, concentration and talent pipelines, Boston’s innovation sector is world-changing — and touted by state government as the driver of our economy. But it’s also a cautionary tale, as the Route 128 boneyard attests to what should have been the world-dominating tech ecosystem. The research, common sense and public opinion all tell us that noncompetes are at the root of Boston’s seemingly inexplicable inability to surpass Silicon Valley as the No. 1 global tech hub.

Indeed, the region has seen both the incredible growth that an innovation sector can drive for a state’s overall economy as well as the limiting effects noncompetes have on that same ecosystem. We need legislation that reins in corporations’ ability to brandish noncompetes.

Unfortunately, we’re faced with a classic example of a narrow corporate interest having an outsized effect on politics, both national and state. Big Business is scared of what employee freedom means, and not because it would mean a catastrophic breach of the IP levee, as their lobbyists would have you believe. No, it’s because of the changes it would necessitate. As Jeff Immelt, CEO of GE said: “I think it’s up to us to create the kind of workplace that people want to be at.” To do that takes effort; it takes resources. Most of all, it takes a culture shift, and that’s scary for Big Business.

But the data — not to mention an eye-test comparison of the Silicon Valley tech ecosystem versus that of other top-tier cities — says that their fear is misplaced; that the change will be more than worth it.

So what can we do, as a nation, to protect workers and position the economy for success? Well — to revisit the analogy with which we began — just like the fable, David has a slingshot at his disposal; a simple mechanism that can subdue the giant. That tool? Legislation that puts a financial check on Goliath’s favorite weapon, tying compensation to the enforcement of noncompetes. We’ve been chucking those little rocks for a few years now, but today we see an army growing in support.

The White House recently convened a symposium to help inform a national effort to reform noncompetes. In the room of 30-plus leaders — from economists to professors, major research and policy think tanks to state legislators, business groups to attorneys general — only one voice spoke out in favor of the status quo: a corporation with a market cap of nearly $100 billion.

This truly is a David and Goliath story, and it’s destined to end the same way. When a Fortune 100 corporation with that market cap cites $600,000 it spent on IP theft investigation as a reason to keep noncompetes the way they are, it’s indicative of the kind of disconnected tunnel vision that precedes collapse. The slingshot will be reloaded. National attitudes are shifting. The pebbles are buzzing around Goliath’s forehead now.