by Michael Krieger, Liberty Blitzkrieg: Before I begin, I want to mention that my only experience with Idaho (unfortunately), was driving through the southeastern part of the state during my six-week cross country road trip in 2010. It was some of the most majestic and peaceful scenery I had ever seen, and I’d love to return and explore more of the state in the future. I’ve also heard Boise is a pretty cool city. It’s unfortunate that a state with so much potential passed the anti-freedom legislation described below, but I have faith the people will figure it out and reverse course.
Much of my recent writing has been focused on the need for political decentralization, meaning that states and local communities need to start experimenting more and making decisions for themselves on a wider range of important policy questions. This naturally will lead to some really good outcomes, but also some genuine disasters. Idaho’s noncompete law falls into the latter category.
Many of you may not be familiar with what I’m talking about, so I’ll start with some excerpts from a very good New York Times article on the subject, and then get into some detailed commentary at the end.
Here’s a brief overview of the situation from the piece, Noncompete Pacts, Under Siege, Find Haven in Idaho:
BOISE, Idaho — Idaho achieved a notable distinction last year: It became one of the hardest places in America for someone to quit a job for a better one.
The state did this by making it easier for companies to enforce noncompete agreements, which prevent employees from leaving their company for a competitor.
“We’re trying to build the tech ecosystem in Boise,” said George Mulhern, chief executive of Cradlepoint, a company here that makes routers and other networking equipment. “And anything that would make somebody not want to move here or start a company here is going to slow down our progress.”
Alex LaBeau, president of the Idaho Association of Commerce and Industry, a trade group that represents many of the state’s biggest employers, countered: “This is about companies protecting their assets in a competitive marketplace.”
By “assets” he means human beings. Just want to make that clear.
For the most part, states have been moving toward making it easier for people to switch teams, but Idaho went the other direction with legislation that was friendlier to employers. The resulting law was particularly strict because it put the onus on employees to prove that they would not harm their former employers by taking the new jobs.
Proponents note that the statute applies only to “key employees” who tend to have more responsibility and better pay. But employment lawyers say Idaho companies tie down all levels of workers, not just top executives, with tough employment contracts. And indeed, the new law has roots in a yearslong fight waged by a woman who never finished high school but built a career selling tech-training services, only to be sued when she left for a better-paying job.
The most extreme end of the spectrum is California, which prohibits noncompete agreements entirely. Economists say this was a crucial factor behind Silicon Valley’s rise, because it made it easier for people to start and staff new businesses. But as states like Utah and Massachusetts have tried to move closer to this approach, legislators have run into mature companies trying to hold onto their best employees.
A recent survey showed that one in five American workers is bound by a noncompete clause. They cover workers up and down the economic spectrum, from executives to hairdressers. Despite their widespread use, these agreements often catch departing workers off guard because they are rarely highlighted during interviews and are usually tucked inside employment contracts that are full of impenetrable legalese few people can understand.
They hate us for our freedom.
Now here’s an example of what can happen when noncompetes aren’t enforced. Workers tend to win.
Two years ago, TSheets hired a pair of engineers from a smaller software company called Zenware. Jody Sedrick, Zenware’s chief executive, was hurt and disappointed. He contacted a lawyer to see if it was possible to prevent his employees from leaving for a rival, but instead of spending money on legal costs, he decided to try something else: He gave each of his remaining employees a raise.
“I said, ‘You know what, we’re going to double down internally,’” he said in a recent interview.
The result for the Idaho economy was that TSheets hired two people — but in doing so got 12 other people a raise. Had Mr. Sedrick decided to sue his two departing employees, something Idaho’s new law made easier, those raises might never have happened.