Op-ed: Non-compete agreements needlessly stifle innovation
Should a landscaper be able to forge out on his own or work for a different landscaping company? Not in Utah. Should a truck driver be able to switch trucking companies? Not in Utah. What? House Bill 251, which is currently under consideration by the Utah Legislature, is a step in the right direction.
Utah's best entrepreneurs don't shy from competition, but embrace it as a catalyst for greatness. Non-compete agreements, by their name, fly in the face of competition. Non-competes stifle the free market for good talent, make it harder for companies to hire and discourage entrepreneurs from starting new businesses.
Utah's technology scene is strong and poised for growth. Employees leaving may seem scary to employers, but the last thing we need is companies restricting the flow of talent and preventing competition. HB251 would curtail — but should go further — the use of non-compete agreements, a move that studies consistently show fosters innovation and spurs economic growth.
Should BYU be able to prevent coaches from going to the U. of U. or vice versa? That's ludicrous. Surprise, surprise, the only profession Utah law doesn't allow non-competes for is lawyers — the ones who write the laws.
Some say non-competes are necessary to protect intellectual property, but this is an overreach. IP is crucial to technology companies. No one advocates abolishing IP protection, but non-competes aren't the right tool to protect IP.
Utah adopted the Uniform Trade Secrets Act (UTSA) to protect trade secrets. If an employee absconds with a customer list, software code, trade secrets, etc., the law should (and does) harshly punish that person and his new employer. The UTSA provides powerful and potentially crippling remedies, including injunctive relief, treble damages and attorneys' fees. No company wants to defend a claim under the UTSA. Smart companies ensure competitor trade secrets don't make it into their business.
I have intimate knowledge of the use, and abuse, of non-competes. After selling Omniture to Adobe and successfully transitioning the business, I chose to start Domo. This triggered a lawsuit that cost me $3 million in legal fees. Like all lawsuits, there were arguments on both sides, but the problem in general is the question of whether you're competing can be construed so broadly that any company trying to make your life miserable can threaten a massive lawsuit creating a chilling effect on the labor market and an atmosphere of "non-competition."
I was the exception. For most employees, a threatened lawsuit is enough to keep them sidelined, even if no court would ever uphold the non-compete.
Domo's birth came at significant cost in time and resources, but the end result for Utah is another 800-plus jobs created. Apple, Intel, Microsoft, Vivint and Domo all represent companies that wouldn't have started if the entrepreneurs were subject to overreach by ex-employers.
Utah is a first-class business environment; Utah employees shouldn't be treated as second-class citizens. Many companies with employees in Utah and California treat their Utah employees worse. Is this because a non-compete limits Utah employees' options? It isn't right.
Many Utah employees have to move to California temporarily to avoid enforcement of a non-compete agreement in Utah. This isn't good for Utah employees or their families, Utah businesses or Utah's economy. Human talent is the fuel that will continue to propel Utah's technology sector. We shouldn't be pushing this talent out of the state.
I want my competitors' best employees. I want their best players. I don't want their employers' secrets, but I want the employee's skills. Training an employee doesn't give you ownership of the employee.
Losing an employee you trained and who gained great experience working at your company hurts. I've had employees leave and work for or start competing companies. The knee-jerk reaction is to prevent it by applying the sledgehammer legal tool. But I've learned that isn't the right reaction.
As long as trade secrets and customer lists aren't used, individuals should be able to provide for their families however they see best. The right thing for a company and for Utah is to allow competition. Competing requires me and my team to up our game — and when we win it's because we have a better company and better products, not because we have more lawyers and more money.
Josh James is founder and CEO of Domo.