How will DC’s revised ban on non-compete obligations affect hiring and innovation?

Last week, DC Council replaced a general ban on non-compete with a ban only on those earning less than $150,000 a year. Such clauses typically prevent employees from moving to a job in a similar industry and potentially apply information learned from one company to another.

Non-compete clauses also tend to protect companies at the expense of the worker, affecting their mobility in the labor market.

“Non-compete clauses are quite common, especially with regard to key employees who are well paid and who provide unique value to the employer. These agreements are generally signed at the commencement of employment as a condition of employment — meaning employees may be required to sign them before employment begins,” said Helen A. Rellaan employment and labor lawyer at law firm Wilk Auslander LLP.

These clauses (or lack thereof) can ultimately affect hiring practices, innovation, intellectual property and employee retention. Rella said they can make an impact especially in the tech world, “where competition is fierce and workers are developing new and valuable technology where there can be a race to be the first to succeed.”

“In such cases, tech employers have an interest in banning employees from developing systems and then jumping to a competitor and undermining the very purpose of the start-up – which is to develop and market new technology,” he added. them to it.

Angela Francochairman and CEO of the DC Chamber of Commerceand Brett Allen, the economic driver organization’s director of government relations and public policy, applauded the decision to lift a blanket ban. Franco and Allen spoke to dozens of DC-area companies and lobbied lawmakers about concerns about a blanket ban. Franco said they worked with industry leaders from the DC Building Industry Associationthe Consortium of Universities, DC Hospital Association and more. All of these employees, Allen added, were concerned about what a blanket ban could mean for their internal products.

“Everyone had heartburn on a general ban because they either had information they wanted to protect or they would venture into areas where they had information they wanted to protect,” Allen said.

Do non-compete obligations actually harm innovation?

Harvard Business School professor Andy Wue conducts research on growth strategy in the technology industry that primarily focuses on how companies organize to innovate and mobilize resources for growth. Wu said banning non-competitors often favors smaller companies, such as startups, that hire over those who already have staff — the latter of which tend to be more established companies.

To opponents who say banning non-competitors could hinder companies from innovating, Wu points out that California remains an epicenter for innovation and creativity, despite banning non-competitors. He cites the example of the entrepreneur Eric Yuanwho left his managerial position at Cisco/WebEx before launching his own video chat startup, now known as Zoom.

“I want you to try and imagine what the world would have been like if we hadn’t let Eric Yuan start Zoom,” Wu said. “Most evidence suggests that banning non-competitors is beneficial for innovation and especially entrepreneurial activity.”

Entrepreneur Todd Markswhose Baltimore-based consultancy for custom mobile and web app development mindgrub has employees in DC, believes that companies need protection for their intellectual property. Still, he admits that non-competition may not be the best way to enforce that.

“They were created primarily by protecting the company’s IP,” says Marks. “Now that employees are much more likely to change jobs, it is a disadvantage for them to have signed a non-compete clause and not be able to work.”

Marks says that non-competitors can protect companies, but employees should be able to transfer their skills in different positions within the same industry, as long as they don’t reveal trade secrets. Marks would remove non-competitors for his DC employees if required by law, but he would make sure they were clear about what intellectual property is protected within the company and what isn’t.

Although non-compete clauses are widespread within companies, few actually use them as an enforcement mechanism. Enforcing non-compete clauses can be costly and usually involves legal action, Rella told Technical.ly.

Mindgrub founder and CEO Todd Marks. (Courtesy photo)

“We have yet to enforce our non-compete clause,” Marks noted. “We have not yet had a situation where there was direct competition.”

Few local tech founders seem really interested in discussing this as in-depth as Marks: Technical.ly contacted nine other tech companies in DC, a third of which declined to comment. The rest did not respond.

Wu points out that non-competitors can have a “horrifying effect”, where the threat of enforcement by a non-compete clause is enough to prevent people from changing jobs and starting businesses just because people are afraid of going to court. to be sued. He thinks the ban on workers earning less than $150,000 is “a very good starting point.”

“I think the negative effect is much smaller than the societal benefits we will gain by unlocking this entire class of skilled workforce and enabling them to optimally seek employment and start entrepreneurial businesses,” he said.

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