The Debate Over Non-Competes Among Tech Companies

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The Debate Over Non-Competes Among Tech Companies

By Hannah Ceriani

Companies have been utilizing non-compete agreements for years, prohibiting employees from working for a rival company for a period after leaving their current position.[1] Between 27.8% and 46.5% of private-sector workers in the US are bound by non-compete agreements.[2] There has been much debate over the use of such agreements among tech companies in particular.

Historically, tech companies have favored using non-competes, which has led to fierce battles in the industry.[3] Big tech companies like IBM, Microsoft, Amazon, and Google have aggressively tried to enforce non-competes against former employees in court.[4] These companies and other proponents are for non-competes because the agreements serve to protect their business interests.[5]

In Washington, New York, and other states where non-compete agreements are legal, some tech companies utilize these agreements to ensure that former employees don’t spill their trade secrets.[6] Companies also have an incentive to implement these agreements because it’s an industry standard – competitors will almost certainly utilize these agreements.[7]

On the other hand, the enforcement of non-competes is illegal in states like California. Therefore, it’s easier for former employees to take trade secrets to other companies or to form start-ups in those states.[8] But some argue that process has also led to innovation, which could be the reason that Silicon Valley became “the world’s tech Mecca”.[9] Indeed, opponents of non-competes say that the agreements “stifle innovation and hinder startup activity.”[10]

Additionally, non-competes can keep employees in less-than-ideal employment situations.[11] For example, an Amazon worker claimed that her non-compete agreement “kept her in an abusive and harmful environment”, subjecting her to harassment and discrimination.[12] Non-competes have a lock-in effect, which can prevent workers from leaving toxic workplaces.[13] The employee’s choices are to either stay in such an environment or to try their hand at a new career, shadowed by the terms of the non-compete.[14]

Another reason opponents argue against non-compete agreements is that their use discourages innovative prospects by refusing to see a potential employee’s perspective – “[i]mposing limits on innovators won’t entice them, it will send them searching for greener pastures.”[15] Similarly, an employee who understands that their future job prospects are limited due to a non-compete agreement may feel uneasy, unmotivated, or unhappy – possibly even “fearful of the consequences should they choose to leave.”[16] Disgruntled employees may turn to social media to vent, or to their friends and family – either way, a bad reputation is hard for even a big tech company to overcome.[17]

Opponents also argue that companies don’t need to utilize a non-compete to protect their trade secrets.[18] Companies could obtain such protection through non-disclosure agreements, confidentiality agreements, and the Trade Secrets Protections Act.[19]

President Biden is an opponent of non-compete agreements, which has led to speculation that 2022 may be the year that federal restrictions are implemented.[20] Last year, President Biden issued an executive order that specifically asked the FTC to consider restricting non-competes.[21] However, federal courts have historically frowned upon federal agencies exerting powers like those proposed by President Biden’s order.[22]

[1] Brad Stone, Biden Executive Order on Non-Competes Could Roil Tech, Bloomberg (July 12, 2021, 6:45 A.M.), https://www.bloomberg.com/news/newsletters/2021-07-12/biden-executive-order-on-non-competes-could-roil-tech.

[2] Megan Rose Dickey, Tech’s Non-compete Agreements Hurt Workers and Anger Some Lawmakers, Protocol (May 13, 2021), https://www.protocol.com/policy/tech-non-compete.

[3] Stone, supra note 1.

[4] Id.

[5] 4 IT Legal Issues You Need to Pay Attention to Now, Tul. Univ. SoPa Blog, https://sopa.tulane.edu/blog/it-legal-issues-need-attention.

[6] Dickey, supra note 2.

[7] Id.

[8] Stone, supra note 1; Dickey, supra note 2.

[9] Stone, supra note 1.

[10] 4 IT Legal Issues You Need to Pay Attention to Now, supra note 5.

[11] Dickey, supra note 2.

[12] Id.

[13] Id.

[14] Id.

[15] Katy Imhoff, Why Tech Companies Should Avoid Non-Compete Agreements, Camden Kelly, https://camdenkelly.com/why-tech-companies-should-steer-clear-of-non-compete-agreements/.

[16] Id.

[17] Id.

[18] Dickey, supra note 2.

[19] Id.

[20] Kristen Senz, How Eliminating Non-Competes Could Reshape Tech, Harv. Bus. Sch.: Working Knowledge (Jan. 18, 2022), https://hbswk.hbs.edu/item/how-the-end-of-noncompetes-could-reshape-tech.

[21] Id.

[22] Stone, supra note 1.

Image source: https://news.law.fordham.edu/jcfl/2017/09/23/a-bad-breakup-non-compete-agreements/