The 21st century success of Michigan’s new economy will depend on throwing off the shackles of 20th century thinking on employment non-compete agreements. In the highly skilled professions, alarmingly high numbers Michigan’s technical and professional workers are subject to forced “non-compete” agreements as a condition of employment (as high as 50 percent on some sectors). This predominately includes highly skilled workers in the new economy that Michigan wants – and needs – to build. While some reports suggest the use of non-competes is actually on the rise [http://www.nytimes.com/2014/06/09/business/noncompete-clauses-increasingly-pop-up-in-array-of-jobs.html?hpw&rref=business&_r=0]. Recent legal and business studies add to an increasing body of evidence showing how states that allow and enforce “non-competes” are at a competitive disadvantage in development of high-tech and highly skilled job sectors. Across the country, progressive states that want to attract and retain new business and high paying jobs are taking a hard look at the impact of non-competes.
Given the name “non-compete” agreement, it should not be surprising that they hurt competition. These clauses often show up in employment contracts and handbooks (often sprung on a recruit on the first day of employment). As an employment lawyer, I am in the business of defending engineers and entrepreneurs from overuse and abusive enforcement of non-competes. I see the potential individual impact everyday – I know the cost of solid representation through a non-compete legal storm and I see the personal toll it can take.
But the impact of a permissive non-compete culture goes far beyond the restrictions on individual skills. Non-competes are hurting Michigan’s ability to compete in a new economy. Recent evidence clearly shows that states that allow and enforce non-compete agreement (even where limited to “reasonable” scope) show less mobility of talent, attract less venture capital, and have fewer startup ventures. Until the law is reformed, Michigan gets to be a case study in what not to do. Tech leaders in Boston [http://www.bostonglobe.com/opinion/2014/05/14/mass-should-get-rid-non-compete-agreements/pYEjtd4BXqTUclnUoWkZlO/story.html] are urging legal reform, where a package of business reforms to attract new tech business includes a virtual ban on non-competes [http://www.bizjournals.com/boston/blog/startups/2014/04/patrick-economic-development-package-aims-to.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+bizj_national+(Bizjournals+National+Feed)]. It’s time for Michigan business leaders to get in the game. It’s time for Michigan to compete in the new economy.
David Blanchard is a Michigan Employment and Civil Rights Lawyer practicing in Ann Arbor, Michigan at the firm of Nacht, Roumel & Walker P.C.
Contact the author for questions about this article or on developments in legal status of non-compete agreements in Michigan.