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Idaho’s noncompete law is bad news

rep-ilana-rubel-croppedThe good news is, Idaho made the front page of the New York Times! The bad news is, it wasn’t exactly flattering coverage. The article was decrying Idaho’s new law on noncompete agreements that depresses wages and stifles innovation. The headline read: “Quit Your Job for a Better One? Not If You Live In Idaho.”

Inc. Magazine followed suit with a piece entitled, “Have a Great Startup Idea? Don’t Move to Idaho.” I recently spoke with a venture capitalist who said he would never invest in another Idaho company while the law that gave rise to these articles remains on the books.

How did Idaho acquire this reputation for hostility to startup businesses and upward-mobility? It stems from noncompete agreements, often given to new employees as part of their onboarding paperwork. Some people read them before signing, many do not. These agreements can cover anyone from bankers to hairdressers. Economists have long workforce-column-sept-2017noted that strict enforcement of noncompetes is harmful because employee mobility is good for economic growth – when employees can freely start new companies or seek higher-paying jobs, incomes go up and the business ecosystem thrives. Noncompetes force employees to stay put and thereby allow employers to pay under-market wages. Accordingly, many states have enacted laws making them harder to enforce. (Note that this is unrelated to trade secrets, which remain fully protected under completely different statutes. Noncompetes prevent employees from seeking new jobs even where no trade secrets are at issue).

While other states are moving to weaken noncompetes, last year the Idaho Legislature bucked this trend and instead turbo-powered noncompetes, making them more enforceable and binding than any other type of contract. The law was passed quickly, with little media attention and before most people knew it was happening.  In doing so, the Legislature made Idaho the most hostile state in the nation to employee mobility.  They required courts to presume that an employer suffers irreparable harm any time an employee leaves for another job in breach of a noncompete agreement, even where the employee took no customers, no trade secrets, and caused the employer no harm whatsoever. This is not normal in contract law – for any other type of contract you generally must prove harm. Now, in Idaho, it’s presumed, unrebuttably, that an employer is irreparably harmed simply by the employee going to work for a competitor. No employee could have reasonably expected this when they signed an agreement, and no other state has a law like this.

This new law gives the employer a sledgehammer in court with which to force that employee to leave their new job or shut down their new business. The full extent of the economic harm is difficult to measure because it’s a silent killer – the vast majority of cases will never end up in court because, upon seeing how Idaho law is stacked against them, the employee will simply never look for that better job, or start that new company. Investors will simply not front the capital for a new company, fearing a noncompete agreement could easily shut it down. It’s impossible to measure all the higher-wage jobs not taken, all the startups never launched on account of this law. It also makes it very difficult for startups to grow. They need new talent pouring in, and if skilled employees are prevented from leaving other jobs, those startups stagnate. While there are some established employers who benefit from having their workforce locked in at below-market wages, this law certainly does not help Idaho’s economy grow or its chronically low wages rise.

Happily, ongoing damage can still be prevented by repealing the law next session. I have a bill drafted that does just that and am rallying support to pass it. Some might argue we should go further and discourage noncompetes as other states have done, but at the very least we should go back to treating them like normal contracts as they were before. Please weigh in when it comes up and tell the Legislature you favor economic growth over indentured servitude.

Rep. Ilana Rubel is Assistant Minority Leader in the Idaho House of Representatives

 

About Rep. Ilana Rubel

3 comments

  1. Why does it not surprise me that Big Frank was involved in this piece of garbage legislation. Once again I say follow the money and you will find every bad regulation that is on the books anywhere in government. The people have little or no say when it comes to these types of legislation only the big campaign money is able to get regulations like these approved.

  2. These laws were drafted by Frank Vandersloot and Meleluca lawyers. It was a nice gift to him by the legislature.

  3. Sometimes I just have to shake my head and ask the question; how did we elect so many dumb people to our legislature? In a recent article in published by The Idaho Business Review //idahobusinessreview.com/2017/09/11/idahos-noncompete-law-is-bad-news/ Democratic Rep. Ilana Rubel wrote an op-ed on Idaho’s non-compete law and how bad it is for startup businesses and hiring talented people from out of state to come and work here. What in heavens name could our legislators have been thinking when the voted in favor of this law? It makes you wonder if any of them have ever had any business experience at all.
    The really important question is how could they put this law on the books of a state that has a “Right to Work Law”? So it’s ok for employers to fire employees at will but if they want to leave they can take them to court. Not to mention our new arrangement to give tax breaks to corporations to move here and hire certain numbers of employees even if they are going to compete with another Idaho Company, who does not get the same tax breaks?
    Does anyone see why Idaho muddles through when it comes to a thriving economy and why we are number forty seven in median family income in the U.S.? We are our own worst enemy when it comes to growing our economy. We have one of the highest tax burdens among the states surrounding us and now we are going to make it more difficult to bring in new startup companies and harder for people to change companies for more money. On top of that no one seems to want to address the problem of getting 35% of our state budget from the federal government. Maybe it’s time to re-educate our legislators in economics 101.
    Non-compete clauses have been around for years I myself have been the subject of them many times but I have never found any of them to be enforceable or had a corporation challenge me in court. Why would a corporation want to keep someone in a job that they are unhappy in? Common sense would tell you that if someone is unhappy they are not going to be a good employee and may cause more trouble than they are worth.
    All the legislature did was to put one more impediment for corporations to look at Idaho as a place to open a new business or relocate their old one. Our legislature needs to get their house in order before next year’s primary as I can see plenty of room for some new people to take over for those who like to make laws that hinder the business of doing business. What we need is less onerous laws and impediments to doing business in our state you only have to look at what happened when Trump got rid of most of the Obama regulations on industry. The economy started growing again and continues to grow each quarter, one only has to look at the GDP.

    What we need is less regulation and more free market enterprise and that includes the ability for people to work wherever they feel is bet for them.