The 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 noted 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