Proposal would repeal Idaho’s 2016 noncompete law

Rep. Ilana Rubel, D-Boise, is working on a bill to repeal a noncompete law enacted in 2016 that critics said made it harder for employees to leave their jobs and could cripple Idaho’s startup community.

Rubel, an intellectual property attorney for the Silicon Valley-based law firm Fenwick & West, and assistant House minority leader, had criticized the bill, calling it “one of the biggest economic mistakes Idaho has made in a long time.”

Rubel had asked the state attorney general’s office for a legal opinion on the measure, hoping that Gov. C.L. “Butch” Otter would veto it, and she has written opinion pieces that say it is bad for business in Idaho.  She put forth a personal bill in the 2017 legislative session to repeal it, but the bill was sent to the Ways & Means Committee and never received a hearing, she said. The bill she submits during the 2018 session may look different from that bill, she added.

On Dec. 12, Rubel delivered a letter to Otter signed by more than 100 members of the Idaho business community opposing the law. Signatories included MetaGeek CEO Ryan Woodings and Cradlepoint CEO George Mulhern. It does not include the business lobby group Idaho Association of Commerce and Industry, which testified in favor of the original bill, but she hopes the organization will change its mind.

Rubel said she’s confident she’ll have bipartisan support for her measure, though she would not name supporters.

Republican legislators who opposed the 2016 bill and are still in office include Sen. Dan Johnson, R-Lewiston,

chairman of the Local Government & Taxation Committee;  Sen. Todd Lakey, R-Nampa and majority caucus chair; and Rep. Lynn Luker, R-Boise, who chairs the Judiciary, Rules & Administration Committee. The original bill went through the Business Committee; she was unsure whether a repeal bill would also go through Business, or through another committee such as Judiciary, but said that was ultimately up to Speaker of the House Scott Bedke.

Rubel characterized the issue as one of employee freedom. “I hope Republicans would embrace that as well as Democrats,” she said. The 2016 bill was characterized as a trade secrets bill with little notice and didn’t give the community an opportunity to weigh in, she said. While the law hasn’t been litigated much, it has had a chilling effect on investment, she said.

Idaho’s noncompete law — brought forth by Rep. Patrick McDonald, R-Boise, and passed by a large margin in each house — was called out this summer by national media such as The New York Times and Inc. magazine as one of the most stringent in the country, because it puts the burden of proof on the employee to demonstrate that taking a new job wouldn’t cause harm to their previous employer. Previously, the employer had to demonstrate that the departure of the employee would cause harm.

The new system requires the employee to prove a negative; Idaho assistant chief deputy attorney general Brian Kane wrote in an opinion that “the burden necessary to overcome this presumption [of adverse effect] may be extremely difficult, if not impossible.” In addition, the more stringent law bucks the national trend of easing such restrictions on employee mobility. California, for example, has done away with noncompete laws entirely, a factor that the Times said has contributed to Silicon Valley’s success. Utah has also relaxed its noncompete law in recent years, Rubel said.

The law applies to “key employees” – defined as employees earning in the top 5 percent of salaries for the company. Idaho employment attorneys have said it might even apply to employees who were fired.

A 2010 Yale University study, Noncompete Covenants: Incentives to Innovate or Impediments to Growth, found that “the enforcement of noncompete clauses significantly impedes entrepreneurship and employment growth.” States that restricted noncompete agreements had more patents, more new businesses, and improved employment, researchers found.