Bill to modify noncompete legislation moves forward

A bill to repeal a strict 2016 noncompete law that hindered the movement of employees from one job to another will progress, with modifications.

The bill, S1287, was sponsored by Sen. Jim Guthrie, R-Inkom, vice chair of the Senate Commerce and Human Resources Committee. Originally, the bill deleted the entire 2016 additional text. Guthrie said during his presentation to the committee on Feb. 22 that he would be sending it to general orders for modification to delete just one of the two sections of 2016 text, leaving a section referring to the highest-paid 5 percent of employees. “This represents a compromise among interested parties,” he said to the committee.

As the existing bill stands, “the perception that exists now is that Idaho is not business- or employee-friendly,” Guthrie said. “Employers need some protection, but employees need an opportunity for advancement and career change.”

People testifying in favor of the bill included two employees from the startup Brandsight Inc., a domain name registrar. Elise Cooper, a senior vice president for the company, said they wanted to hire in Boise, but her previous employer had every employee in its Boise office sign a noncompete agreement, without having employees in offices outside Idaho sign a similar agreement. “We’re currently hiring, but not here in Idaho,” she said. “We’re hiring outside of the state because of the current policy that exists.”

“I’ve heard 20 to 30 of these stories,” testified Norris Krueger, a Boise-based entrepreneurial consultant. “Business dynamism in Idaho has been sinking.” He noted that 58 percent of new jobs come from businesses less than a year old, and 40 percent are from companies that are growing. “Any legislation that might hurt those growing firms, I stand opposed to,” he said.

Opponents of the 2016 law had said it was bucking a national trend away from such agreements.  Repeal of the legislation had been associated with Rep. Ilana Rubel, D-Boise, an intellectual property attorney for the Silicon Valley-based law firm Fenwick & West, and assistant House minority leader.

The law divided Idaho’s startup community. On Dec. 12, Rubel delivered a letter to Gov. C.L. “Butch” Otter signed by more than 100 members of the Idaho business community opposing the law, including MetaGeek CEO Ryan Woodings and Cradlepoint CEO George Mulhern.

On the other hand, at an Idaho Technology Council event on Jan. 9, Kount CEO Brad Wiskirchen said he supported the legislation, and that he hadn’t had any trouble hiring employees from California, which doesn’t have noncompete laws. Idaho’s noncompete law also helped him keep his company in Boise rather than expanding to San Francisco or Montana, he said. However, neither he nor anybody else testified against the bill in committee and he didn’t respond to requests for comment.

Idaho’s 2016 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 won’t cause harm to their previous employer. Previously, the employer had to demonstrate that the departure of the employee would cause harm.

The system also requires the employee to prove a negative; Idaho assistant chief deputy attorney general Brian Kane wrote in a 2016 opinion, which Guthrie also cited, that “the burden necessary to overcome this presumption [of adverse effect] may be extremely difficult, if not impossible.” In addition to California, Utah has also relaxed its noncompete law.

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.