Ethics of Non-Compete Clauses, Idaho Edition

business_ethics_highlights_2Non-competition clauses in employment contracts are usually difficult to enforce in U.S. jurisdictions. Running counter to that trend, however, recent legislation passed in the U.S. state of Idaho shifts the burden of proof to the employee to show that working for a competitor has “no ability to adversely affect the [former] employer’s legitimate business interests.”

Two quick thoughts about non-competition clauses:

(1) Incumbent employers may have legitimate interests in protecting trade secrets and other sources of competitive advantage from export to competitors through employee recruiting. However, the Idaho legislation goes well beyond protecting those interests (for which legal remedies already exist) by making any intra-industry change in employment presumptively wrongful and by placing the burden on the employee to overcome the presumption by demonstrating that prospective economic advantages for the former employer won’t be diminished. In effect, the Idaho legislation is a kind of precautionary principle operating in favor of the economic interests of incumbent firms.

(2) Viewed through the lens of Joseph Heath’s market-failures approach (MFA) to business ethics, the linked article’s discussion of the effects of employee job-market mobility on wages is interesting. For it suggests that easy, job-to-job mobility for employees enhances the efficiency of labor markets. If that’s true, then it would seem to follow that non-competition clauses correspondingly diminish labor-market efficiency, and thus are prima facie wrongful according to the MFA. >>>

LINK: Quit Your Job for a Better One? Not if You Live in Idaho (by CONOR DOUGHERTY for New York Times)

Idaho achieved a notable distinction last year: It became one of the hardest places in America for someone to quit a job for a better one.

The state did this by making it easier for companies to enforce noncompete agreements, which prevent employees from leaving their company for a competitor.

For the most part, states have been moving toward making it easier for people to switch teams, but Idaho went the other direction with legislation that was friendlier to employers. The resulting law was particularly strict because it put the onus on employees to prove that they would not harm their former employers by taking the new jobs.

A recent survey showed that one in five American workers is bound by a noncompete clause. They cover workers up and down the economic spectrum, from executives to hairdressers.

The growth of restrictive employment contracts dovetails with a broad pattern in the labor market: People don’t quit their jobs as much as they used to. The share of workers changing jobs has been on a long-run decrease since 2000, according to research by the economists Steven J. Davis at the University of Chicago’s Booth School of Business and John Haltiwanger at the University of Maryland.

One explanation offered by economists is that a bloat of regulations has made it harder for employees to change careers or move across state lines. The barriers include employment contracts and occupational licensing laws that cover a third of the work force and require people to spend months or years training to do even basic service jobs.

It also ends up hurting wages, because most people get raises when they switch jobs.

“This bill was a giant thumb on the scale in favor of old established business at the expense of start-ups,” [Idaho state representative Ilana] Rubel said.

What do you think?

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  1. ehijele ubuane

    i believe the bill is important in the state of Idaho. it helps business enterprises keep their employees also gives a little power to the employees who feel that they are not getting enough pay

  2. m westermann

    No, the Idaho law takes away power from the employees. Without this law, employee’s main recourse when not getting enough pay was to leave (or threaten to) for better pay. Now employees cannot do that–employees are stuck in low paying jobs.

  3. SWD

    As an IT person for the past 23 years usually farmed-out through 3rd party consulting and staffing firms I can say this about the infamous “non-compete” section of any employment contract… it exists for one reason and only one reason, to make the staffing firm LOADS of extra money if the employer you are at “likes you” and wants to hire you on full time. They typically are barred from even considering that without paying a massively outrageous “conversion fee” usually in excess of 25% of the total value of the contract wage over a 1 year period of time.

    So, if I was on a contract doing some role for Company ABC, but on a contract through Agency XYZ, if the company wanted to hire me full time, they would have to pay XYZ 25% of (not the itsy bitsy pittance of the total fees that I make in a year as a consultant) but 25% of what they pay to the agency in total annual fees. I have worked some roles where I was being paid $24.00 an hour by the agency and though not ‘supposed to’ know what the agency was being paid, found out they were being paid $85.00 an hour for me.

    Not only is that massive embezzlement and misrepresentation on the agency’s part but slightly exploitative in nature as well. BUT, ($85/hr X 40 hrs a week X 52 weeks/year) X 0.25 = $44,200.00 in “conversion fees” (on top of any money they had already paid for my services.

    When employment agencies, 3rd party staffing firms are in the mix, “non-compete” simply means, “if you want him as perm staff, you’re going to have to mortgage your house to get out of your contract with us”. Its all about greed, nothing else. (Oh and they could also sue the pants off me as well, and in effect bankrupt me in the process, if they so felt like being that prickish about it.) Aint life in the business world right jolly these days. Hmmm.

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