A non-compete is a non-starter

concert-768258_1920In my rock & roll days I played in a dozen groups, but not one that required me to promise in writing that I would not leave and start (or join) another band within a year. It just wasn't done. If it were, most of the all-time great bands would never have made it to their first rehearsal.

So why are “non-compete clauses” acceptable in other kinds of businesses, especially hi-tech?

It’s understandable that a company wants to protect its proprietary technology, but that can be handled with non-disclosure agreements. Obviously a company wants to discourage talented workers from leaving and taking their expertise to a competing enterprise.

But when too many companies in a given community demand non-competes, it becomes an innovation killer. It suppresses entrepreneurship in the region—and drives top talent to flee the community entirely to take up work where non-competes aren’t valid. (California, here I come!)

No wonder San Francisco and Silicon Valley are such magnets for tech talent. State law doesn’t honor non-compete contracts in the Golden State.

If you like wonky-talk, this could be considered an example of the Fallacy of Composition: assuming something is true or beneficial for the whole just because it’s true or beneficial for some part of the whole. We assume it’s beneficial for all companies to retain innovative talent through non-competes because it’s good—at least in the short term—for some companies to do it. But not if it’s carried out so widely that it keeps entrepreneurs from leaving their companies and starting new businesses that would create more jobs and bring more talent to the area. Not if it drives top workers to leave the community, depriving companies in that area of an innovative talent pool.

This could also be considered an example of the Tragedy of the Commons in which doing something for personal interests can harm general interests (the “commons”). Tim Rowe points out on xconomy.com:

By laying claim to our best employees, and keeping them from working for others, our economy becomes less agile, many of our best employees get tied up in what may not be the best job for them, and their only option is to move to a state that prohibits non-competes.

Imagine if Ringo Starr had signed a non-compete agreement with Rory Storm and the Hurricanes and was prevented from joining The Beatles? The world would have been deprived of the most creative and most successful rock act of all time. What if Keith Moon has signed a non-compete with the Beachcombers and couldn't join The Who? Same story with Led Zeppelin, Crosby, Stills, & Nash, the Eagles, and dozens of other classic rock acts—not to mention top contemporary groups (like fun.) whose members belong to more than one band.

If competition drives innovation...


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5 Comments

  1. Imagine if John Fogerty had wanted to go solo after leading CCR? He could have been sued for sounding too much like himself.

    Nonsense aside, the underlying issue is trust. If I work for someone and create something on their clock, they own it and I know it (thus my intense rest-of-my-life anti-job stance.)

    If I leave and start a company of my own in the same space, my goal would be to enhance, to partner, to use our connection to boost everyone, not to steal from them.

    Try telling that to most contract-writing suits.

    1. For any reader who doesn't get the joke, Fogerty was sued for copyright infringement by Saul Zaentz (who owned the publishing to Fogerty's Credence Clearwater Revival catalog) when Fogerty as a solo artist wrote a song that sounded like a clone of an earlier CCR tune, "Run Through the Jungle." Zaentz lost, but then Fogerty counter-sued and the two went back and forth for years.

      Fogerty may be remembered more for his lawsuits than his music. He didn't seem to get along with anyone, including his band mates. I met Zaentz years ago when I joined a band on Fantasy Records. I can easily see his side of the story here.

      Maybe I'll do a post on the "Top 10 Rock & Roll Lawsuits." There are some great ones—well-written and superbly performed.

      1. On the other side of the coin, Neil Young was sued by (I think) Warners for releasing albums that didn't sound like Neil Young. Go figure that one out...

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