Monday, December 10, 2007

Spark Capital's Campaign to Rid Mass. of Non-Competes

I've been on a long West Coast trip (Las Vegas first, then San Francisco), so I'd missed Carolyn Johnson's excellent piece in the Globe on Friday, about Spark Capital's campaign to get rid of non-compete agreements in the Bay State.

Johnson writes:

    Noncompete agreements typically bar employees from going to work for a rival firm for a set period of time. Under Massachusetts law, they are enforceable except for specific professions, such as doctors and broadcasters. Under California law, however, such agreements are generally not valid, meaning an ambitious entrepreneur can take a chance with a new venture that may challenge the former employer without a legal cloud hanging over the move.

    While a slew of factors contribute to the very different tech scenes on the East and West coasts, management and policy specialists have examined how noncompete agreements may contribute to very different culture.

    A working paper from the National Bureau of Economic Research published in 2005 found that employees working in the computer industry in Silicon Valley tended to job-hop more than their counterparts in other cities with technology clusters. The paper found evidence to support the idea that California's legal climate, in which noncompete agreements are not enforceable, may contribute to the unique tech cluster in Silicon Valley.

    A Harvard Business School working paper published this year also found that a 1985 legislative shift in Michigan, which made noncompete agreements enforceable, meant that inventors switched jobs less frequently.

Spark sent a letter to Gov. Patrick last Thursday. Here's an excerpt from it:

    As a venture capital firm based in Boston, we are in the business of fostering innovation and building valuable companies that employ highly skilled workers, pay significant taxes, and allow the Commonwealth to thrive in the increasingly competitive national and global economic environment. We have a unique vantage point into the factors enabling entrepreneurialism in Massachusetts.

    From this view point we have seen that employment non-competes are increasingly stifling the emergence of start-up companies in our State, forcing some of Massachusetts’ most innovative entrepreneurs to take on tremendous risks, and hampering Massachusetts’ ability to meet its fullest economic potential as a Commonwealth.

    We respectfully request that Massachusetts legislate the elimination of the general enforceability of these non-competes in order to restore balance to Massachusetts’ labor markets and to enable Massachusetts to compete better in the national and global marketplace.

    Due to the enforceability of employment non-competes in the Commonwealth, entrepreneurs must be willing to take on tremendous legal and financial risks as employers building new ventures. As a point of comparison, the State of California has largely done away with non-competes and has reaped the benefits. Just look at the vibrancy and success of Silicon Valley, which is home to more new company formations than any other location in the country. Why shouldn’t Massachusetts’ entrepreneurs have the same rights and opportunity as their counterparts in Silicon Valley?

At the end of the two-page lettter, Spark's partners commit to work toward eliminating non-competes within their portfolio of companies.

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