A Wall Street Journal article published yesterday states that litigation over employee noncompetes has risen by more than 60% in the past decade, and this increase is affecting entrepreneurs who are unable to leave their current jobs to start new businesses or hire employees. This generally is the argument in favor of reform legislation, such as what has been proposed in Massachusetts, to limit or even eliminate noncompetes, while the counterargument is that noncompetes are an efficient way to protect an employer’s valuable trade secrets, confidential information, and customer goodwill. But as Russell Beck notes in the article (a fellow Massachusetts attorney who blogs at Fair Competition Law), what happens in a state like California that does not enforce noncompetes is that employees and competing companies still face trade secret litigation. Although employers are less likely to bring these lawsuits because they are more expensive and less certain, defending against them when employers sue is more expensive, too.
So is it better or worse to have noncompetes? It’s hard to tell. But it is interesting that just days before this article appeared, the Wall Street Journal published another article reporting that companies have been more willing to negotiate with departing executives about the scope of their noncompetes, or even release them from the noncompetes altogether. So the market may be finding a compromise even when legislators won’t.