Non-compete agreements allow employers to bar their employees from working for other employers. Employers are increasingly abusing non-compete agreements under the guise of protecting trade secrets, to control their employees and stifle competition.

In a recent national case, a sandwich company had employees sign an agreement prohibiting them from working for a business that “derived more than 10 percent of its revenue from selling submarine, hero-type … sandwiches.”

It remains to be seen if this broad agreement is enforceable, but a minimum-wage employee is being threatened by a large company for violating an employment contract. In most cases the employee gets intimidated and leaves without challenging the contract in court. The agreement has done its damage in secrecy.

It is misguided hope to believe this does not happen in Hawaii.

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Greater job mobility would help Hawaii to upgrade its tech industry. Non-compete agreements work against that goal.

Flickr: beaugiles

The Hawaii Supreme Court has never struck down a non-compete agreement.

Its most recent ruling upheld the right of an employer to prevent a woman from working as a “briefer,” who sells trinkets and tour packages to Japanese people, for three years. She had to drive a bus to support her family.

The Legislature has 3 bills pending that seek to curtail the power of such agreements in Hawaii.

On a practical basis, if an idea is so small that a statewide ban in Hawaii is sufficient to protect it, how valuable is it in the global economy?

SB 355 prohibits forcing employees to sign a non-compete agreement after they are employed.

SB 232 / HB 390 prohibits non-competes for physicians.

SB 1279 /HB 1090 prohibits non-competes in the technology sector.

I invite others to write on the merits of the first two bills.  I would like to address why technology is a unique industry that requires the elimination of these types of agreements to build a globally competitive industry.

The center of an innovation economy is the production of intellectual property by highly skilled creative people. California has barred non-compete agreements for over 100 years.

A Stanford University Law School study concluded employee mobility was key to California’s success, and Massachusetts’ decline, as the center of the technology world.

Cross-pollination of knowledge in Silicon Valley takes place partly because the legal structure supported employee mobility.

Highly skilled employees were assured they could build a life in California with unfettered access to employment possibilities.

We can see this virtuous cycle with Google and many other California companies.

Google provides computing services from a virtual cloud that could be anywhere in the world. They moved to Silicon Valley to join the technology community and find creative talent.

The best talent moved to the valley because they knew they could sell their best ideas to the highest bidder. Google pays well for these ideas, which attracts more talent.

Hawaii non-competes successfully reverse this virtuous cycle. A company in Hawaii will try to staff from our limited pool of creative talent. After refining skills with the company, the talent may want to start a new company or move to another Hawaii company.

Only the best talent are threatened with non-compete enforcement and are forced to leave. Hawaii’s technology community is stripped of talent and another opportunity moves to feed California’s virtuous cycle.

In a recent Brookings Institute study, Hawaii ranked 51 in the U.S. — we also lost to Washington, D.C., — for the share of employees in advanced industry jobs.

Our current approach to developing high technology in the state has not been successful.

People no longer work for the same company for life; we need to embrace rather than suppress this reality of the modern economy.

Highly skilled creative employees will not to be bound to intellectual plantations. They will simply leave the state. After Michigan changed its laws to allow non-compete agreements, it saw a migration of innovation economy talent away from their state.

In a hearing on SB 1279, the main arguments against the bill were that non-competes provide a means of protecting confidential business information and increase global competitiveness.

Protecting legitimate company trade secrets is vital to the information economy. SB 1279 allows binding non-disclosure agreements and embraces the Uniform Trade Secrets Act to protect a company’s confidential information.

These protections have proven more than adequate to provide for a thriving Silicon Valley. Oracle CEO Larry Ellison famously posted this ad in the San Francisco Chronicle after an Oregon based company called Informix accused Oracle of “stealing” 11 programmers:

Advice to Informix: Hire programmers not lawyers

Advice to Informix Programmers: Negotiate your legal fees upfront

Advice to Informix Customers: Call Oracle

Informix filed a lawsuit to enforce an Oregon non-compete and keep “their” employees. The lawsuit was settled out of court and the employees remained at Oracle.

Larry Ellison’s message was clear. Technology companies should concentrate on creative, rather than legal, talent. Technology talent should be wary of working for companies with non-competes.

California is a magnet for people escaping odious non-compete agreements who create communities with employment stability.

Much of our talent moves from Hawaii to California when faced with a Hawaii non-compete.

On a practical basis, if an idea is so small that a statewide ban in Hawaii is sufficient to protect it, how valuable is it in the global economy?

We want the brightest to come to Hawaii, not to go to California, to escape their non-competes.

We can make Hawaii another “City of Refuge” for ideas and innovation.

Protecting local “manini monopolies” at the cost of exiling our technology talent from Hawaii is not worth the price, especially in a globally competitive environment.

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