Non-Compete Legislation Divides, But Fails To Conquer Utah’s Tech Community
A bill that sounds like a bad case of hepatitis or the bird flu won’t determine our fate.
Utah’s tech community finds itself in the rare position of being divided on an important issue affecting its future. Last week, HB 251, a bill sponsored by Rep. Mike Schultz (R — District 12) to limit the use of non-compete agreements, unanimously passed through a House committee.
Since that time, arguments both for and against the bill have been put forth by prominent local tech voices. In addition, community organizations that are typically aligned find themselves on opposite sides when it comes to this issue.
“Entrenched companies invest a lot of money keeping non-compete laws alive,” Signal Peak Ventures Managing Director Brandon Tidwell wrote in an op-ed published by Beehive Startups. “They are designed to protect incumbents, companies with deep enough pockets to afford teams of lawyers and the occasional lawsuit. Non-compete agreements are typically directed at the most talented, most creative, most “mobile” employees — the same employees who are most likely to start the next great company.”
Jonathan Johnson, chairman of Overstock and Republican candidate for Utah governor, took the opposite position in an op-ed published by the Daily Herald. (For those keeping score at home, Tidwell won the first round just by letting Beehive publish his op-ed. The amount of random ads I had to wade through to get to Johnson’s piece was extremely painful.)
“Adopting unfriendly California-style business laws won’t promote Utah growth. In fact, it will do just the opposite,” Johnson wrote. “There’s no reason Utah should step on a slippery slope toward a California-type business environment just as Utah establishes itself as a prime business-friendly alternative to California. Rather, Utah should remain a safe haven from this kind of big government law championed a decade ago by union boss and Democratic State Sen. Eddie Mayne.”
Over the past two weeks, the Utah Technology Council has worked aggressively to achieve what the organization believes to be a more acceptable bill. In fact, UTC has two lobbyists and has created what they’re calling a “Task Group” in charge of drafting amendments to ensure the bill doesn’t achieve its original intent: completely abolishing non-compete agreements in Utah.
The bill has indeed changed as a result of UTC’s efforts. Here’s the original draft of the bill, and here’s the first substitute version. Among other things, the new version includes agreements to make employees reimburse employers for specialized training, education, or signing bonuses, and to protect trade secrets and proprietary confidential information.
While there are many within the tech community who would like to kill HB 251, a number of studies have concluded Silicon Valley has benefited greatly because California prohibits the legal enforcement of non-compete clauses. In 2015, Bloomberg published a story on a Stanford study where the authors concluded, “Policymakers who sanction the use of non-competes could be inadvertently creating regional disadvantage as far as retention of knowledge workers is concerned.”
As for Beehive’s position on HB 251, we try to avoid politics like Steph Curry avoids reality, but last year’s Zenefits legislation and our role in that process must have set some sort of precedent considering we’ve had a lot of people reach out asking us to take a stand in favor of one side or the other. However, I’m not comfortable taking a position on behalf of the entire organization, our team, our sponsors, or the community at-large.
I am comfortable with putting forward my personal view. I also just used the word “precedent” in a sentence that had nothing to do with the show Law & Order. So, I’ll let you decide how seriously you want to take anything I have to say from this point forward.
I personally side with Brandon Tidwell and those who support HB 251, simply because I believe there are already thousands of hurdles an entrepreneur has to overcome in order to start a company, and adding one more in the form of a non-compete agreement feels like cruel and unusual punishment.
Non-competes have the potential to hurt the overall startup ecosystem, favor big companies armed with lobbyists over budding entrepreneurs, and are just the worst possible way to retain a talented employee.
Many friends, entrepreneurs, lawyers, investors, and community leaders who deserve nothing but respect and recognition for their very real contribution to our vibrant startup ecosystem disagree with this position. Luckily, the fate of Utah’s tech community won’t be determined by HB 251, or anything that happens on Capitol Hill. A bill that sounds like a bad case of hepatitis or the bird flu won’t determine our fate. It will be determined by the entrepreneurs who call the Beehive State home.
As I was writing this story, I kept thinking of a passage from The Rum Diary, written by the great Hunter S. Thompson:
“I want to make a promise to you, the reader. And I don’t know if I can fulfill it tomorrow, or even the day after that. But I put the bastards of this world on notice that I do not have their best interests at heart. I will try and speak for my reader. That is my promise. And it will be a voice made of ink and rage.”
I’m not a big rage guy, happen to be fresh out of ink (unless we’re talking about my neck tattoo), and don’t consider those who oppose HB 251 to be one of the two worst b-words. Yet, Thompson is right — any journalist worthy of any sort of audience should try to speak for his/her reader. HB 251 favors the up-and-coming entrepreneur over entrenched, large companies. When we first started this thing almost three years ago, I made a promise to speak for that entrepreneur whenever a voice was needed.
If it helps in any way — and a compelling argument could be made that of course it doesn’t and why would it — I lend my voice and join the many others who support HB 251 in urging the state legislature to pass the bill and for Governor Herbert to sign it into law.