Constraining competition

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at:


Yet another threat to start-ups comes from state legislatures, in the form of increasingly cumbersome employment regulations. Historically, technical workers such as mechanics and engineers moved freely from job to job, spreading new technologies across the industry. Today, however, a variety of regulations limit that mobility. Some states—Florida and Massachusetts, for instance—have made it easy for employers to enforce noncompete agreements, which prohibit employees from leaving one company to join or start another in the same industry. According to research conducted by the law firm Beck Reed Riden, the number of published U.S. court decisions involving noncompete agreements rose 61 percent from 2002 to 2012, to 760 cases. This is bad news for innovation, since such agreements make it difficult for start-ups to recruit employees away from established companies.

Consider the difference between California, whose courts generally do not enforce these agreements, and Massachusetts, whose do. Silicon Valley has become a breeding ground for new technology firms and new technologies, whereas Massachusetts’ Route 128 has fallen behind. It is telling that the Facebook co-founder Mark Zuckerberg moved his company from Cambridge to Palo Alto as it took off. This past summer, state lawmakers in Massachusetts considered a ban on noncompete agreements, but powerful business lobbying groups fought hard against it, arguing that the agreements keep employees from stealing trade secrets and proprietary information.