Idaho’s Non-Compete Legislation Harms Workers and Start-Ups

By Max Gulker

Those in favor of heavy government regulation usually cast it as a way of protecting workers against wealthy and established interests. But all too often, it is established interests that regulation actually protects. The Idaho state legislature recently passed a bill that makes it easier for companies to prevent employees from quitting their jobs and moving to competitors. While other states have moved away from using government power to enforce these non-compete clauses, Idaho has moved in the other direction, to the detriment of both its workers and those who would start new businesses.

The Idaho law shifts the burden of proof from employers to former employees in the event of a lawsuit stemming from a non-compete clause. A worker must now demonstrate in court that they have “no ability to adversely affect the employer’s legitimate business interests” when moving to a competitor. This change in the law would clearly soften existing employers’ competition for the best workers, and also make it more difficult for a start-up to attract workers with the right skills. Idaho, which is trying to cast its capitol, Boise, as a new tech hub, may have just shot itself in the foot.

In certain situations, temporary non-compete agreements make sense in a free market for labor — for example, when an employee possesses an abundance of proprietary business information. But the new legal framework in Idaho makes it very easy for employers to abuse their power, while employees who typically have far less money for a legal battle now hold the burden of proof.

This is not to say that regulators should micromanage what can and can’t be included in a labor contract. Employers and workers should be allowed to come to whatever agreements they want, as long as those agreements are clearly stated. But in many cases such clauses are buried in legal jargon and not specifically discussed by employers and employees. This also speaks to the lack of time and expertise many workers may have to understand details in contracts that are not clearly explained.

If the legislature in Idaho had removed a ban on such clauses, one might argue it was increasing the freedom of employers and employees to enter contracts truly agreed-upon. But it did quite the opposite, making it easier for employers to win cases in court and likely limiting freedom of movement in the labor market in the first place. Idaho is likely to feel the effects of this misguided legislation as it attempts to attract start-up firms.

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Max Gulker

Max Gulker is an economist and writer who joined AIER in 2015. His research often focuses on free markets and technology, including blockchain and cryptocurrencies, the sharing economy, and internet commerce. He is a frequent speaker at industry conferences, especially on blockchain technology. Max’s research and writing also touch on other economic topics, including governance, competition, and small businesses.
 
Max holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxgAIER.