Why I Banned Non-Compete Clauses From Our Hiring Practices - InformationWeek
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IT Leadership // Team Building & Staffing
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9/2/2016
08:06 AM
Jordan Cram
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Why I Banned Non-Compete Clauses From Our Hiring Practices

Like so many tech company founders, Jordan Cram, CEO of Enstoa, thought including non-compete clauses in employee contracts was a way to protect his company. Here, he tells us what led him to reconsider the conventional wisdom and do away with non-compete clauses altogether, and how his company has benefited as a result.

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My company has taken a bold but overdue step to abolish non-competes in our employment agreements. By non-competes, I mean the painfully worded legal clause in employment contracts that restricts what you can do or who you can work for after you move on. Clauses like this one, "The Employee hereby agrees that during the Restricted Period, the Employee shall not..." Shall not. Do not. Be not. Blah, blah, and blah.

Jean Jacques Rousseau wrote a dreary but thought-provoking observation about freedom. "Man is born free; and everywhere he is in chains... How did this change come about? I do not know." Maybe he was right, maybe wrong, or maybe it was true then but not now. What does resonate is the idea that people should be free, and non-competes in employment agreements unfairly limit an individual's flexibility.

We pour so much of our time and energy into our work and our careers. Thousands of pages have been written on the topic of career growth and helping workers move in a direction that enables them to contribute and grow professionally. For those employees in most industries, this means moving to a new opportunity when the time is right to continue an upwards trajectory that is not only beneficial to the employee, but to the company employing them.

[Don't do it like this. Read 8 Ways to Fail at DevOps.]

Looking back on when I started my company several years ago, I realize now how easy it is for all of us to fall into the Value Protector view of the world. The future is full of so much uncertainty, and there is no guarantee a business will continue to innovate and generate value for customers. As a new CEO, I wanted to make sure I protected my hiring investments and, without putting a lot of thought behind it, included non-compete agreements in my employees contracts from day one.

As time went by and I saw the organic values my company and employees worked hard to cultivate, I realized enterprise value isn't defined solely by the one, two, or five coveted new hires I had made. Rather, enterprise value is defined by our brand, our culture, and the sum of all individual contributions from the beginning of the venture through the present.

As I thought on it further, it became clear former employees really have no way of transferring these multiple value drivers to my competitors. An employee who was a vital part of an organization, inciting growth and change within one company, might go to a competitor who doesn't foster the same values that enabled this person to grow.

Even if the individual leaves, it is impossible for that person to transfer the entirety of our environment to a new company. Beyond that, I started asking myself if I wanted to continue driving my company in a direction which would inevitably hold employees back from growing in ways that not only benefit their individual careers -- and, by default, their families – but the industry as a whole.

(Image: Hailshadow/iStockphoto)

(Image: Hailshadow/iStockphoto)

One day I was at a client site in the Middle East that relies heavily on expat labor. I saw dozens of hardworking people pouring massive amounts of energy into their jobs, far away from friends and families for weeks on end.

A wave of sadness came over me when I considered that these workers can't simply pick up and go to another opportunity that might locate them closer to loved ones or accelerate their career growth. A moment later, I realized our own non-competes had to go.

Lawyers might tell you non-competes are difficult and costly to enforce. Individuals who left our company for competitors were pretty sure we wouldn't act on our contractual "right." They were correct. It isn't in our culture to do so.

We'd rather spend our time and energy on value-creating activities. That focus doesn't mean the potential for enforcement doesn't create stress in the minds of employees. It's hard to see how that pressure helps anyone. I like the people I work with (currently and in the past) and have no interest in creating unnecessary stress for basically no benefit.

It is easy for individuals to feel they are on the losing end of the value exchange with a former employer. No leader wants disgruntled or begrudging people in their alumni network who can use LinkedIn, Twitter, Facebook, and other powerful outlets to voice their discontent.

In our totally connect world, this bad energy impairs an organization's reputation, and inevitably affects the overall culture of the organization. This, in turn, mitigates the organization's ability to innovate and compete in the long term.

Doing away with non-compete clauses has benefited our hiring program, and we hire many people worldwide each year. In the global war for talent, this is one less thing a tech or consulting superstar needs to think about when making a decision to join a company.

Removing non-competes from our hiring practices has also made it easier for people who don't feel at home with Enstoa's culture and business strategy to leave. In the end, this opens space for individuals who find our company to be the right platform for their own aspirations.

Most importantly, removing non-competes goes hand-in-hand with my belief that, in order to succeed in today's business environment, leaders need to truly believe a people-first strategy is the way to go.

As CEO of Enstoa, Jordan Cram believes technology is an essential enabler for organizations to continuously innovate and optimize performance. For over 15 years he has used smart technology solutions to streamline capital projects management with leading organizations ... View Full Bio
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jries921
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jries921,
User Rank: Ninja
9/9/2016 | 4:37:14 PM
Re: Product or Service matters
From what I'm given to understand about Skype, there is little there that anyone would want to copy if he were starting from scratch (apparently, it's a bit of a kludge).  I do get your point and I'm not an absolutist on the subject (there are relatively few subjects on which I am), but I think that the legal enforceability of non-competes must be weighed against how much they are likely to tie someone to a current or former employer; or otherwise hamper one's ability to earn an honest living (which I deem to be a fundamental right).  And as a society we really should be asking ourselves and each other how much legally enforceable corporate secrecy is really in the public interest; I suspect it is considerably less than what we permit.  And under no circumstances should we allow non-competes or even confidentiality agreements to become de facto reserve clauses such as those that once were universally imposed on professional athletes as a condition of employment.

Long ago before I landed my first programming job I worked for several temp agencies and the rule against clients hiring temporary employees without paying off the agency for a year after the end the most recent assignment was standard; and I had no objections to it (though perhaps agencies that impose such terms should be required to guarantee a minimum amount of work time per month to afffected employees; perhaps 20-30 hours a week).  And I have no objection to non-competes (for a limited period) in conjunction with the sale of a business, *provided* it only affects owners and senior management (the people who actually negotiated the deal) and *provided* it does not seriously hamper anyone's ability to support one's self and family financially.  As long as we expect people to work for a living, we should put as few roadblocks to their doing so as we can reasonably manage.
TerryB
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TerryB,
User Rank: Ninja
9/9/2016 | 2:24:08 PM
Re: Product or Service matters
I hear you, it is somewhat offensive to think we are treated that way. But in a consulting job for a consulting company (CC), we are also the product. Much of this clause is to protect the CC from a client just hiring away the CC's best talent. Think of money that would save a client also. And one with lack of integrity could just dump the hired consultant after "project" was over.

The other protection is the CC has a significant investment in the sales process of acquiring clients. Once the consultant gets in and makes impression on client, it's really not right for them to just take the client as their own and keep all the billable amount.

That's why this clause, which I'm pretty sure was a year (all the courts will let them get away with), offers protection against both. That's what is unique about hiring a CC. They may have great reputation as a whole but any particular client only gets the skills of whoever the CC assigns. They really have no idea if this is CC's best guy or their worst.

I was a terrible consultant from the viewpoint of CC, my expertise was getting job done very quickly. Clients loved it but it didn't generate maximum billable hours. My CC had this homegrown methodology they tried to sell to clients as "professional". But in reality, it was geared to generate maximum billable hours. Think of a waterfall over a waterfall. You'd spend 100 hours creating meetings and documentation and 10 hours actually creating code to make application work.

I've made a career out of getting to that 10 hours as quickly as possible. I started in days long before Agile. A term called Rapid Prototyping was the methodology I embraced. Get a working system in front of users as quickly as possible, then iterate until they got all the features they need.
jries921
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jries921,
User Rank: Ninja
9/9/2016 | 12:52:08 PM
Re: Product or Service matters
It seems to me that the term "poaching" is inappropriate.  Employees are not property and shouldn't be treated or regarded that way, ever.  Certainly requiring that people change careers whenever they change jobs (without the consent of their employers) is akin to serfdom (which is why I used the word) and flat-out wrong.  This is a rather sensitive point with me as my father's consulting firm was quashed by a "liberal" interpretation of a non-compete he had signed with his previous employer.  The knowledge and skills we acquire are what make us marketable as professionals and are personal traits no employer can legitimately claim to own.
TerryB
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TerryB,
User Rank: Ninja
9/9/2016 | 11:19:13 AM
Re: Product or Service matters
@jries921, I suspect I misspoke and you are exactly right. For me, it is likely confidentiality. Not so sure about metalurgists, I'll have to ask next week. I know our top guy, a PHD, would be a huge boost to any competitor he joined. Don't think you can "confidential" away his tremendous knowledge and experience making what we make. But I will ask.

I ran into this non compete when I was consulting. Signed clause, which is very common, that I could not work for any clients directly or go private and take them with me for 1 (might be longer, can't remember) year. Even when this company went out of biz after Y2K I still had to get a release from them to go private and continue to service my 3 steady clients.

I kind of get that, seems like consulting company needs some protection from people poaching clients to launch their own biz. Or take to competitor. Not sure if this relates to what author discussing or not.
jries921
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jries921,
User Rank: Ninja
9/9/2016 | 11:04:39 AM
Re: Product or Service matters
It seems to me that in the situation you describe, a confidentiality agreement is sufficient.  It does not justify turning employees into serfs.
TerryB
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TerryB,
User Rank: Ninja
9/6/2016 | 1:58:32 PM
Product or Service matters
Appears you provide value to clients in the project mgmt area, although tough to tell from limited info here. Non compete becomes musch more important when you are creating products, especially highly engineered ones. 

Would you really let employee with deep knowlege of Skype's compression algorithms or Google's search algorithms go with no restrictions? I suppose if you had enough patent protection you could get away with it. 

But I certainly admire your stance and morals on the subject. While I'm an IT developer, the non-compete I signed protects against the secrets of the brass products we manufacture, nothing to do with IT itself. That seemed pretty reasonable to me. Maybe if I was metalurgist, limited by this to which companies I could work for, I'd feel differently. 
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