Mayor Tom Barrett
Op Ed

State Law Constrains Entrepreneurs

Employee non-compete contracts make Wisconsin less competitive, less innovative.

By - Dec 28th, 2016 10:30 am
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The 25,000-square-foot Innovation Accelerator building brings researchers together with industry partners and startups to encourage academic research with commercial potential. Photo courtesy of UWM.

The 25,000-square-foot Innovation Accelerator building brings researchers together with industry partners and startups to encourage academic research with commercial potential. Photo courtesy of UWM.

As local historian John Gurda has observed, at this City’s heyday of industrial expansion and innovation, “Milwaukee had a critical mass of both creative thinkers and workers who could make those visions realities.” Nowadays, Milwaukee has many smart, innovative, ambitious, and creative people. But they are not producing the level of entrepreneurial activity our economy needs.

The Kauffman Foundation measures entrepreneurial activity throughout the United States, and Wisconsin ranks poorly. A number of factors contribute to Wisconsin’s lousy performance. And to address some of those issues, entrepreneurial advocates are helping with financing, organizational support, and creating an entrepreneurial “ecosystem.”

But Wisconsin may be undermining its own goal of promoting entrepreneurship by embracing employer imposed non-compete contracts. Too frequently, companies require employees to forego the possibility of starting or joining a new venture, limiting the employees’ options for lengthy periods of time. Non-compete employment agreements are ordinarily seen as a private matter, affecting just an employer and an employee. But before we make that assumption, we should also consider how these contracts create a drag on our economy.

There are indications that nearly thirty million employees, one out of five American workers, are currently covered by a non-compete agreement, and workers with higher education are even more likely to face non-compete restrictions.

Imagine what Milwaukee’s business community would look like if the founders of companies such as Allen Bradley, Johnson Controls, Harley Davidson, A.O. Smith, or Briggs and Stratton had faced non-compete restrictions. And then imagine what Milwaukee economy will looks like one hundred years from now if modern entrepreneurs are not free to create new ventures.

Of course, existing companies have compelling interests in protecting their intellectual property.  I have no dispute with that right. But, when non-compete clauses are broadly deployed and aggressively enforced, our common interest – encouraging innovators and entrepreneurs to benefit the larger economy – is hurt.

Promoting growth in key industry clusters is an important aspect of our economic development efforts. The water industry, electronic controls and energy storage, and the food and beverage industry are three of our priorities. We want those segments of our economy to thrive with new approaches, ideas and inventions. Academic institutions fuel some of that innovation, but there is reason to believe that some entrepreneurs – people who would provide industry clusters with innovation – are stymied by non-compete contracts.

Silicon Valley is often cited as the epitome of economic innovation. While there are a variety of reasons this part of California enjoys such a reputation, one factor is that non-compete contracts are very restricted under the laws of that state. A California entrepreneur has far greater freedom to work at one company, and later take a new idea or approach to a different start-up or existing company.

And in Hawaii, legislators outlawed non-compete agreements in the high-tech industry explaining in the that:

“… a noncompete atmosphere hinders innovation, creates a restrictive work environment for technology employees in the State, and forces spin-offs of existing technology companies to choose places other than Hawaii to establish their businesses.”

Some in Wisconsin have taken just the opposite view. During the last legislative session Wisconsin lawmakers proposed tightening the grip of non-compete contracts on employees thinking of either moving or launching a new company. That’s the wrong way to go. If we want our innovation economy to grow, Wisconsin needs to discourage non-compete contracts.

Let’s empower the innovators and inspire the entrepreneurs. Let’s create jobs and wealth. And, as part of those efforts, let’s reduce the constraints non-compete employment agreements put on our economy.

Tom Barrett, mayor of the City of Milwaukee.

Categories: Business, Politics

7 thoughts on “Op Ed: State Law Constrains Entrepreneurs”

  1. Victor says:

    I’d say another factor is not being able to find people to fill said jobs that may be created.

  2. Howard Caplan says:

    I don’t agree with Mayor Barrett in his assessment of Non-Compete agreements as being the cause of constraints of entrepreneurs in Wisconsin. I have had non-competes written for higher level employees over the years. My attorney always told me that Judges do not like these agreements as they are reluctant to restrict a person’s ability to take a job or create a start up.
    I asked my attorney, why are we writing this agreement if we cannot enforce it. He told me, it has to be written in a specific manner that makes it clear that the individual cannot “steal customers or employees or any trade secrets”. Our intent was never to prevent an employee from starting their own company. Our intent was always to protect our investment.
    We are in a horrible cycle in Wisconsin. Our children are born here, educated here and then leave because of lack of opportunity. It doesn’t help that the State legislature and Governor are doing all they can to destroy the State University system in addition to Public Education opportunities from K-12.
    And it seems to be the young who take the risks and create start-ups. I was 33 when we started our Wisconsin based company.
    Not sure why Mayor Barrett believes this rather minor issue in Wisconsin is the primary factor negatively affecting an individual from starting a new business.
    Go after Madison for doing all it can to destroy our environment, destroy public education and overall working for the out of State interests who only want to extract profits from our fair State.

  3. Virginia says:

    As Howard Caplan describes, the “brain drain” among native Wisconsin young people continues. I’ve witnessed it in my own family. There’s also a growing exodus among top university talent, in response to assaults on the UW system, and a reluctance by some to move to a Regressive state.

    Wisconsin was once a great beacon of not only innovation but of environmental leadership, Progressive ideas–including Democratic Socialism, which helped create an appealing quality of life. Leaders (and others) in Wisconsin must halt this Race to the Bottom (with perks and breaks for a few elites) before the state becomes even more unattractive.

  4. Mike Bark says:

    Howard

    The agreement is being written so the employer can sue you. And unless you have really deep pockets the cost of litigation is more than enough to deter people. You might win the lawsuit but how much are you going to spend to find out.

  5. Mike Bark says:

    Howard

    The reason the agreements are in place are so the employer to sue. Trust me, the cost of litigation is a huge deterrent and unless you have really deep pockets it won’t matter if you win

  6. Caligula says:

    Been saying ths for decades. If you are an entrepreneur the best thing you can do is leave Wisconsin. It was that 20 years ago when I and all my friends moved and prospered mightily, on the best coast. Now if Wisconsin ever gets its head out of the sand and ends cannabis prohibition I’ll move back, with money to invest and taxes to pay but not til then.

  7. Caligula says:

    People want economic and social freedom. Until Wisconsin understands this, the best and brightest, entrepreneurs included, wil continue to flee the state. The brain drain is real. Wisconsin has no brains left. We are on the best coast making money and living free!

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