State Law Constrains Entrepreneurs
Employee non-compete contracts make Wisconsin less competitive, less innovative.
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.
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.