Since the summer of 2016, college students entering the Idaho job market may be met by a changing economic playing field–one in which their ability to move from job to job is greatly minimized. Backed by Micron and the Idaho Association of Commerce and Industry, the Idaho legislature passed a bill that broadened the power of noncompete agreements–contracts used by employers to keep new hires from transferring to competing companies.
Noncompete pacts in Idaho, should the employer choose to enact them, have the ability to keep new hires at the company for up to 18 months, with no option of leaving for better-paying or more desirable work for a competitor.
When contacted, proponents of the bill gave no response; however, in a New York Times article titled “Noncompete Pacts, Under Siege, Find Haven in Idaho,” Alex LaBeau, president of the Idaho Association of Commerce and Industry, shared motives behind the legislation.
“This is about companies protecting their assets in a competitive marketplace,” La Beau said, defending the aspect of the bill that fortifies the interests of big business.
According to critics, this statute, on a greater economic scale, is powerful enough to keep a cap on both wages and the expansion of newer, smaller businesses.
The wage problem:
According to Ilana Rubel, assistant minority leader in the Idaho House of Representatives, the signing of noncompete agreements allows existing companies to keep industry wages low. If employees are unable to seek new work, businesses have more leverage on what they pay their staff.
“At base, I think these agreements can be a way of keeping wages low, because you can get away with paying your employees under-market wages–paying them less than they’re worth–if they are prevented from being able to seek a higher paying job,” Rubel said.
Employee mobility and the freedom to bounce from business to business are what keep wages at a competitive rate, and leads to vying between corporations. The implementation of noncompete agreements, then, may damage the growth of wages around Idaho.
“Most employees increase their wages by changing their jobs, so (noncompete laws) could have an impact on the wage growth,” said Zeynep Hansen, economics professor and associate dean for Academic Programs and Scholarship at Boise State. “That also could have an impact on the new tech industry, where they may not be able to attract some of the most promising people, either from existing businesses or from outside of Idaho.”
With the possibility of wages remaining stagnant, new talent may not be cycling through Idaho as much as it could be, according to Hansen. This, in turn, may also lead to staticity in Idaho’s economy–particularly within the tech industry.
The economic expansion problem:
Noncompete agreements can be multifaceted in their potential impact of economic growth and development.
“You not only have the wage suppression problem, but you have the overall economic suppression problem of fewer people being able to go start companies. You also have another layer of problems, which is that the companies that have started need to expand. If they start to get successful, they need to start hiring quickly,” Rubel said.
On one hand, many new startups are created by employees who leave their former organization to act upon budding ideas and business plans. Alternatively, small local businesses expand based on their acquisition of new employees–neither of which are possible without the free-flow of laborers.
“If you want to see growth in a region, you want companies to compete for and bring in the best employees, and of course, have higher production and higher wages,” Hansen said. Innovative small businesses may have a hard time attracting qualified workers because of their attachment to former employers.
If workers are locked into positions at established companies and are unable to chase new opportunities, these startups and smaller businesses may not be able to find enough talent to get themselves off the ground or support themselves once they are up and running. According to Rubel, one of the biggest barriers to a new business’s success is having no access to new hires.
“It’s kind of a silent killer, in that there are so many companies that are never formed and that are never expanded and people that are never going to get that higher paying job, because of the fear factor created by this legislation,” Rubel said.
The existence of noncompete agreements in Idaho is nothing new, but the recent legislation has changed the scope of their impact. Before the law was passed, noncompete contracts functioned as any other legal agreement, in the sense that in order for an employer to sue a worker, they would have to prove that there was such extensive damage done to their business that the employee owed them something in return. According to Rubel, this is no longer the case.
“You have to show you were harmed in a normal contract breach case. What the legislature did in 2016 was basically remove that whole element from contract law for noncompetes,” Rubel said. “A court is now required to presume that you were irreparably harmed any time an employee leaves you for another employer, if it was in breach of a noncompete.”
The bill now upholds that a court must automatically assume the employee has greatly damaged the company they left, even if the damages suffered are not as prodigious as they are made out to be.
“If an employee leaves their former employer and they had a noncompete agreement, even if their departure caused no harm to their employer–they didn’t take a single customer with them, they didn’t take another employee, all they did was go work for another employer–a court is now required to presume there was irreparable harm to that first employer, regardless of any actual harm,” Rubel said.
The implications of this bill are something for new graduates to take into consideration when beginning their job hunt. Though many jobs immediately after college may not be a graduate’s dream position, by signing one of these contracts, they would be locked in for up to 18 months, with no opportunity for mobility.
“It would be a human tragedy for all of those folks who were just getting a job to pay off their loans to suddenly find themselves locked into a low-paying, unsatisfying job because of some piece of paper that was slipped under their nose on their first day,” Rubel said.