Idaho’s Indentured Servants

The state of Idaho is in the news and it is not about:

No, none of that.  Instead, Idaho is following in the footsteps of Utah in crafting laws to protect local industry that leaves everyone shaking their heads.

Idaho Code Section 44-2704 creates certain rebuttable presumptions of validity for employee non-compete covenants.  Covenants are presumptively valid so long as:

  • do not exceed a period of eighteen (18) months from termination (unless consideration, in addition to employment or continued employment, is given);
  • it is restricted to the geographic areas in which the key employee provided services or had a significant presence or influence;
  • if it is limited to the type of employment or line of business conducted by the key employee while working for the employer; and
  • if applied to a key employee or contractor who is among the highest paid five percent of employees.

In 2016, the law was updated to add

If a court finds that a key employee or key independent contractor is in breach of an agreement or a covenant, a rebuttable presumption of irreparable harm has been established. To rebut such presumption, the key employee or key independent contractor must show that the key employee or key independent contractor has no ability to adversely affect the employer’s legitimate business interests.

Idaho, which has established tech companies like Micron and Om Semiconductor, also has an emerging startup ecosystem in Boise (a city of 223,154 people similar in size to Richmond).  According to Rep. Ilana Rubel, who opposed the legislation, the bill “was a giant thumb on the scale in favor of old established business at the expense of start-ups.”

The reaction to the change has been overwhelmingly negative.  The American Institute for Economic Research found that changing to law to put the burden on the employee to prove no harm to the employer

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.

The law led Forbes contributor Erik Sherman to ask, “Are Employees Supposed To Be Indentured Servants Again?”.

As a recent New York Times article points out, the new law is against the general trend of liberalizing non-compete clauses.

The law comes at a time when research is concluding that the success of California’s tech community stems in part from its refusal to enforce non-compete agreements.  As a 2016 White House report found:

In addition to reducing job mobility and worker bargaining power, non-competes can negatively impact other companies by constricting the labor pool from which to hire. Non-competes may also prevent workers from launching new companies. Some critics also argue that non-competes can actually stifle innovation by reducing the diffusion of skills and ideas between companies within a region, which can in turn impact economic growth. Non-compete agreements may also have a detrimental effect on consumer well-being by restricting consumer choice.

The recent media attention given to the law will only make it that more difficult to recruit for Idaho companies.

Featured Image (CC BY 2.0): :  “Idaho” by calamity_sa.