On the ballot, it sounds so wonderful that you can practically hear bluebirds singing:
“Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?” Amendment One asks.
Of course you want to make Georgia more competitive. Of course you favor “reasonable competitive agreements” — opposing them would by definition be “unreasonable.” So of course you’re going to vote yes, right?
Well, not so fast. Let’s look at what the amendment would actually do. The state constitution currently bars contracts “defeating or lessening competition.” Amendment One effectively strikes that free-enterprise language regarding one important area of law.
According to supporters, the change is needed to make it easier to use noncompete employment contracts. Once signed, such contracts bar workers who leave a job from immediately taking a position with a competing firm or starting a competitor of their own. Those who leave anyway must wait until the contract expires, often two years or longer.
From a company’s point of view, such contracts have several advantages. The most legitimate is that noncompete clauses keep critical employees from taking inside information and immediately using it against their previous employer.
Other impacts are less benign. Such contracts discourage the rise of new competitors within an industry, and they limit worker freedom. Workers know that if they quit or get fired, they won’t be able to work in their field until the noncompete contract expires.
Until now, our state constitution has made such agreements hard to enforce. Amendment One is an effort led by the state’s business community to eliminate that constitutional obstacle.
According to state Rep. Kevin Levitas, D-Atlanta, who sponsored the proposed amendment and related legislation, the change will bring jobs.
“It will make Georgia more economically competitive by bringing our laws into line with our surrounding states,” Levitas said, pointing out that the House and Senate passed the proposal by large margins.
Legislators have already passed a new law that will take effect as soon as voters agree to change the constitution. That new law gives noncompete clauses considerably more bite.
Current state law — rendered void by its constitutional problems — at least gave some protection to workers who were fired for no fault of their own. That made sense: Getting fired or laid off is bad enough; getting laid off and told that by law you can’t get a new job in your career field for two or three years is really rubbing it in.
The new law contains no such safeguard.
The previous law also limited the geographic area in which a noncompete clause could be enforced, requiring employers to describe the area in writing. The new law contains no such restriction, meaning a noncompete contract could conceivably be enforced nationally.
For some, those changes might be worthwhile if they bring jobs to Georgia. But research suggests the opposite.
The classic case study compares Massachusetts, which allows strict noncompete contracts, and California, which bars them. At one point, the two states boasted comparable high-tech industries, but California’s Silicon Valley quickly outgrew Boston’s Route 128.
Why? Well, California allowed workers to form new, more nimble companies, creating competition, while Massachusetts protected existing firms at the expense of innovation.
A 2009 study by the Harvard School of Business focused on Michigan, which in 1985 passed a law much like that now on the Georgia ballot. By tracking patents, the study found that job mobility for inventors in Michigan fell significantly once the law changed.
“States that continue to allow widespread use of such agreements as a way to protect established firms may instead be inadvertently creating a ‘brain drain’ of the very workers needed to create and build successful new firms,” the Harvard study warns.
As an aside, that study also notes the first known legal case involving a noncompete contract. In 1414, a clothing dyer filed suit trying to bar a former employee from working in the same town for six months. The suit “was met with disdain from the judge, who threatened the plaintiff himself with jail time for having sought to restrict a citizen from practicing his trade,” the study reports.
I think that judge had it right.