Noncompete Agreements Carry High Cost for Engineers

In July of 2005, computer scientist Kai-Fu Lee left Microsoft for Google. Microsoft immediately sued Google and Lee, claiming that the move to the new job within a year of leaving Microsoft violated Lee's noncompete agreement. The two software giants reached a confidential settlement after a months-long battle in Washington state courts.

Noncompete agreements have become commonplace at tech firms, especially in the IT and biotech sectors. A new MIT study now shows that such agreements can come with a large cost to high-tech employees.

The survey of more than 1000 randomly selected IEEE members found that about a third of the engineers who signed noncompete agreements wound up moving to completely different industries when they switched jobs. In many cases, these high-tech workers didn’t use their advanced degrees and skills and took pay cuts.

Matt Marx, a professor at the MIT Sloan School of Management, who led the study, has found that about half of tech employees have to sign noncompete agreements. Another study has found that 70 percent of executives have to sign them, according to the MIT press release.

Noncompete clauses are essential to protect intellectual property, and they are considered standard practice. Most people in Marx’s survey weren’t informed, however, that they would need to sign a noncompete agreement until after they had made a commitment to the job. In the press release, Marx said, “Seventy percent of people said they were informed only after they accepted the offer. Half the time it was after they showed up for work. On the first day, they enroll in a 401(k), set up direct deposit, and, oh yeah, are given this noncompete thing to sign. People get savvy as they get older, but a lot of people are blindsided by it.”

Courts are wary of these clauses, but their rulings in such disputes depends on a host of factors, including geography. Ten states, including California and Washington, restrict the use of noncompete agreements, while Massachusetts enforces them. Marx, a software engineer, has had to personally deal with the two extremes in California and Massachusetts. He's now analyzing whether the  different approach pushes high-tech workers to look for jobs in states such as California.

PHOTO: John Lamb/Getty Images

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