KillHB173: How Natural Selection Should Punish Crappy Employers

After a long Labor Day weekend of pondering more on the Georgia Restrictive Covenant Act, I think I’ve isolated my core problem with the legislation: it enables a vindictive employer to really screw someone’s life up. And let’s be honest, we’ve all worked for someone like that. Whether it was a first job where you had to do whatever was necessary to break-in, or more likely you’ve had to recently backslide in rank, prestige and compensation due to the economic conditions. We’ve all had to take a job we didn’t want to make it to the next level. Imagine now that this decision is even more painful given an overly aggressive non-compete. Will you not do what it takes to break into a new industry, or will you let your family go hungry based on principle? Clearly not.

Those who argue in favor of HB173 are quick to point out that the courts won’t allow predatory employment practices to run wild. My question is: How many of these scenarios will ever see the inside of a courtroom? The answer: very few given the cost of litigation and the chance an individual could ever afford to assert their rights. It’s much more likely – and insidious – that this creates fear, uncertainty and doubt for employees as they calculate whether their employer will come after them legally following a job change. Some will be so risk-averse they will never even attempt to better their employment situation. That sure doesn’t seem to embrace our values as a nation of hard-working immigrants – regardless of which generation and where our families are from.

The answer is employers are 100% responsible for creating an environment that draws the best and brightest talent. And guess what? There aren’t many examples of companies or CEOs who truly understand this principle – and are able to put it into action. Two examples come to mind: Tony Hsieh of Zappos and Ben Chestnut of MailChimp. Both have created companies built on cult brands, and have become that ever-annoying (but absolutely desirable) catch phrase of HR people worldwide: ‘an employer of choice’.

You think these guys stop thinking about how to please their customers or improve their service to consider how to lock their employees down tighter? I’d be willing to bet they take employee recruiting and retention as personal responsibilities. They understand a contractual relationship is nothing more than that – it’s great for dealing with external suppliers, but not much of a way to motivate and empower employees to deliver their best work. For that, it’s all about Poetry Spam.

So in a perfect world, HB173 is irrelevant even if the citizens of Georgia are bamboozled into making in law in November. For the best employers, there will not be a ratcheting-up of contracts. Perhaps the opposite even happens: a new point of differentiation for employers could become a fair non-compete/non-solicit agreement. This has the potential of pairing superstar employees with great companies – a scenario that drives benefit for the entire ecosystem, including increased tax revenues.

Yet there will naturally be an opposite end of the spectrum where the employer is hell-bent on onerous terms of employment. Think of these as the buy-here-pay-here versions of jobs. Ideally, natural selection keeps people away from such employers, but it’s my fear that less-informed folks are more likely to fall for the pitch – yep, it’s the job equivalent of a 28% APR used car loan on a 1999 Ford Probe GT.

Realistically, most employers will fall somewhere between these two outlying points, but the gray area will be just as painful. At a minimum, it causes an employee to consider legal fees when changing jobs. I hope that employers are smart enough to view the world through Zappos or MailChimp eyes, but I fear the almighty question of legal ROI will empower mediocre employers to hang on for dear life.


Editor’s Note: Anyone wanting to see all HB173 articles can simply type that phrase in the Search box at the top of each page.


0 # Jackie Hutter 2010-09-08 11:07
As an IP lawyer who has both papered and litigated employment issues (one of which ended up at the Georgia Supreme Court) in my almost 5 years of practice in Georgia, I can't disagree with a single thing you say here or have said in previous posts. But, I have come upon this perspective only in the last 2.5 years since I have been working in the trenches with entrepreneurs as an entrepreneur myself. Few people would get what the fuss is about this proposed new law.

Most, if not all, lawyers who I know--including the "right" startup lawyers--are strongly in favor of this new law. They see it as making it easier for businesses to enforce what the parties agreed to in the first place, which is currently problematic under the so-called "Georgia rule," which does not allow "blue penciling" (that is, striking) of unenforceable provisions from an otherwise good agreement. In sum, the existing Georgia law requires "the baby to be thrown out with the bathwater" when there is a provision in the agreement that is offensive to a portion of Georgia law--even if the bad part has nothing to do with what the parties wish to enforce.

But this push for legal efficiency--which seems to be oh so reasonable--will have the unfortunate effects you highlight. In my experience with entrepreneurs, I see that this law will also make it less likely that "pop up" businesses will occur, and it is these types of collections of people that result in the formation of new start ups. Sure, most of these nascent businesses won't go anywhere, and most won't make much money. But, when there is a business idea that has legs, and when the founders aren't gelling as expected and one or more want to move on, this new law will serve to prevent the team from moving on as they can now. Also, it is not the enforcement of the new law that will cause problems, it is the potential enforcement that will cause these companies not to be formed in the first place. At the end of the day, this law will not be enforced unless there is money at stake, so the law is also potentially very punitive in nature, as opposed to being proactive.

As noted, few lawyers "get" the start up business paradigm and, as a result, they are for this new law because it appears only to fix a problem with the existing situation. In fact, I have engaged the ire of a dear friend of mine, who is a strong proponent of this new law. She is definitely not "pro-business:" her politics are typically very Progressive. But, she litigates "business divorces" and has to deal with the "Georgia rule" all the time, much to her clients' detriment. The proposed new law thus looks very reasonable to her, and she is going to labor on its behalf this Fall.

I expect there is nothing that we "little people" can do to stop the enactment of this law, especially when the attendant Constitutional amendment is couched to the voters in terms of the propaganda-like language "should Georgia become more competitive?" My hope is that entrepreneurs will do as they always have done: adjust to circumstances to do what needs to get done, and expect the best.
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0 # Jackie Hutter 2010-09-08 14:58
Meant almost 15 years of practice in Georgia!
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0 # GFRRTDEFF 2010-09-08 15:52
Great points Jackie, and I'd fully agree this is a "the-more-you-know-the-more-you're-outraged" issue. Having worked in technology for 20 years – including both corporate and agency, and during the rise of the Internet – I care inordinately more about defending IP and the free ability to create it over fixing some contract-related irregularity in existing law. I've been asked to sign multiple employment contracts that were non-enforceable in Georgia, and I've always declined to do so. That hasn't cost me an opportunity ... yet.

It boggles my mind that the Legislature jointly provides digital entertainment tax credits to incent the growth of clusters, but proposes to squash an employee's ability to move between companies in that cluster. I can only assume the tax credit will become all about drawing fixed-duration film productions to the state, which has a much smaller impact on employing Georgians.

Hope you're wrong about passage in November! My peers are much more open to killing it than yours :-)
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0 # Mike Schinkel 2010-09-08 16:57
Dave: Another great article on the topic. All I can add is to say that "Sadly, (conservative) Georgia gets what it deserves."
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