If Amazon Comes to Denver, Who Will Work There?
Rachel Arnow-Richman is the Chauncey Wilson Memorial Research Professor and Director of the Workplace Law Program at the Sturm College of Law. She has taught at the University of Denver since 2004. Arnow-Richman teaches and publishes in the areas of employment law and contracts. She was previously Chair of the American Association of of Law Schools Committee on Labor and Employment Law and currently serves on the executive committee of the Committee on Contracts and Commercial Law.
Amazon’s announcement that Denver makes the cut as a possible site for its new headquarters is big news for Colorado. The project promises $5 billion dollars in investments and 50,000 new high-paying jobs for the lucky state that is ultimately selected.
Among Denver’s many selling points in the bidding war is its talented workforce. Colorado ranks second in the nation in educational attainment with a disproportionate number of workers in high-skill areas like engineering, technology and business. But Colorado also has an exceptionally low unemployment rate — 2.7% compared to 4.1% nationally. Most of the local workforce that Amazon wants to attract is already employed, and — more problematic — many of them have signed so-called non-compete agreements.
These are contracts that limit workers’ ability to work for a competitor after leaving their employer. They are extremely common in high-skill industries. Non-compete contracts interfere with companies’ ability to attract new talent and constrain workers in seeking better employment opportunities. They force workers who wish to change jobs either to sit out of the workforce temporarily with no pay or take career detours to work outside their area of expertise. Many workers subject to non-competes don’t even know it: the agreements are often signed as part of the routine HR paperwork provided by companies during the employee’s first days on the job.
Surprisingly, such agreements are permissible under Colorado law. This is because companies and lawmakers once thought non-compete contracts were good for business. Their reasoning was that companies would invest in their workforce only if they could feel confident that their workers would not take their knowledge and skill to a competitor.
But the data show the opposite is true. Economic growth in knowledge-based industries like business and technology owes in part to “knowledge spillovers.” These happen when talented workers leave one company and bring their skills and experience to new settings — either new employers or new ventures. Non-compete contracts prevent those moves from happening. While it may be in any one company’s interest to retain their high performers, in the end, we are all worse off.
Consider the country’s most robust high-tech economy: Silicon Valley, known for its innovative companies, its flourishing start-up community and its highly mobile workforce. One key difference between Silicon Valley and wanna-be tech regions in other cities — California prohibits non-compete contracts. It is the only major economy in the country that bans these agreements altogether.
Most courts are hostile to non-competes and many states, including Colorado, have limited them by statute. But these laws don’t go far enough. Judges still enforce the contracts, preventing employees from capitalizing on new opportunities, even forcing them out of their fields. Such court-ordered restrictions can remain in place for months, sometimes years. Many more workers are deterred from seeking new work altogether. These workers stay in their jobs rather than risk litigation. Companies lose the benefit of new blood and new ideas; workers lose the chance to broaden their skills and advance their careers.
Lawmakers in some states have begun to question the value and fairness of these restrictions. Hawaii recently banned the use of non-competes in the tech sector, Oregon enacted an 18-month limit on their duration, and Illinois now prohibits the contracts in low-paying jobs. But so far, no state has proposed eliminating non-competes altogether, and so far Colorado has not been part of the conversation.
This should change. Colorado should be leading the way in non-compete law reform. Our state’s economic potential, commitment to individual freedom, and tradition of innovative state law initiatives make it the obvious place to pursue a California-style ban on these anti-competitive agreements.
The new legislative session is just underway, and state lawmakers, whatever their affiliation, ought to place this on their agenda. Banning the restrictions is pro-development, pro-innovation and also pro-worker. It will be good for Amazon, should it eventually come to town. Better yet, it will be good for Colorado either way.