Do Non-Compete Agreements Hurt Massachusetts Workers?

I had to stop writing for a while because I recently joined the 10% of the population that was looking for work. Happily, my severance package was generous and I have now found a job where I’m working 30 hours a week with benefits. But I discovered two interesting local facts after being unemployed for the first time in many years.

The first is that Massachusetts still has the nation’s most generous unemployment benefits. I actually decided not to file for unemployment until my severance ran out because of the issue described in this post, but by then I had found work. The second is that signing a non-compete agreement now seems to be standard practice in accepting a job offer, and I believe this is a huge disadvantage to Massachusetts workers and entrepreneurs. I got offered two jobs, and non-compete agreements were given to me at each of them. They also came up in other job discussions where I didn't get an offer, and people I know who run local offices of major companies told me non-competes are part of the job offer.

I first became aware of the non-compete issue in Alison Lobron’s fine story in Commonwealth Magazine last summer (I got to catch up on my reading the last three months). The story details how non-compete agreements can not only trap workers in jobs they hate, but also may be stifling entrepreneurship by preventing Massachusetts workers from starting any business that could conceivably compete with their old company for months or years after they leave. And many agreements also include bans against hiring workers from the former company, or taking any type of program or intellectual property – even if it is something like a software program the worker developed by him or herself.

Most states seem to have non-compete clauses but Lobron’s article details how they are unenforceable in California. California certainly has its economic problems, but entrepreneurship is definitely not one of them. The number of startups in technology alone dwarf any other state, and most of these company founders either left their former company to start a competitor or just had a great idea and found the venture backing to start it. Naturally, the first place they tap for workers are their former colleagues who can easily jump ship because of the lack of non-compete agreements.

This is largely not possible in Massachusetts, where restrictions in non-compete clauses can be harsh. Recently two PR agencies went to court over a former employee allegedly breaking a non-compete agreement. The case has not been decided yet, but the contract’s language – not working for another PR firm within 50 miles for six months – is not unusual. Restrictions like that can put a damper in any employee’s job search, even if they want to leave on good terms.

New restaurants are founded all the time in Boston, mostly by sous chefs who want to own their own place and cook their food their way. What if there was a non-compete clause in the restaurant business (please tell me if there is) and sous chefs were forbidden from cooking at another restaurant within 50 miles for six months? It would sound ridiculous. And it is ridiculous. Yet workers – especially those who are unemployed or looking for their first job – are forced to sign non-competes that handcuff them to companies or prevent them from looking at competitors that might pay and treat them better. They often have no choice. In this economy Massachusetts needs good new businesses, and workers should not be restricted from their livelihood if they want to leave.

My lawyer told me there is always a way to go around a non-compete. This can include paying someone as a consultant until the time limit expires, or having your colleagues contact you for a job if you are forbidden from soliciting them. But not everyone can afford a good lawyer, and local businesses and workers shouldn’t have to resort to loopholes. And if an employee is fired or downsized, the non-compete should immediately become null and void.

Hearing vs. Listening

I’ve talked enough in the last few posts about anti-incumbency and mad voters driving recent election results from Virginia to Massachusetts. Here in the Bay State, some politicians seem to listening. Here is Rep. Stephen Lynch (D-MA, 9th district).

“I think there is a message there and the people of Mass want us to listen. They are not happy about the economy. They're not happy about this health care bill. So they want us to listen.”

But then there’s this from House Speaker Nancy Pelosi:

You go through the gate. If the gate's closed, you go over the fence. If the fence is too high, we'll pole vault in. If that doesn't work, we'll parachute
in. But we're going to get health care reform passed for the American people.

And this gem from The New York Times:

But it should not be impossible if Congressional Democrats and the White House show courage and creativity. Health care reform is too important to throw away,and it is not too late to persuade voters that it is in their interest.

This is the difference between listening to voters, as Rep. Lynch seems to be doing, and just hearing noise as Pelosi and the Times editorial page does. I had cited the Suffolk poll the day before the election as the bellwether to watch. Not only did it nail the election results, but also cited that 51% of Massachusetts voters oppose the health care plan and 61% said the country cannot afford it. And this is in Massachusetts, which already has a universal health care mandate!

Much has been written about the health care bill legislation and debate being conducted behind closed doors, and only getting passed with sweetheart deals to specific senators. The lack of transparency has only exacerbated public opinion against the bill. The health care debate was never properly communicated and sold to the public in the first place.

Should Democrats not listen to the voters of the “blue” states of New Jersey, Virginia and Massachusetts, it is proof they have no interest in what the public has told them. The American people do not want this bill, and if the majority party covers its ears and keeps ignoring what the voters are telling them, prepare for a GOP resurgence in November.

Roll Over Ted Kennedy

Once again, the political future hangs in the balance of a Massachusetts Democrat. I would not be at all surprised if history repeats itself again. Mike Dukakis and John Kerry were both able to snatch defeat from the jaws of victory, and Martha Coakley looks ready to do the same. What would Ted Kennedy say?

I first met Scott Brown a couple of years ago at a local event and my first thought was, “This guy is way too smart to be a state senator.” When he announced his candidacy I didn’t think he had a shot at winning, but didn’t think Coakley would underestimate him. I was wrong on both counts – Brown has campaigned hard (I’ve run into him twice by chance as he was pounding the pavement) and Coakley took the race for granted. The polls have been everywhere, but I’d place my money on Dave Paleologos’ Suffolk poll, which showed Brown at 50%, Coakley at 46%, a libertarian party at 3% and a jaw-dropping 1% undecided. Statistically it’s a dead heat, but that low undecided vote doesn’t give anyone much swing room.

How could this happen in Massachusetts? First, there is the Occam’s Razor principle that I’ve already discussed – Brown was a better candidate and ran a better campaign than Coakley. But you also need to ignore the “Bluest of Blue States” conventional wisdom. Massachusetts is a blue state for presidential elections, but all other politics is local and there is a long history of Republican governors and independent voters here in Massachusetts. If you look at ballot questions over the last two decades Bay State voters have abolished rent control, refused to let supermarkets sell alcohol, rolled back income taxes and refused to let day care center operators unionize. Does that sound like a blue state to you?

I believe Coakley also ran into the anti-incumbent buzzsaw that has sliced up so many elected officials the last two cycles and will likely reoccur this year. Look again at the Suffolk poll and see how many voters dislike the president’s health care plan, think the state is on the wrong track and dislike Governor Deval Patrick, a close Obama aide who also will face an uphill election battle. And those are people in Massachusetts! This is less about which political party has the upper hand and better platform and more about who is currently in office when the voters take their frustrations out on the ballot box. The Democrats benefitted the last two cycles, and it’s quite likely the Republicans will benefit this year.

The race will be close and it could come down to turnout, but I just saw two ads that almost say it all. The first was Scott Brown driving around in his truck meeting people in Worcester. The other was a 527 ad by a liberal group just as heinous as the Swift Boat ads, claiming that Brown will roll back a woman’s right to choose. In the current economy with unemployment being what it is, health care and financial bailouts dominating the news and a huge anti-Beacon Hill backlash evident, it’s safe to say abortion is pretty far down the list of voter priorities this year. How come Team Coakley can’t figure that out?

More Info: Yesterday, Coakley appeared with President Obama in Boston. Scott Brown appeared in Worcester with Curt Schilling and…Doug Flutie! Guess who had a larger crowd?

Resurrecting the Media

As the decade draws to a merciful close, one market that has been beaten down further than the Republicans and our retirement portfolios combined has been the media. I’ve opined over and over and over about the media’s continuing insignificance in the 21st century, but I may also see a way out for the Fourth Estate.

First, downsize staff and cut pages if you must, but by all means please stop cutting back on writers and foreign bureaus. Writers and foreign bureaus are the oil that keeps dailies and newsweeklies running. Many colleges are in financial trouble, but the last place they cut staff is in academia because then the quality of education suffers, followed by the quality of the institution. Same for professional sports teams; if they cut their best players the team will suffer and fans will desert. It’s no different when the media cuts back on writers and stories. Laying off journalists is killing professional journalism.

Twenty years ago when journalists and foreign bureaus existed we watched successful revolutions across Eastern Europe – many have said Western journalism helped get these stories out and fueled the protestors for democracy. We currently have a revolution beginning to bubble in Iran and the lack of Western media actually over there covering the story is shocking. If you only get your news from mainstream media you would have no idea what is happening there. Fortunately we have DIY journalism on YouTube, Flickr and Facebook to spread the word, and ironically I’ve seen pleas from mainstream media asking these brave Iranians to act as (unpaid) correspondents! Sorry guys, you reap what you sow.

But there have been some media success stories this decade. Just as the online audience has fragmented and narrowcasted, the successful media outlets have been ahead of the curve and provided terrific coverage and breaking commentary first. Specifically, I’m thinking of TMZ.com. TMZ was the first to break Michael Jackson’s death, Tiger Woods’ er, “mishaps” and is actually expanding into sports. Why has TMZ succeeded? Because it completely eschews the old-school media model in favor of non-printed breaking news – almost an AP for gossip. They also have the old media model of a small army pounding the pavement looking for news (or dirt).

Do they pay for tips, if not stories? Yes, sometimes they do. But TMZ has never pretended to be anything other than what it is. And with NBC now crossing the same lines TMZ ignores, it’s quite possible that checkbook journalism will become a stronger player within the mainstream media in the next decade, if only to keep up with its smaller, faster rivals. TMZ’s success and accuracy cannot be ignored any longer. There is a lesson here.

More info: Politico is another good example of the new Web media working. And they’re hiring. If you were a recent journalism grad, where would you go?

The Folly of Campaign Finance Reform, Part IV - The Conclusion

If you have read all the posts so far and still believe CFR laws are either correct or effective, there is additional information I have researched that I did not discuss here. One is that fundraising success, not media time or attention, is the most effective gauge of popular support for candidates and causes. A review of www.opensecrets.org reveals that PACs and so-called special interests actually supply a small minority of the voluntary donations provide the fuel that power political communications to inform and educate the electorate, something that Jefferson said was necessary to the health of a democracy. Obama’s fundraising strength – 100% of which came from voluntary donations – gave him the means to wage an effective campaign against both Clinton and McCain. The media did not take candidates like Howard Dean and Ron Paul seriously until their fundraising totals showed they enjoyed a great deal of popular support.

But CFR laws passed in the guise of “money undermining the public” and “taking the money and interest groups out of politics” have not achieved these goals. In fact, they have exacerbated the situation by the sharp rise in incumbency and millionaires winning office. In the hope of limiting private donations, they have made politicians more reliant on fundraising than ever before as the realities of the marketplace require increased time spent on raising funds. Limits on donations mean more time spent fundraising, and lower donation amounts obviously leads to increased interaction with those who can give the maximum.

Most alarmingly for political communication, regulating donations limits the ways citizens can participate in the political process and also limits the ways politicians can present themselves and their platform to the electorate. Any law that restricts freedom of speech, limits freedom of expression and affects the outcome of election should be a violation of the First Amendment and a detriment to popular sovereignty. Yet these laws continue to be popular with the public, who are clearly unaware of these serious consequences and unable to follow the complexities of CFR. Even among CFR supporters, there is a backlash because they do not believe the laws are working. When a CFR champion like John McCain abandons the Presidential Campaign Fund and begins employing the same techniques he excoriated others for using, it is obvious the current system is broken.

The challenge, then, is whether to keep passing new CFR laws or try something radical like gutting the entire CFR structure. The answer is likely to be neither in the near term, although the current makeup of the Supreme Court may encourage some organization to challenge the laws on First Amendment issues. In 2007, the Court weakened the 60-day ad provision in Wisconsin Right to Life v. FEC, ruling that the BCRA's limitations on political advertising were unconstitutional when applied to issue ads similar to ones the Wisconsin organization wanted to run.

There is one CFR facet I agree with because it assists politicians, the public and the First Amendment – the call for transparency and added disclosure. The public deserves to know where politicians, PACs, 527s and other organizations are getting their money, and how they are spending it. Web sites like www.opensecrets.org present this information in great detail. It helps create a money trail and assists with accountability. Anything that continues to promote good governance should be encouraged.

But by and large, CFR laws are preventing effective political communication. The laws were designed to prevent inequities, but social and economic inequality will always exist in our society regardless of the level of campaign contributions from the private sector. The more money a candidate can get, the more they will be able to communicate with the voters. The more informed voters are, the better informed they will be. It’s conceivable that Obama’s huge base of support simultaneously comes from and is driven by the large amount of private contributions he has raised from the public. And remember, he also rejected the matching funds from the Presidential Campaign because he thought he would need more money to win the campaign. It turned out he was absolutely right.

The Folly of Campaign Finance Reform, Part III - Why Incumbents and Millionaires Love Them

Even if you disagree with both my posts on Campaign Finance Reform (CFR) so far, there are three incontrovertible truths about what has happened since the Supreme Court upheld part of Buckley v. Valeo in 1976. First, since 1976 there has been a huge jump in the number of incumbents that have been reelected. Second, there is a growing number of millionaires being elected to public office. And third, so-called “public financing” of elections to purge the system is not a viable option and – in the case where it has existed since 1976 – is dying on the vine. These are additional reasons why CFR laws have been a complete failure, made politicians more dependent on money than ever and have made the political system and money more interdependent than ever.

Let’s talk about incumbency first. Incumbency has always been a difficult mountain for political challengers at any level to overcome. Unless an incumbent is truly unpopular or besieged by scandal, challengers everywhere have an uphill battle for name recognition, let alone victory. That is why so much attention is devoted to “open seats,” where there is no incumbent running. Since CFR laws were passed, this difficult task has been made close to impossible because these laws discriminate against challengers by making it almost impossible for them to raise enough money to effectively challenge sitting congressmen and senators. Is this why CFR laws always pass by wide margins?

Below are the results for Congressional incumbents pre- and post-Buckley up to 2000. If you want to view the 2000-2008 results visit the House Clerk's page but I promise the results are the same.

House Races 1920-1974

Incumbents Challengers
Winners 9,733 1,005
Winning Percentage 90.6% 9.4%

House Races 1976-2000

Incumbents Challengers
Winners 4,826 218
Winning Percentage 95.7% 4.3%

Senate Races 1920-1974

Incumbents Challengers
Winners 454 161
Winning Percentage 73.8% 26.2%

Senate Races 1976-2000

Incumbents Challengers
Winners 230 45
Winning Percentage 83.6% 16.4%

Source: Rodney Smith, Money, Power & Politics, LSU Press, 2006, p.9.

The most important thing a challenger must do in any election is build up name recognition, and the way to do that is through political communication – direct mail, advertising, lawn signs, bumper stickers and other established methods. If a challenger cannot effectively communicate because his or her fundraising is being handicapped by CFR laws, those laws are not only breaking the First Amendment but also interfering in election outcomes. This is not the only reason so many incumbents are re-elected, but it is the primary reason why challengers have become less successful overall since these laws first took effect.

While incumbents must adhere to the same contribution limits, they are not prevented from raising money while in office, and this has led to a perpetual fundraising quest so incumbents can also overcome contribution limits while simultaneously building up war chests to discourage competitors. Virtually every elected official in Congress develops a PAC, and naturally seeks out individuals and other PACs who can donate large amounts of money. Massachusetts has a $500 limit on contributions, and while state races are less expensive the lower amount causes local politicians to spend even more time fundraising to compensate. And when there's a war chest to build up to both run campaigns and deter challengers, a politician is practically forced to spend time soliciting those individuals or PACs that can give him or her the maximum amount.

But there is one glaring loophole to CFR laws – spending one’s own money to win elections. While being the richest candidate does not always guarantee success (just ask John Corzine in NJ, or Jack E. Robinson here in Massachusetts), being able to tap one’s own wealth makes CFR laws moot. The richest candidate may not always win, but the candidate who spends the most money generally does and both parties are increasingly turning to millionaires as viable candidates – candidates who are rarely representative of the districts and states they represent. Congress has become an exclusive club, far different than the citizen legislature it once was.

In 2004, Agence France Presse reported that 123 members of the 435-member House of Representatives earned at least $1 million in the prior year, and one in three U.S. Senators were also millionaires. Senators are not getting this rich from their salaries, which is $154,700 for newcomers. Financial wealth is a bipartisan issue, with Republicans and Democrats alike reporting huge financial assets; the wealth of Mass Democrats John Kerry and the late Ted Kennedy are well-known. There is little doubt that CFR has made it infinitely easier for wealthier upper classes to run for public office because they can skirt campaign finance reform laws, while middle class office-seekers and other average Americans must contend with the existing system that places limits on how much cash is available for them. It is an uphill battle few of them can win.

One frequently cited solution to CFR is the public financing of elections. Common Cause says this is a way to, “give voters more control over government, make politicians accountable to constituents rather than campaign contributors, save taxpayers money and level the playing field by giving all citizens a fair shot at getting elected.” Unfortunately the most prominent public financing of all – the Presidential Campaign Fund – is atrophying from a lack of interest from the public and a growing number of candidates opting out of the system. The Fund is founded by taxpayers who voluntarily mark off a $3 donation on their federal tax returns. The law then gives candidates a fixed amount that is indexed for inflation to spend before the primaries, and a larger amount for the two nominees to spend between the conventions and Election Day. In return, the candidates must adhere to a spending limit and not spend more than $50,000 of their own money.

Both party candidates used the system until 2000, despite the fact that the largest percentage of taxpayers to ever check the “Yes” box was 28.7% in 1980; by 1994 only 13% checked the box and in 2007 only 9% said yes. The steady decline indicates the lack of public support for the system. In 2000, George W. Bush became the first candidate to decline public funding, believing that in a campaign season that had grown longer and more costly he would not have enough money to win the election if he had to abide by spending limits. Bush was also able to raise far more funds than he would have received from the Fund. In 2004, Bush, Kerry and Howard Dean all declined money from the Fund for the same reason, and their fundraising success was a watershed moment for presidential candidates. In 2008 Democrats Clinton, Obama, Edwards and Richardson opted out, as did Republicans McCain, Giuliani, Romney, Paul and Huckabee for the same reasons the 2004 candidates did. The success many of these candidates had raising money from the private sector (or in Romney’s case, tapping his own fortune) proves that the Fund has become antiquated, if not irrelevant.

I'll wrap this up in the next post.

The Folly of Campaign Finance Reform, Part II - The First Amendment

Many liberals have fond memories of the late Senator Gene McCarthy, whose anti-Vietnam presidential platform caused LBJ to withdraw from the 1968 campaign. But very few of them know that in 1974, McCarthy went to court with fellow Senator James Buckley and a host of other groups ranging from the New York Civil Liberties Union to the Mississippi Republican Party to sue the United States against new amendments to the Federal Election Campaign Act. The coalition of ultra-liberals and arch-conservatives believed the new stipulations were unconstitutional, muzzled free speech and caused the government to influence election results and compromise popular sovereignty.

Two years later, the Supreme Court in Buckley v. Valeo (Buckley got the recognition because his name was first) did indeed agree with McCarthy and others and threw out the bulk of the new laws but upheld some key provisions, including the creation of the FEC, public financing of presidential elections and capped campaign contribution limits at $1,000. The court ruled that limits on individual and campaign expenditures violated the First Amendment, but contribution limits did not.

But is that truly the case, and was Gene McCarthy and the NY Civil Liberties Union 100% correct? In my opinion, yes. All forms of political communication to a mass audience of voters and constituents require money to create (often by hiring consultants), produce (everything from direct mail to bumper stickers and advertising copy) and distribute or broadcast. Political advertising and speeches is clearly communications and deserves the same protections as any other form of speech, including the partisan rhetoric of 527 ads and the personal views expressed on this blog.

By limiting campaign contributions, Buckley v. Valeo is limiting the contents and varieties of political communication available to political campaigns. It is also suppressing political dialogue and debate by preventing candidates from amassing enough resources to communicate with the public. Campaign contributions also enable other means of political communication, including grassroots mobilization and get-out-the-vote drives that further educate the public to a candidate’s positions.

The Court has ruled in numerous other decisions regarding communication that money equals speech, and politics is no exception. Money permits challengers and incumbents alike the power to communicate through advertising to try and persuade voters. But when the money spigot is curtailed or cut off, that severely limits the effectiveness of free speech and has the power to determine the outcome of elections. If Campaign Finance Reform (CFR) laws are hampering popular sovereignty, they are having a deleterious effect on democracy.

CFR laws also adversely affect people who wish to donate to their preferred candidates, parties and political causes. One of the best ways citizens can participate in the democratic process is by political contributions, but if a citizen wants to give more than is allotted by law their free speech rights are also being violated. Look at the figures from the 2008 elections at OpenSecrets.org and you will see that private donations from individuals provide the vast majority of money to the political system, not the PACs and nebulous “special interests” that CFR supporters claim. In fact, recent presidential candidates like Howard Dean, Barack Obama and Ron Paul became serious contenders entirely through private donations.

In 2002, the Bipartisan Campaign Reform Act (also known as McCain-Feingold) was passed that created additional CFR restrictions. It included a ban on the “soft money” contributions made to political parties, raised the contribution limit from $1,000 to $2,300 and indexed it for inflation, and banned ads by organizations that identifies a candidate by name within 60 days of election. The Democratic and Republican parties used soft money for a myriad of reasons, but they were primarily used for issue debates ranging from the environment to taxes and were often used in conjunction with specific races. By banning these donations, the parties are also now subjugated to the same First Amendment issues raised earlier because they are being prevented from fully engaging in these political debates. Perhaps more insidiously, donations that used to go to the parties (that were fully disclosed) have been diverted to 527 organizations and other entities that are not required to be transparent or accountable for their actions.

CFR laws were certainly written with good intentions, but the consequences to the public, the parties and the candidates have unacceptably influenced elections by curtailing free speech. Unfortunately, CFR laws are undermining more than the First Amendment and are adversely affecting politics in other ways as well. I'll explore that next.