Do Your Employment Contracts Kill Innovation?

In a  Human Ventures post yesterday I sarcastically put forward a quick “how to” use private property to kill innovation.

This is a further riff on that topic. However, it explores something much nearer and dearer to your heart.  YOU!

Let’s start with two trends in the realm of employment contracts:

• Inclusion of Intellectual Property (IP) Ownership Clauses. These stipulate that any ideas you come up with while working for the company, that relate to the business of the company, are owned by the company.
• Increasing Use of Non-Compete Clauses. Among other things, these put restrictions on your ability to start a business or seek employment doing work that might be considered competitive to the work of your current organization for a defined period of time.

Now compare those to three important workforce trends:

• The Workforce is More Mobile. People are changing jobs and geographies more frequently than ever.
• Work Is More Project-Oriented. Companies are responding to workforce mobility trends and their own needs to be agile by increasingly contracting people on a project-by-project basis.  In other words, more and more of us are becoming freelancers of sorts.
• Workers Are More Heavily Specialized. Part of being a freelancer is being heavily specialized in one or a couple of different fields. Specialization makes you more valuable for certain projects. It also makes you harder to “re-deploy” as human capital (i.e. re-specializing takes time).

These trends suggest that the IP ownership and non-compete clauses so common to today’s employment agreements will become increasingly problematic in terms of the rights they deny individuals seeking gainful employment. In a highly mobile, specialized, and project-oriented workforce, these clauses tip the scale unfairly toward organizations’ rights and away from those of workers.

Thwarting Enterprise and Destroying Innovation

But just as importantly, they kill innovation.  That is, they fail to recognize the fact that many ideas spawned by individuals, even those closely related to the work of the inventor’s corporation, will never be brought to market by the company.

My Human Ventures post explores the patent system and points to a pair of books by Henry Chesbrough that bring to light the fact that most patents filed never actually materialize into commercially available and socially beneficial goods and services.

Not only is the employment contract issue analogous to the patent law problem put forward by Henry Chesbrough, there is in fact a direct tie-in in that the company will patent some of these novel ideas and then never use the patents.

Think about what this does to entrepreneurship in a society.  People are constantly coming up with new great ideas that they can’t pursue independently because they seem to relate too closely to their current company’s business, even though the company would have no desire or ability to commercially pursue the idea.

In the social enterprise space, this is especially problematic.  Here, we’re trying to create markets that are efficient and competitive so that we can all better serve the world’s poor.

I could likewise argue the need to protect social enterprises and their secret sauce. However, that’s the side we all know and appreciate. It’s critical to also recognize how IP ownership and non-compete clauses work against the objective of social betterment.

What do you think?