Project Management

Do IT consultants need legal protection from competition?

Many IT consultants would like to make the playing field a little less even -- if it makes the money roll their way. Find out where Chip Camden stands on legal protection for IT consultants from competition.

 Americans are taught from an early age that our society is built on free-market capitalism. Perhaps no occupation better embodies the enterprising spirit required to attack an open market than IT consultant. Selling one's skills, looking for new work, and competing with other providers are part of our normal business cycle. But it appears that many IT consultants would like to make the playing field a little less even — if it makes the money roll our way, that is.

Firms sometimes rely on legal barriers against competition to protect their business rather than working to stay competitive. This is not only self-defeating in the long run, it hurts commerce in general.

Noncompete agreements

My recent post about a TechRepublic member who was harassed for attempting to transition from employee to consultant generated quite a discussion about the merits of noncompete agreements. A noncompete is a contract clause that specifies that one party (or both parties) will not take business away from another party. It usually covers a period up to a defined interval following the end of the engagement.

Noncompetes are notorious for being vague and general — often prohibiting a party from engaging in a similar business activity though it isn't in direct competition with the other party. Sometimes noncompetes even protect business endeavors that may occur in the future.

Companies often won't pursue a breach of a noncompete agreement unless that breach is blatantly competitive. Even when it is blatant, companies usually can't win because antitrust and other restraint of trade laws can be interpreted to make these agreements illegal. In fact, noncompetes are illegal in California (this decision was recently upheld).

I wonder why companies and consultancies feel the need for a noncompete. I think it's about laziness. If you're doing your job and competing in your market, you shouldn't worry that the other party will spoil their engagement with you in order to try to take that market away. And if the other party is so much better matched for the task, why should they be prevented from taking that business? Rather than setting up a trust to prevent competition, both parties should look for what makes them more valuable to the end customer and capitalize on those strengths. The big winner is the shared customer who is well served by both parties and who will not feel neglected by a smug vendor who considers them "locked in."

How noncompetes differ from nondisclosures A noncompete is completely different from a nondisclosure agreement (NDA), also known as a confidential disclosure agreement (CDA). When two parties contract to work together, it's often necessary to share information that one of the parties wants to keep out of the public knowledge. An NDA/CDA says that you won't reveal the specified details to anyone else. It also often states that you may not use that information for any other purpose; this includes starting a venture in competition with the other party. An NDA/CDA doesn't necessarily prevent you from competing with the other party in ways that don't take advantage of that information.

No-hire clauses

A special case of noncompete is the agreement not to compete for people. Whereas in not competing for business, the customer loses; in the case of no-hires, the contractor or employee gets the short end of the stick.

For example, a consultancy and its client agree not to hire their respective subcontractors or employees. This may provide some peace of mind for the two parties involved in that agreement, but it artificially limits the market for the employees' skills. An employee who feels trapped will be even more resentful than a customer who feels locked in. If you need to worry about no-hire clauses, you can bet that your employees are actively looking for a way out of serfdom — and they'll find it. So instead of giving the underhanded company that stole your best person the evil eye, you should ask yourself why that employee wanted to leave in the first place.

Rules limiting global competition

A lot of IT folks are up in arms against outsourcing and bringing in foreign guest workers. Here are three groups that are in this camp (tip of the hat to TechRepublic member Marty R. Milette for the links — and the warning about writing this blog):

Many IT pros think that H-1B visa requirements are too loose. And here's where I may lose a few friends: I think that H-1B visa requirements are too stringent. I also disagree with any governmentally imposed restraints on offshoring or outsourcing.

IT is already a global market, especially in software development. Even if you can artificially prevent workers from coming to the United States, you can't prevent them from working via the Internet. And, if by some heavy-handed protectionist legislation, you are able to prevent workers from even contracting remotely, you'll only end up isolating one nation within a rapidly evolving global IT industry. IT workers in that isolated nation will play a less and less significant role unless they learn to compete and cooperate. Rather than putting off the inevitable, IT consultants need to figure out how to provide value in a worldwide open market. If we can't do that, we shouldn't be in the game at all.

Legal protection from competition is unnecessary

To my mind, these legal barriers only serve to prop up the status quo by artificially limiting competition. None of them can achieve their long-term goals. All they can possibly do is to buy some time while the parties that benefit from them figure out how they'll cope with the new state of affairs — once resistance becomes futile.

Related TechRepublic resources

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About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

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