Category: Employment Law


Talent Wants To Be Free Symposium: Lending Support to Lawmakers and Raising Questions for Open Government Efforts

Like my fellow symposium participants, I loved Orly’s book. As Catharine Fisk noted, Orly’s stories and lessons, informed by literature, experiments, and more, captivated me. Beside teaching me much, more importantly, it will educate policymakers. Talent Wants to Be Free serves as a slam-dunk rebuttal to those who say that legal scholarship lacks value in the real world. Orly’s book is a must read for state legislators interested in encouraging innovation in their backyards. Some lawmakers have proposed bills to limit or eliminate non-compete agreements as contrary to public policy. As Orly’s book demonstrates, good for them and for all of us. Orly’s book provides powerful arguments for the adoption of those laws and for other states to pay attention. And it sounds like an upcoming Restatement will recommend rules that would send judges in the opposite direction–towards less mobility, not more. They too need to read Orly’s original research and powerful arguments.

The book raised an interesting disconnect about our understanding of the mobility of talent. On the one hand, the media is all abuzz about companies that find talent for employers who presumably could move from their current jobs. As a recent New York Times piece discussed, analytics firms crunch data to search for and assess specialized talent in particular fields. Remarkable Hire scores a candidate’s talents by looking at how others rate her online contributions. Talent Bin and Gild create lists of potential hires based on online data. According to the Times, big-name companies like Facebook, Wal-Mart, and Amazon use these technologies to find and recruit job candidates. These stories don’t take into account the barriers that Orly’s book discusses: strictly interpreted non-compete agreements and their functional equivalents such as the inevitable disclosure of trade secrets concept. These analytics firm are likely to identify fabulous talent who cannot realistically move or at least may not be worth the money to buy them out of their non-competes. Of course, California companies like Facebook can gorge on Big Data about talent all they want–California lawmakers have banned non-competes.

A concern that came to mind is whether Government 2.0 efforts are worth it for employees. What if employees spend their free time innovating for government and it turns out that they shared some skill that their employer can claim ownership over or worse sue the employee for spilling trade secrets. Reading Orly’s book raised concerns about the practical problems and perils raised by lending one’s time to government hack-a-thons and the like. I don’t have any concrete answers to these problems except to tell lawmakers and employers to listen to Orly’s recommendations.


Beyond Lawyers: Thoughts on Talent Wants To Be Free

This book is a terrific synthesis of many literatures on legal rules regulating employee-generated intellectual property, human capital, and the nature of innovation. Through her broad and perceptive reading in law, economics, sociology, geography, psychology, and organizational behavior, among other fields, Lobel has compiled a persuasive argument in favor of free employee mobility. She explains the law of trade secrets, noncompetition and nondisclosure agreements, pre-invention assignment agreements, and works for hire in copyright in terms that can be understood by nonlawyers. She explains economic concepts like prisoners’ dilemmas, agglomeration economies, and the rigidity of labor markets in simple terms and links them to legal rules and to news accounts of how legal rules affect company and employee behavior.

One of the book’s great strengths is how engaging the writing is and how deftly Lobel constructs her synthesis. The prose style is jaunty. The examples are ripped from the pages of the Wall Street Journal, magazines aimed at business readers, academic studies published in peer-reviewed journals of business and economics, as well as canonical stories of genius inventors and entrepreneurs ranging from Ben Franklin to Thomas Edison to Steve Jobs. In a mere two pages, she skips from academic studies of business to anecdotes about her experiences consulting with inventors to a story reported in Forbes Magazine to Joseph Schumpeter’s classic economic works published in the 1920s (pp. 202-203). She makes great use of a diversity of sources to develop her argument about why the law ought to allow a great deal more mobility of human capital than it currently does.

The book is clearly aimed at an audience of business people and policy makers rather than legal scholars. As she says at the end, “If many of your best employees are leaving you, it serves as a warning sign to make changes.” (p. 244) That is all to the good. Many of the ideas in this book aren’t new – scholars have been criticizing overbroad enforcement of noncompetes, trade secrets, and invention and copyright assignments for decades, and the research on agglomeration economies (like Silicon Valley) is no longer novel. But the broad scholarly consensus in both law and business/economics that employee mobility leads to economic growth has not yet had much impact on law. Indeed, the proposed Restatement of Employment Law is poised to make some aspects of the law in this area more hostile to employee mobility. So an appeal to nonlawyers seems essential. As Lobel points out (pp. 72-73), at least one state (Massachusetts) has been engaged in a serious look at whether to dramatically change its laws governing noncompete agreements to allow much more employee mobility, and a book like this is tailor made to be read by legislators mulling over whether Massachusetts businesses would be helped or hurt by making noncompete agreements unenforceable. She translates the empirical work of a number of scholars into clear and simple lessons for business executives and policy makers.


Talent Wants to be Appreciated

Orly’s book is terrific–a model for pulling together theory, stories, and data to argue for a dynamic system of free-flowing employees, resources, and ideas. I am persuaded that non-competes and other human capital controls often cause more harm than good.

But amidst the many stories and studies, I would have welcomed more theory. Okay, employee mobility is good. But how good? How far should we push this idea?

Consider a society where every worker is an at-will contractor, working singly on a single project or task. Such a purely contractual world would be dynamic, as workers jump from project to project like insects chasing nectar. But would it maximize the value of production?

To have a theory of employee mobility, one must have a theory of the firm. Why do we have firms and employees in the first place, instead of a web of independent contractor relationships?  The idea of team production (Alchian & Demsetz) may be useful here: production may be maximized by working in teams. This seems to be as likely to be true for innovative production as any other form of production.

Through this team production lens, the critical information cost is the difficult and costly monitoring and metering of individual performance within a group activity. While Orly notes that “[t]oo much supervision can smother creative sparks” (p. 133), too little supervision means that high performers are not appreciated and rewarded. Organizing team production within a firm gives entrepreneurs and managers an incentive to monitor effectively. It is impossible to get performance incentives precisely right at the individual level, and unhappy employees have a tendency to jump ship. But human capital controls–hard or soft–may induce employees to stay put and allow managers to evaluate employees over a longer period of time.

(Soft controls–under the umbrella of what Orly calls “stickiness”–include health insurance, deferred comp, workplace perks (e.g. free food, working on a beautiful campus), and the transaction costs of moving.)

Firms are themselves a soft form of human capital control. When we agree to work for someone else, we give up some freedom. But the existence of firms is, perhaps, a better way to maximize team production and, at least under some conditions, to promote innovation.

My point is that talent doesn’t want to be free, it wants to be appreciated. Firms that find the most efficient way to appreciate and reward talent (financially and otherwise) without devolving into an eat-what-you-kill culture have a competitive advantage.



The benefits of being free

I applaud Orly for this excellent contribution.  There is much to praise and much to comment on.  I was particularly attracted to the interdisciplinary perspective of the book and its heavy reliance on and reporting of studies in economics, psychology, and other literatures—including but not limited to Orly’s original research.  The book provides an excellent discussion of various dimensions of innovation studies.  It also provides compelling descriptions of many different real world contexts where the lessons from the academic studies play out on the ground.  The combination is quite amazing.  I also think it is quite important that she focused attention on people, and the human, social and intellectual capital that actually drives innovation across sectors.  Too often, innovation studies lose sight of the actual people involved.  Orly’s book covers so much ground and connects with various topics I’m also interested in.  It is difficult for me to pick a particular topic of theme to comment on in this blog post.  (I’m tempted, for example, to push her to say more about technology transfer offices at universities and how they’ve evolved over time in terms of their approach to control.  I also would like to hear *much* more about the application of commons governance ideas.)  Instead, I’ll say something about the broad ambition of the book.

Orly presents the book as new wisdom – a “dynamic model” — to challenge conventional wisdom – the “orthodox model” – about the necessity of strict control over talented employees, ideas, and various other complementary resources that drive creative and innovative progress and economic growth.  I think the book does a wonderful job of pointing out the many ways in which theoretical and empirical work across many fields of inquiry combine to challenge if not completely undermine the conventional wisdom.  Controls on the flow of ideas and employees often backfire and are costly to the firm and the public.  Orly describes very well the substantial benefits – benefits all too often ignored or assumed away – in sustaining the freedom to operate, to move, to experiment, to tinker, and so on.  She effectively makes the case for a much more nuanced approach to thinking about innovation and the various ways in which freedom (to operate, to move, to think, to experiment, to ride, etc.) impact innovation and social welfare more generally.

That said, I don’t think the book supplies a fully formed alternative vision, theory or model about what degree of control/freedom may be needed to sustain innovation.  The Goldilocks nature of the problem, which Orly describes, surfaces throughout, and it is hard to know where or how to strike the right balances as a matter of public policy (law) and private strategy (corporate practice).  The book at times seems to suggest that it will offer a solution or that the solution might be absolute freedom / no control.  But that is not really what the book ends up saying, as I understand it.  In the end, we remain stuck with the problem of nuance and variety and context- or industry-specific balancing.  Frankly, I don’t think this is a bad result at all; it’s probably where we need to be if we’re basing our judgments in reality.

For some reason, I was surprised when the book ended.  I wanted more.  I expected more.  In a sense, this is a good thing because the book provoked me to think about and look for more.  But I wonder whether the final part of the book could have tied the themes together a bit more tightly and at least proposed a research agenda for developing a more nuanced approach to innovation.  Many of the pieces of the puzzle are in Orly’s book.  But the puzzle remains incomplete.


Fight the Power?

Orly’s book is terrific. Let’s just get that straight. The book is filled with the kind of creative energy that Orly’s reform proposals seek to release. But the emerging (or worse, entrenched) fud in me had to react to the celebration of freedom that the book exhorts. Throughout the past several centuries of human history, perhaps through all of human history, appeals to freedom have interrupted periods of dominance, control, and centralization.  “Talent Wants to be Free” is another example of the pendulum swinging away from centralized control. Whether that is a rightward or leftward swing, I will leave for others to sort out.  While Orly does not extol “stealing this book,” the arguments against over regulation by government (in the form of strong intellectual property laws) and against overly bureaucraticized mega-corporations have a Hoffmanesque quality. Of course, nothing wrong with that, but the skeptic in me wonders if unalloyed freedom is unquestionably a good thing.

Orly appeals to competition as an engine of innovation, and she points to many examples that limit the liberating force of competition. The proposition that competition fuels innovation is hard for anyone, in my mind, to contest.  Harder still is understanding what competition is.  Spencerian  renditions of Darwin as applied to social dynamics has been a recipe for disaster and elitism, leading to the very concentration that Orly decries. If competition is meant to guide innovation, it cannot be hard core laissez-faire. Is competition then the nicely diagrammed exposition of Econ 101, channeling Alfred Marshall into prices being driven to MC and minimum AC, profits dissipated, surpluses maximized, or perhaps the more elaborate auctioneering process Pareto optimally? Although an elegant formulation, the technical rendition of the dirty world of markets ignores the details of transactions and transacting, the role of legal rules and of technicians like corporate attorneys, accountants, and bankers. Perhaps  Coase has the right take on competition as a form of endless bargaining and negotiation as social costs and benefits are readily transformed, transaction costs willing, into private ones. I have no doubt that competition drives innovation, but the hard question is what kind of competition.  It is easy, however, to translate competition into unfettered freedom. That translation in my mind does not wholly work.

What is lost in translation by rendering competition as “freedom” is recognizing the need for organization to help free individuals reach their potential. Organization writ large here includes the family, the school, the business entity, and, yes, the state. Freedom without organization is anarchy and anarchy leads to either dissipation of energy into entropy (and yes that is a nod to the ideas of Thomas Pynchon, especially Gravity’s Rainbow in which flights of freedom give way Icarus-like to crashing and destruction) or to dominance and concentration by the powerful (another nod).  Neither is conducive to innovation.

Although Orly makes somes reference to Coase, I felt that there was not appreciation of his “A Theory of the Firm,” which  demonstrated that organization within an entity might be preferable to the freedom of exchange that is a hallmark of competition.  But Coase’s notion of the firm was not supplanting competition, Instead, by internalizing exchange, competition of sorts is brought into the organization as individuals vie for position within the hierarchy.  In this way, Coase is not justifying the Soviet state or centralized planning, both of which are ineffective and in opposition to innovation. Instead, consistent with Orly’s vision of freedom, the Coasean firm internalizes competition but also must confront competition that occurs through exit or dissent in order to avoid the exact forms of concentration that Orly correctly finds as antithetical to innovation.

My point here is that freedom is worthless without some form of organization that provides soil for freedom’s fruit. One example of this is the concern over D2P, a new acronym  a colleague recently assaulted on my overly taxed brain.  It stands for “Distribution to Product” and refers to the difficulty of going from labs to markets. Freedom within the university certainly leads to the creation of all sorts of inventions and new works.  The problem is the lack of institutions for facilitating the movement from the creative stage to the commercialization stage.  That movement is not dependent solely on the freedom of inventor, financier, marketer, and corporate attorney.  Instead such movement is impeded by too much freedom and not enough organization. Perhaps I am just raising dull questions about practical details.  But my point is that extolling freedom without organization may be as big a problem as extolling centralized control over freedom,

I will end with an advertisement for myself.  I have been working on a piece on nonprice competition and intellectual property, and I plan to write it after I finish my articles on the Federal Circuit’s contract law jurisprudence and Holmes’ intellectual property jurisprudence at the Mass and US Supreme Courts. The nonprice competition piece draws on Hirshcman’s theory of nonprice competition from his “Exit, Voice, and Loyalty.” Before I expand that piece into 50+ pages, let me try to distill that article-to-be into a few sentences.

Exit and voice serve as ways to promote competition through signals other than price.  Orly’s book provides a vivid and forceful exposition of exit and voice as examples of freedom.  But loyalty is necessary since organizations often act as the incubator for freedom. The problem is that loyalty can quash freedom through acts of provincialism, xenophobia, and blind faith. The difficult balance requires structuring loyalty so as not to supplant exit and voice but to channel those two freedoms into creating dynamic, evolving organizations that promote innovation.  In short, organization without freedom is tyranny, but freedom, without organization, is anarchy, with all its attendant costs.

NLRB History

Anyone teaching administrative law will probably be reviewing several cases involving the National Labor Relations Board. In an era of declining unionism, the agency can seem like a bit of a relic. On the other hand, the rising tide of worker actions at fast food and retail giants suggests its basic premise—workplace democracy—may be needed now more than ever. Unfortunately, two presidential moves particularly eroded the agency’s ability to adjudicate disputes neutrally:

Congress presumed that all of the NLRB members should represent neither labor nor management, but rather the public. But in 1953, President Dwight Eisenhower, the first Republican president to make NLRB appointments, broke the non-partisan pattern and appointed three Republican lawyers with management backgrounds and two non-partisans. That created what later administrations understood as a “tradition” of three appointments from the president’s party and two from other backgrounds (eventually defined as from the opposing party). . . . Meanwhile, the National Association of Manufacturers, a big business group, pursued a policy of undermining the Wagner Act by promoting appointees who did not fully support the law’s goals, a strategy that Ronald Reagan escalated dramatically in 1981 by appointing prominent opponents of unionization to the NLRB, including the office of chairman.

Reagan signaled a new Republican strategy on labor. . . . As Cleveland State University law school professor Joan Flynn noted in a 2000 article in the Ohio State Law Journal, NLRB votes became more sharply divided along lines of class and ideology after Reagan named blatantly anti-union appointees to the board.

Given this history, and hardening GOP stances, it’s no wonder that the “A.F.L.-C.I.O. has set up a dozen committees — of historians, young workers, Web experts, pollsters — to propose ways to reinvent labor.”


The Dignity of the Minimum Wage?

[A brief note of apology: it’s been a terrible blogging summer for me, though great on other fronts.  I promise I’ll do better in the coming academic year. In particular, I’d like to get back to my dark fantasy/law blogging series. If you’ve nominations for interviewees, email me.]

WorkDetroitThis is one I’ve been meaning to write for a while.

One of the major lessons of the cultural cognition project is that empirical arguments are a terrible way to resolve value conflicts. On issues as diverse as the relationship between gun ownership and homicide rates, the child-welfare effects of gay parenting, global warming, and consent in rape cases, participants in empirically-infused politics behave as if they are spectators at sporting events. New information is polarized through identity-protective lenses; we highlight those facts that are congenial to our way of life and discounts those that are not; we are subject to naive realism.  It’s sort of dispiriting, really.  Data can inflame our culture wars.

One example of this phenomenon is the empirical debate over minimum wage laws. As is well known, there is an evergreen debate in economics journals about the policy consequences which flow from a wage floor.  Many (most) economists argue that the minimum wage retards growth and ironically hurts the very low-wage workers it is supposed to hurt. Others argue that the minimum wage has the opposite effect. What’s interesting about this debate -to me, anyway- is that it seems to bear such an orthogonal relationship to how the politics of the minimum wage play out, and the kinds of arguments that persuade partisans on one side or another. Or to put it differently, academic liberals in favor of the minimum wage have relied on regression analyses, but I don’t think they’ve persuaded many folks who weren’t otherwise disposed to agree with them. Academic critics of the minimum wage too have failed to move the needle on public opinion, which (generally) is supportive of a much higher level of minimum wage than is currently the law.

How to explain this puzzle?  My colleague Brishen Rogers has a terrific draft article out on ssrn, Justice at Work: Minimum Wage Laws and Social Equality. The paper urges a new kind of defense of minimum wages, which elides the empirical debate about minimum wages’ effect on labor markets altogether. From the abstract:

“Accepting for the sake of argument that minimum wage laws cause inefficiency and unemployment, this article nevertheless defends them. It draws upon philosophical arguments that a just state will not simply redistribute resources, but will also enable citizens to relate to one another as equals. Minimum wage laws advance this ideal of “social equality” in two ways: they symbolize the society’s commitment to low-wage workers, and they help reduce work-based class and status distinctions. Comparable tax-and-transfer programs are less effective on both fronts. Indeed, the fact that minimum wage laws increase unemployment can be a good thing, as the jobs lost will not always be worth saving. The article thus stands to enrich current increasingly urgent debates over whether to increase the minimum wage. It also recasts some longstanding questions of minimum wage doctrine, including exclusions from coverage and ambiguities regarding which parties are liable for violations.”

I’m a huge fan of Brishen’s work, having been provoked and a bit convinced by his earlier work (here) on a productive way forward for the union movement. What seems valuable in this latest paper is that the minimum wage laws are explicitly defended with reference to a widely shared set of values (dignity, equality). Foregrounding such values I think would increase support for the minimum wage among members of the populace.  The lack of such dignitary discussions in the academic debate to date has level the minimum wage’s liberal defenders without a satisfying and coherent ground on which to stand. Worth thinking about in the waning hours of Labor’s day.



Martin Luther King, Labor Day, and Surveillance

Interesting to see how the three topics converge. First, an excerpt from King’s December 1961 speech to the AFL-CIO Convention:

Less than a century ago, the laborer had no rights, little or no respect, and led a life that was socially submerged and barren. . . . American industry organized misery into sweatshops and proclaimed the right of capital to act without restraints and without conscience. . . . The children of workers had no childhood and no future. They, too, worked for pennies an hour and by the time they reached their teens they were worn-out old men, devoid of spirit, devoid of hope and devoid of self-respect.

Second, from Tom Geoghegan’s analysis of King as a labor leader: “It is said that just after this speech, J. Edgar Hoover was more determined to wiretap King.”

Treating someone working for the betterment of the many, as an enemy of the state, is a core harm of politicized surveillance.

364 CEO Days

SaluteLaborLynn Parramore observes that exploitative practices do little to help US productivity, or even the position of firms engaging in them:

[America’s] cult of endless toil doesn’t really help the bottom line. Study after study shows that overworking reduces productivity. On the other hand, performance increases after a vacation, and workers come back with restored energy and focus. The longer the vacation, the more relaxed and energized people feel upon returning to the office. Economic crises give austerity-minded politicians excuses to talk of decreasing time off, increasing the retirement age and cutting into social insurance programs and safety nets that were supposed to allow us a fate better than working until we drop.

That doesn’t seem very economically rational: why not respect Brandeis’s basic insight that “I can get 12 months of work done in 11 months, but not in 12”? One clue lies in an observation from Polish economist Michal Kalecki:
Read More

King’s Economic Legacy

Joey Fishkin highlights a very important part of Martin Luther King’s march on Washington:

Threaded through the demands of the March on Washington for Jobs and Freedom were calls for economic justice. The marchers demanded a nationwide minimum wage of “at least” $2.00 (it was then $1.25, so a 60% raise), in order to “give all Americans a decent standard of living.” They demanded a “massive federal program to train and place all unemployed workers — Negro and white — on meaningful and dignified jobs at decent wages.”

The legacy lives on. As David Dayen observes, “fast food and retail worker” strikes reflect the original marchers’ demands. An entity like “McDonald’s is so vast and lucrative that it could easily survive a major wage increase.” Such increases are desperately needed. As worker Willietta Dukes puts it:

I make $7.85 at Burger King as a guest ambassador and team leader, where I train new employees on restaurant regulations and perform the manager’s duties in their absence. . . . I’ve worked in fast-food for 15 years, and I can’t even afford my own rent payments. . . .My hours, like many of my coworkers, were cut this year, and I now work only 25 to 28 hours each week. I can’t afford to pay my bills working part time and making $7.85, and last month, I lost my house.

Dukes is one of the millions of faces behind aggregate statistics that suggest grotesque unfairness at the heart of the American economy. They won’t get much of a hearing in a mainstream media obsessed with the problems of the fortunate. But there is hope that a critical mass of actions by them, like the Washington civil rights march of 1963, will eventually force those at the top to take notice.