Garden leave is stunting growth
Usually, when a government wants the public to act in a certain way, it uses the tax system. We want less smoking, so tobacco is taxed and underage smoking effectively outlawed. We want less binge drinking so booze is taxed and pub opening hours are restricted. We want more pension saving, so we provide tax incentives to encourage savings.
Sometimes, though, the government gets it wrong, and it taxes the things it wants to encourage. An example of this is housing. We want more housing, but we tax housebuilders by putting requirements on them to perform bat surveys, newt surveys, or build between 20% and 40% social housing. It is not clear how imposing these obligations on builders encourages more houses to be built. Rather, the reverse happens. We probably end up with fewer houses, fewer social houses, and higher prices on what little is built because of this perverse system.
Similarly, we want new companies to be formed by bright, young entrepreneurs in the hope that these companies will create the jobs and growth of tomorrow. Very few cart makers successfully transitioned to making internal combustion engine cars and then to making electric cars. It is not some dark Darwinian plot to say that a feature of capitalism is that old companies die and new companies come along to replace them. Joseph Schumpeter correctly called it creative destruction.
It may sound obvious to say that people are at the centre of the knowledge economy and, whatever path our futures take, people will remain front and centre. High-flyers and entrepreneurs often move from one job to another before perhaps leaving to start their own firms. If people are tied to a firm and they cannot leave, the new companies of the future may never be formed, and our economy will only calcify further.
That is why it seems bizarre that the Florida state legislature passed a law making it possible for employers to block staff for up to four years from joining a competitor or starting a similar role elsewhere. The employer would still have to pay their base salary, but not any bonuses they may have been paid. A four-year period in the garden, however well paid, makes that person in effect unemployable and kills a promising career stone dead.
This probably affects graduates and bright younger employees who have less experience in negotiating their employment contracts, more than older hands used to dealing with sharp employment practices and who may have an employment lawyer on their speed dial. The new Florida legislation feels like the US may be going back to indentured servitude, but with a base salary.
It is surprising that the new legislation was passed by the supposedly pro-business Republican Party in the Florida state legislature. Reportedly, lobbyists from financial giant Citadel helped push this legislation through the state legislature. Citadel is apparently worried about staff leaving and taking trade secrets with them. The free-market owner of Citadel is a multi-billionaire, and he wants to make sure that he stays that way or get richer by ringing his business in regulation.
Let’s hope that the legislation does not go onto the books outside Florida. Our economies face many issues, and we should not add to them by preventing people leaving firms and developing their careers. In England and Wales, the law can be vague over the rights of leavers often because of the horrendous cost of going to court and we suspect it is the same elsewhere. We hesitate to suggest, but perhaps this is an area where government could usefully legislate to simplify employers and employees’ rights.
If businesses want to guard their intellectual property the law is already biased in their favour – there are long-established laws to protect copyrights, patents, design and trademarks. Businesses are also in a better position to fund themselves in court if required; certainly, better than people caught up in onerous employment contracts. If we want the entrepreneurs and venture capitalists of the future, then we should be offering them every encouragement; rather than taxing them in this way or by trapping them in their gardens.
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