Increasingly, companies are asking employees to sign non-compete agreements as a condition of employment. But these agreements may create more problems than they are worth—at the point of hire, and when an employment relationship ends.
Purpose of an Agreement
Companies ask employees to enter into non-compete agreements or include non-compete clauses in employment contracts in order to protect their intellectual property, which may include trade secrets, proprietary technology, and more. They may also want to protect their client relationships.
Typically, a non-compete agreement states that an employee cannot work for a competing company or start a business in the same or similar profession, usually for a specified period of time, should the relationship with the hiring company end.
Legality in Question
In California, the law prohibits non-compete agreements and non-compete clauses. In other states, like Florida, there are restrictions with regard to time and geographical area.
But even in states where non-compete agreements are legal and restrictions aren’t in place, employees who challenge these agreements may come out on the winning end.
In general, courts don’t look favorably upon companies that impede an individual’s ability to earn a living.
So why do companies even go there?
Competition and Turnover
The answer is twofold. Business has become highly competitive; while, at the same time, employee loyalty has become a thing of the past.
The average employee tenure, according to the U.S. Bureau of Labor Statistics, is 4.2 years. According to research conducted by PayScale, a provider of compensation software, average tenure at Fortune 500 companies is even shorter: 3.68 years.
And PayScale finds at tech companies, where the median employee is frequently under 30 years of age, the length of tenure is shorter still. Companies at which the typical employee has spent two years or less include Facebook (1.1 years), Tesla (1.6 years), Salesforce (1.8 years), Google (2.0 years) and Amazon (2.0 years).
Employer vs. Employee
In light of these numbers, it’s easy to understand why employers would be reluctant to share information without some type of reassurance.
A recent story in the news about a former Google engineer accused of stealing self-driving automobile trade secrets and starting his own company, which he then sold to Uber, may also have employers pointing to the importance of legal protection.
But there are also news stories of employees who have come out on the short end of non-compete agreements. Two recent articles in The New York Times speak to the issue, and will likely have employees questioning whether they should sign on the dotted line.
Whether your company opts for non-compete agreements will depend on the laws in the states where you operate, the nature of your business, and company culture.
Ideally, your company should consider individual positions as well, and whether knowledge acquired in these roles would truly threaten the business should it be disclosed. Sometimes the answer is no.
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Paula Santonocito, Contributing Editor for Recruiting Daily Advisor, is a business journalist specializing in employment issues. She is the author of more than 1,000 articles on a wide range of human resource and career topics, with an emphasis on recruiting and hiring. Her articles have been featured in many global and domestic publications and information outlets, referenced in academic and legal publications as well as books, and translated into several languages. |