The proliferation of non-compete agreements has markedly changed the landscape of the labor market in the US, thereby providing employers with control over their workers’ skills and experiences. This paper aims to explore the advantages and disadvantages of noncompete clauses. The paper will also discuss whether workers should be pressured by their employers into signing agreements containing noncompete clauses.
A noncompete clause or a covenant not to compete refers to a contract between an employer and an employee in which the employee agrees to curb the use of information obtained during employment for a predefined period (Wright). Employers require their workers to sign such agreements to make sure that upon the termination of employment, they will not be faced with competition from people whose knowledge and experience provides them with a competitive edge. Before signing non-compete agreements, employees have to familiarize themselves with their pros and cons.
Noncompete agreements put employers at an advantage by protecting their confidential information. The agreements diminish the risk of losing key clients upon an employee’s resignation. By signing non-compete obligations, employers protect their investments into staff training against untimely resignations (Miller). However, the introduction of noncompete clauses into employment contracts is associated with a higher risk of litigation. Moreover, the initiation of such agreements may dissuade potential employees from joining a company.
Willingness to sign an employment contract containing a noncompete clause signals to an employer that a potential worker is vested into a company’s success; therefore, by accepting terms of the clause, a candidate can increase their chances of being employed. The terms of non-compete agreements can be negotiated with employers, thereby making an agreement more acceptable for a worker. For example, a common negotiating point is “a payout clause in which the employer agrees to pay a set benefit, such as a specified number of months of salary, in exchange for the employee not competing for a specified time” (Miller). However, by signing non-compete agreements, employees are left at a disadvantage about their prospective employees. Also, they might require expensive legal assistance to make sure that the benefits of the clause outweigh its risks. Also, many agreements containing a noncompete clause restrict competition across unreasonably large geographic areas (Wright).
Taking into consideration the disadvantages of noncompete clauses, it is hard to be a proponent of an agreement that substantially diminishes the bargaining power of an employee. Furthermore, it is unfair to force workers into giving up control of their skills, especially when there is no clear demarcation line between trade secrets and general knowledge (Dougherty). In recognition of numerous disadvantages of the clause, the State of California has prohibited its use (Dougherty). The prohibition has resulted in higher wages for people employed in the technology industry.
It can be argued that the use of non-compete agreements should be restricted to a small number of industries in which it is difficult for employers to protect their intellectual property. For example, the manufacturing industries that invest heavily in training their workers to operate sophisticated equipment can be substantially disadvantaged by other companies that poach their employees (Wright). Therefore, the across-the-board application of noncompete clauses should be limited.
The paper has explored the pros and cons of non-compete agreements. It has been argued that the application of the agreements has to be restricted to industries in which it can promote fair competition.
Dougherty, Conor. “How Noncompete Clauses Keep Workers Locked In.” The New York Times, 2017, Web.
Miller, Bridget. “Pros and Cons of Noncompete Agreements.” HR Daily Advisor, 2017, Web.
Wright, Tiffany. “The Advantages & Disadvantages of a Non-Compete Clause.” Chron, Web.