The Growing Debate Over the Use and Legality of Restrictive Business Covenants
In recent years, there has been a growing debate over the use and legality of non-compete agreements or clauses. I want to take a moment with you to discuss non-compete agreements and this ever-increasing debate.
THE DIFFERENCE IN CLAUSES
There are a handful of clauses or agreements that owners put into place for employees exiting their company. Those include:
- A non-compete clause prohibits an individual from working in a particular industry or profession
- A non-solicitation clause prevents them from soliciting clients or employees from a former employer
- A non-acceptance (or non-service) clause is somewhere in between, allowing individuals to accept and service clients but not actively solicit them
The distinction between these clauses is important because they have different levels of restriction on an individual's ability to work in a certain industry or sector. A non-compete is the most restrictive, while a non-solicitation clause is less. Both are meant to protect the employer's interests in terms of clients and employees.
THE DEBATE SURROUNDING NON-COMPETE
The use of non-compete clauses in employment contracts has been a topic of debate for years, and it seems that the debate is only getting more heated as time goes on. Recently, the US Federal Trade Commission (FTC) has been under scrutiny for its stance on non-compete clauses, with politicians on both sides of the aisle voicing their opinions on the issue.
Proponents of non-compete clauses argue that they are necessary to protect an employer's trade secrets and other confidential information. They also argue that these clauses prevent employees from taking valuable relationships and knowledge they acquired during their employment and using them to benefit a competitor. Additionally, some employers use non-compete clauses as a way to ensure that they get a return on their investment in an employee's training and development.
On the other hand, opponents of non-compete clauses argue that they stifle innovation and competition, limit employee mobility and bargaining power, and can have a negative impact on wages. They also argue that non-compete clauses are often included in employment contracts for low-wage workers who have no access to confidential information or trade secrets and that this practice is unfair.
A LEGAL PERSPECTIVE
I believe that the use of non-compete clauses should be restricted in certain situations. For example, non-compete clauses should not be used in contracts for low-wage workers who have no access to trade secrets or confidential information.
Furthermore, the use of non-compete clauses should be limited in duration and geographic scope to prevent them from unfairly limiting employee mobility. I also believe, however, that non-compete clauses can be an important tool for protecting an employer's trade secrets and confidential information, and that they should be allowed in situations where they are necessary to protect these assets.
Non-compete agreements are complex legal documents that can vary widely in their scope and enforceability. If you are considering entering into a non-compete agreement as either an employee or employer, it is important to understand the laws in your state and to seek the advice of an experienced attorney to ensure that the agreement is fair, reasonable, and enforceable.
• • •
For my full discussion, and more on this and other topics:
Listen to the Full DealQuest Podcast Episode Here
Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.
If you want to find out how deal-ready you are, take the Deal-Ready Assessment today!