More Aggressive Pursuit of Noncompetes during the Economic Downturn: Is This Right? Or Smart?

This may represent a small drift from the topic of rewards, but I have a hard place in my heart for noncompetes and so cannot help myself here.

According to Workforce.com, employment attorneys are seeing an increase in litigation over noncompetes during the current economic downturn, as company executives take measures to protect business.  And not just for executives and salespeople, but for junior and midlevel employees as well.  Including those who have been or are being laid off.

Is this right?  Is it smart?

I admit that much of my grudge against noncompetes stems from my personal experience with them and with organizations that rely heavily on them - I certainly am no employment attorney.  For me, though, nobody has summed up the argument against noncompetes with more wisdom and clarity than Charles Green of the Trusted Advisor blog, in a post he did last year titled You Empower What You Fear.

From Charlie's post:

Non-compete agreements are the manifestation of sick management thinking. They are symptomatic of failed people management. They give the lie to many companies’ claims that they care about their employees. But worst of all—like throwing water on a grease fire—they produce more of the very thing they were designed to prevent.

They are a poster child for the concept that you empower what you fear.

If you fear employees will rip you off, and set up spying processes—you will get ripped off.

If you fear employees will steal from you, and institute lie detector tests—they will steal (see The Perversity of Measuring Trust)

If you fear your employees will talk to search firms, and tell the receptionist to screen calls—they will talk.

If you fear your employees will take your secrets to a competitor, and force them to sign non-competes—they will try to take secrets to a competitor, and if they can’t do that, they’ll bring on a whole lot of other nasty side effects.

The alternative?  I like Charlie's thoughts here as well:

• If you really care about the employee who left, then be happy for him/her. If you’re not happy for them, then cut out the crap in your website where it says you believe in people development, because you don’t—you believe in the development of "human capital," an oxymoron. People know the difference. Capital doesn't.
• If you’re happy for them but wish they hadn’t left, then find out why they left and fix it before the next one leaves. If you don’t want to fix it, then go buy a lottery ticket. The odds of effectiveness are about the same.
• Make alumni of the people who leave. Your college didn’t go all resentful on you when you graduated; they didn’t make you sign a non-compete about getting a master's from another university. And when your college phones you to contribute to the fund years later, you still do! (And if you don’t, it’s because your college needs to read this blog). Think of people who leave as graduating advocates of your company—not as disloyal double agents.
• Let everyone know that you run the company on the basis of rules 1 through 3 above. And tear up the non-compete forms.

I get that there are necessary exceptions to these rules when it comes to some aspects of intellectual property and "trade secrets".  For the rest, I think it really does come down to fear.  And trust.  Or the lack of it.

If Charlie and others who posit that our current economic collapse can be largely traced back to a collapse of trust are right (and I think that they are on to something), is pushing noncompetes harder really the answer?

What do you think?

Comments

[E. James (Jim) Brennan]

In our current litigation-averse attorney-driven society, I think that what we think about the propriety or desirability of a legal document is totally irrelevant. We aren't asked, we have no authority over the decision and we have nothing to say about it except to shake our heads and cluck our tongues. Attorneys believe you can control actions with regulations and drive behaviors via contractual edicts. Read today's auto industry bailout plan. What can you do with people so far lost in space and time? But they're completely correct in their self-interested recognition that these steps enrich them, with jobs and fees and disputes to negotiate, litigate and sell out I mean settle.

[Dan Frith]

Noncompetes stifle innovation and are bad for the U.S. ecomony. They are unreasonable restraints on trade and prevent hard-working, ambitious individuals from advancing their careers and feeding their family.

My law firm represents employees in nondispute and nonsolicitation disputes in Virginia. Your readers need to know that each state treats these contractual restrictions differently. We write about some of these issues on our Virginia Noncompete Law Blog which can be found at: http://virginianoncompete.blogspot.com/

T. Daniel Frith, III
Frith Law Firm, PC
303 Washington Avenue, SW
Roanoke, VA 24016
Phone: 540.985.0098
Fax: 540.985.9198
Toll-free: 866.985.0098
[email protected]

[D. Jill Pugh]

Great post! I have seen a definite upswing in employees being asked to sign non compete agreements as well as an increase in attempts to enforce. I think you make some very good points, and the reality is that most of the genuine concerns which motivate such agreements can be resolved/protected with a carefully drafted non-disclosure or confidentiality agreement.

[KD]

non-competes - easy to draw up, HARD to enforce...

KD

[Ann Bares]

Thanks, all, for the reactions and comments. Dan, thanks for pointing us to your blog for more information. Jill, thanks for sharing your own experience in this regard, sounds like you are seeing the same upswing in noncompetes that Workforce reports on - and I like your thought that most genuine concerns can be addressed sufficiently with NDAs or CAs. These, at least, aren't attempting to prevent employees from earning a living - which is a tough enough thing to do these days! KD - my opinion is that they are typically hard to enforce for very good reasons... but that's my opinion. Jim, agreed. And you did mean sell out, didn't you!

[E. James (Jim) Brennan]

Moi? Perish the thought.

[Joe Blogger]

Non-competes = non-innovative.

[Jeff]

+1 on the usage of confidentiality agreements in place of non-comps