Does Your Organization Really Want to Require Noncompete Agreements?

More and more employers are requiring their workforce to sign legally binding agreements that prevent workers from leaving the company and going to work for competitors. These types of agreements are called noncompete agreements. However, employers that require employees to sign noncompete agreements should take a moment to consider the impact these types of documents can have on their culture and reputation.

Organizational Protection or Undue Employee Hardship

For some organizations, having talent sign noncompete agreements is essential for maintaining a competitive edge and protecting innovation. However, this type of protective agreement is easily misused, unnecessarily restricting the freedom and livelihood of workers.

Take for example:  Jimmy Johns. In 2016 they were ordered by the court system to stop requiring their sandwich makers and delivery drivers (low-wage employees) from signing noncompete agreements. It was ruled that this type of post-employment restriction was deemed unreasonable for the worker. It caused undue hardship to the worker to earn a living if they left the sandwich maker to go work for a “competitor”. In hindsight, Jimmy Johns did not consider the most effective aspect of a noncompete agreement,  which is to protect trade secrets, not prevent a worker from leaving the company.

Not only did Jimmy Johns lose in court, they also lost in the court of public opinion.  Who wants to work for an organization that forces you to stay in a job you no longer want? In this instance, the company damaged their company culture and repelled workers.

Is a Noncompete Agreement the Right Document?

Noncompete agreements are the most restrictive type of post-employment document an organization can require their workforce to sign. It prevents a worker from leaving the organization to work for or advise a competitor for a specified time period within a geographical area.

As a result, requiring noncompete agreements as a condition of employment can:

  • Discourage skilled workers from accepting positions at an organization that requires them as part of the work agreement
  • Cause existing employees to leave the organization to seek employment with another organization who will trust or value them more

In other words, what an organization sets forth as a viable way to protect the organization, can end up harming the organization instead. In fact, noncompete agreements are usually not the right document to protect the organization from losing customers, employees or trade secrets.

Companies should consider more specific agreements/contracts that do not cause undue hardship to a worker’s ability to earn a living. The following agreements should be considered to provide a balance between protecting an organization’s business interests and allowing a person the right to earn a living:

  • Customer Nonsolicitation Agreements – prevents customer poaching
  • Employee Nonsolicitation Contracts – prevents employee poaching
  • Nondisclosure Agreements – protects confidential, proprietary secrets

What was once a way to protect trade secrets and prevent exiting employees from taking talent with them, is now viewed as an unfair restriction causing employee anxiety, costly lawsuits and a source of “poison” to the company culture.

It’s important to note that state governments have begun to restrict and even in some cases prohibit this type of restrictive covenant. Before making candidates/employees sign a noncompete agreement as a requirement for employment, employers should take time to:

  1. Reassess the reason(s) why they want employees to sign a noncompete agreement
  2. Weigh the positive/negative repercussions of the agreement
  3. Consider alternative options to a noncompete agreement

Overall, organizations should take the time and effort to determine whether a noncompete agreement is “worth it” in the long run.

SACS Consulting Knows HR

SACS Consulting & Investigative Services, Inc. can help your organization establish sound HR policies and procedures to improve workplace culture, help prevent disagreements and make certain everyone is treated equally. We also provide customized training to address specific issues like Creating and Maintaining a Positive Company Culture and Engaging the Multi-generational Workforce. Contact us to find out how we can help put you back in control of Human Resources!