Non-Compete Contracts, Ethical or Not?
According to Investors Business Daily, the beauty industry is expected to grow from $68.7 Billion in 2012 to $81.7 Billion in 2017, or an increase of 19.8%. This rapidly expanding industry includes several main service platforms to including hair, nails, body waxing, facials and massage. This substantial sales growth will provide countless opportunities for existing business to expand and new business entrants into the market place.
New entrants into this market are often times existing service providers seeking entrepreneurial opportunities. When at work, these service providers spend a great deal of time with their various forms of client – provider relationships are formed, and often times very strong bonds are developed. These strong relationships are the foundation for both repeat clients and new business referrals for the existing businesses.
Quality service providers are heavily sought after and are of great value to a business owner. One of the biggest challenges spa owners face is when talented service providers decide to venture out on their own and their clients follow them to their new place of employment. Another challenge is when a service provider is terminated and they recruit their previous clients. How can business owners attempt to prevent the potentially devastating loss of valuable clients when this situation happens? Non-compete contracts.
According to Wikipedia, a non-compete clause (often NCC), or covenant not to compete (CNC), is a term used in contract law under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer). A non-compete clause needs to have the following traits in order for it to be valid. A non-compete:
1.) Must be reasonable.
2.) Should be extremely detailed.
3.) Conform to the laws in your jurisdiction regarding non-competes.
4.) Can only pertain to employees, not booth renters.
The intent behind these contracts is two-fold. First, employers spend a great deal of money training employees and share valuable information about the company pertaining to their competitive advantage(s). Secondly, the employee may have entered into the realm of where they have been exposed to, or have helped create what might be considered “intellectual capital” for that company.
Are these contracts ethical? Is it legal to prevent a person from working in their chosen field of expertise? These questions are open to serious debate.
Findlaw.com states that employers have a right to protect their relationships with their customers and their confidential information, but former employees have a right to earn a living. When the employer and the employee have entered into a non-competition agreement, these interests must be balanced.
Sadly, many organizations that utilize non-compete contracts do so in order to control their employees. These contracts may specify what type of job the individual may not be able to participate in for a period of time, or they may work in that profession, just not within a certain radius of that employer. Employers that utilize these types of contracts may lack the confidence of attracting and keeping great employees, therefore they attempt to hold their employees hostage. (Holding this type of agreement over the head of an employee should be considered unreasonable and unethical. No company should be able to control its’ employees.
Reasonable companies seek to create a positive work environment that attracts great talent and finds ways to keep them. Should they feel the need to leave, they leave without retribution.
In his article The Case Against Non-Compete Agreements, Jeff Hayden asks what type of company is better to work for: the company that puts tremendous effort into placing legal and contractual stakes in the ground, or the company that puts tremendous effort into trying to be the employer of choice?
He goes on to add that a non-compete tends to be counterproductive on different levels. Do you want to have employees that would like to leave… but don’t because of a non-compete? Do you want employees who are immediately demotivated because they feel their human capital is not their own?
People seek opportunities to develop their careers. This might mean working for several companies over a shorter period of time and then seeking entrepreneurial opportunities. Allowing employees the freedom to move around can create professional relationships within any given industry that, in the end, strengthens all parties involved.
Are there times when contracts between employers and employees can be necessary? Yes. In the case of protecting trade secrets or client information, articulating exactly what an employee may divulge is perfectly reasonable.
The best way to prevent the use of non-compete contracts is to take the high road and focus on the quality of one’s work culture, environment and overall well-being of the employees. If an employer can do this, employees tend to stay around longer and support the long-term goals of the company.
Findlaw.com. Non-Competition Agreements: Overview. Web 8, November. 2015
http://employment.findlaw.com/hiring-process/non-competition-agreements-overview.html
Hayden, Jeff.The Case Against Non-Compete Agreements.Web 8, November. 2015
http://www.inc.com/jeff-haden/non-competes-could-cause-the-death-of-your-business.html
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