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 major service platforms including hair, nails, body waxing, facials, and massage. This substantial sales growth will provide countless opportunities for existing businesses to expand and new businesses to enter the market.

New entrants to this market are often existing service providers looking for business opportunities. When on the job, these service providers spend a lot of time with their various forms of customer-provider relationships, and very strong bonds often develop. These strong relationships are the foundation for both repeat customers and new business referrals for existing business.

Quality service providers are highly 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 strike out on their own and their clients follow them to their new place of business. Another challenge is when a service provider is laid off and recruits their previous customers. How can business owners try to prevent the potentially devastating loss of valuable customers when this situation occurs? Non-compete contracts.

According to Wikipedia, a non-compete clause (often NCC), or non-compete agreement (NCC), is a term used in contract law under which one party (usually an employee) agrees not to enter or start a profession. like or trade in competition with another party (usually the employer). A non-compete clause must have the following characteristics to be valid. A non-competition:

1.) It must be reasonable.

2.) It must be extremely detailed.

3.) Comply with the laws of your jurisdiction regarding non-compete.

4.) It can only belong to employees, not cabin renters.

The intention behind these contracts is twofold. First, employers spend a great deal of money training employees and sharing valuable information about the company related to its competitive advantage(s). Second, the employee may have entered the field to which they have been exposed or helped create what might be considered “intellectual capital” for that company.

Are these ethical contracts? Is it legal to prevent someone from working in their chosen field of expertise? These questions are open to serious debate.

Findlaw.com states that employers have the right to protect their client relationships and confidential information, but former employees have the right to earn a living. When the employer and the worker have entered into a non-compete agreement, these interests must be balanced.

Unfortunately, many organizations that use non-compete contracts do so to control their employees. These contracts may specify what type of work the person will not be able to engage in for a period of time, or they may work in that profession, but not within a certain radius of that employer. Employers who use these types of contracts may lack the confidence to attract and keep great employees, so they try to hold their employees hostage. (Holding this type of agreement over an employee’s head 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 retain them. If they feel the need to leave, they leave without pay.

In his article The Case Against Non-Compete Agreements, Jeff Hayden asks which type of company is better to work for: the company that puts tremendous effort into putting legal and contractual interests in the ground, or the company that puts tremendous effort in trying to be the employer of choice?

He goes on to add that non-competition tends to backfire on different levels. Do you want employees who would like to leave… but don’t because they don’t compete? Do you want employees who are immediately demotivated because they feel that their human capital is not theirs?

People look for opportunities to develop their careers. This could mean working for several companies for a shorter period of time, then looking for business opportunities. Allowing employees the freedom to roam can create professional relationships within any industry that, in the end, strengthen all parties involved.

Are there times when contracts between employers and employees may be necessary? Yes. In the case of protecting trade secrets or client information, it is perfectly reasonable to articulate exactly what an employee can disclose.

The best way to avoid the use of non-compete contracts is to take the high road and focus on the quality of the work culture, the environment and the general well-being of the employees. If an employer can do this, employees tend to stay longer and support the company’s long-term goals.

Findlaw.com. Non-Compete 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-compete-could-cause-the-death-of-your-business.html