The Problem With Non-Compete Clauses in Employment Contracts

With the Federal Trade Commission proposing a ban on non-compete clauses in employment contracts, the practice has come under a lot of scrutiny recently. While it’s far from being passed into law, businesses and employers are having to really think about ways to retain employees if non-competition clauses are no longer in existence. Some people might argue that these clauses are necessary evils, that they are something we just have to live with, and that’s a fair opinion. We might think that the only party that gets harmed by a non-compete is the employee, but the truth is, they harm everyone involved. 

Of course, on one hand, you understand why businesses would want to include non-compete clauses in their contracts. It protects their intellectual property and trade secrets. It also keeps employees from working for a competitor or starting their own competing business.

But on the other hand, non-compete clauses can actually be detrimental to employees, companies and the economy as a whole. They don’t foster the best employer-employee relationship, so perhaps their elimination would actually be beneficial on many levels. 

Here are some of the ways non-competes actually work against the success of employees, businesses and industries as a whole. 

Why Non-Competes Hurt Businesses

One might argue that non-compete clauses allow businesses to retain talent, but it’s actually not in a positive way. You’re not going to get high engagement and motivation from an employee who feels forced to be there. Employees do their best work when they are at the company because they want to be, and because it’s a great environment to be in. The workforce is changing, and many people are rethinking the relationship they have with their jobs. They want to feel valued, they don’t want to feel like robots and they want a work culture that feels humane. A legal clause that keeps someone at the job can actually make people hate working for your company, and lead to employees being disengaged or even quiet quitting, which will definitely hamper the success of your company. 

Instead of leaning on legal clauses to keep people loyal, make your company a place people love to work and you’ll never have to worry about them leaving.

Some measures you can take to do this are:

  • Allowing people to have more flexibility at work which allows them to balance work and life more easily. 
  • Celebrating, motivating and appreciating your employees frequently. Of course, you can do this with a competitive salary, but it’s not just about compensation. Provide great perks and give them awards. If you’re not sure what to give them, here are unique award ideas that will make your employees feel valued. 
  • Providing ample opportunities for growth is key to retaining talent. If people feel like they can make their dreams come true through you, they are more likely to stay within their organization. 

For companies, non-compete clauses can discourage talented employees from joining the company, as they may be hesitant to sign away their future career opportunities. That means that you’ll have a much harder time attracting top talent in the first place, which will weaken your business instead of making it stronger. Additionally, non-compete clauses can stifle innovation and competition within an industry, as they limit the ability of former employees to bring their skills and knowledge to new companies.

How Non-Competes Hurt Employees 

Non-compete clauses also harm workers and even their families. For example, if an employee isn’t allowed to work within a certain location radius, it forces them to find work away from their homes which can lead to extreme stress, burnout and exhaustion. This means that person isn’t able to show up at their best both at work and at home. There’ve been stories of physicians falling asleep behind the wheel because they are having to work outside the radius of their non-compete clauses. Of course, this is an extreme example, but it just goes to show the lengths people have to go to in order to still earn a living when there’s a non-compete. 

Non-compete clauses are often criticized for being overly restrictive. It feels like an employee is being handcuffed to the job. This can prevent employees from working in their field of expertise for an extended period of time, which can be detrimental to their career development and job opportunities.

In conclusion, non-compete clauses can be detrimental to both employees and companies. They can limit career mobility and earning potential for employees, while also stifling innovation and competition within an industry. This means that it does damage to the entire economy too. Now that these clauses might be on their way out, it’s time for companies to consider alternatives to non-compete clauses, such as confidentiality agreements, to protect their intellectual property and trade secrets.

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