Non-compete contracts; I absolutely hate them. I hate them as a business owner and as an employee. They are a sad result of businesses that are too lazy to do the best thing. They are a tool to neglect employees as well as customers. They result in organisations using courtrooms as a way to keep revenues rather than providing value to their clients.
The goal of business is to squash competition through superior products and services, not through the threat of costly lawsuits. The premise of a non-compete contract is that a business owns a customer relationship which is the furthest from the truth. The clients agree to voluntary contracts (either verbal or written) with the business and they did so at their own discretion. The buyer controls whether or not the business relationship should exist.
If an employee decides to leave, it is still up to the discretion of the client whether to go with the employee or stay with the business. It is their role as a buyer to determine the value of the products and services they are receiving. Take a look at how a non-compete contract is bad for all parties involved.
Bad for the employee:
- An employee will limit their career opportunities as other companies may be scared to hire someone with a non-compete.
- Because the employee knows about the threat of lawsuit they may be more apt to put up with a bad work environment that they normally would not tolerate.
- A non-compete may force the employee to take a new job in a new field and result in less earnings, or they may be forced to move which has associated costs.
Bad for the clients:
- If a client places a high value on the point of contact within the client, and that employee changes companies, that client should be able maintain that relationship if they choose.
- Non-compete agreements hinder competition, and thus limit the options available to clients which may result in higher efficiencies or lower costs.
Bad for employers:
- Non-compete contracts encourage complacency and laziness within an organisation. If their employees have non-compete contracts, the organisation will be less likely to “compete” to hold onto their employees.
- An organisation that is not built on competition will become stagnant and will hinder growth potential. Ultimately it is the company’s role to provide a work environment that will best entice an employee to stay employed.
- Resources will need to be invested in lawyers and law firms that could be spent on R&D, marketing, or other business practices.
- When hiring employees you will not have the full employee market available to you because of other non-competes.
As a business owner; if I have employees that leave and can destroy the health of my company, I have not built a business that is prepared for a very common risk. If my company suffers greatly from a loss of an employee there is an obvious high value for my employees. I would need to build a company that focuses on employee happiness and encourages them to stick around. That would require investing in my employees either through higher compensation or a focus on their goals and aspirations. If the success of my business depends on my employees then investing those resources would be worthwhile.
For instance, if one of their goals was to start up a competing business with slightly different value proposition then perhaps I could help them setup a joint partnership with my company and provide the resources they need to make it happen. There are a lot of creative solutions a business owner will be faced to solved when they don’t have the strong arm of the state behind them. Those creative solutions are better for all parties.
Non-competes are anti-free market, anti-capitalism, and anti-competition. They distort the markets and ultimately result in inferior products and services being provided to the consumer. Businesses are never entitled to any revenues, and they need to develop strategies to effectively compete without the strong arm of the government.