What business owners should know about non-compete clauses

Are non-compete clauses a bane or blessing? The answer will likely depend on who you ask. As the Financial Times explains, approximately 20% of the American workforce is bound by non-compete clauses. This means that they can't work for any of their current employer's competitors for at least one year after leaving the business whether voluntarily or otherwise.

These clauses have become ubiquitous in the American workplace and aren't very heavily legally regulated. At the same time, workers' union membership has decreased significantly, meaning even less oversight. Although most non-compete clauses tend to affect people in senior managerial or executive positions, they have implications for many other employees in more junior roles.

What are employers' and employees' thoughts on these clauses? Whose perspective should you take into consideration when deciding whether a non-compete clause is right for your business? Let's take a look:

What the workers want

For many employees, non-compete clauses are a headache at best, possibly devastating at worst. This is especially true for people working low-wage jobs who don't have bargaining power. For some people who need to leave an organization as soon as possible for whatever reason, these clauses can determine whether they can put food on the table.

Additionally, these clauses can lead to workers being trapped in employment with inferior salaries, inadequate benefits, and substandard working conditions simply because it's their only option to make an income. Consequently, to say the least, many workers aren't fans.

Non-compete clauses often leave employees stuck between a rock and a hard place.

Better business for bosses?

Proponents of non-compete clauses argue that they're often necessary to protect confidential information and trade secrets. As The Guardian explains, this is sometimes appropriate and fair for bigger companies that are giants in their field who compete for highly-specialized professionals working in niche positions.

However, that tends not to be the case for small or medium businesses. Should they be interested in safeguarding their intellectual property, they can patent their work or include clauses that ensure secrecy without restricting freedom of movement between jobs.

Additionally, there's the fact that non-compete clauses mean companies can't win over employees they want, which harms competition within labor markets. This can have the knock-on effect of discouraging entrepreneurship by preventing innovation as ideas and expertise can't circulate among businesses. These clauses stand the chance of worsening an already devastating labor shortage crisis, too. And, they're not great for PR. All in all, small business owners don't really need to bother with them at all.

If you're unsure whether a non-compete clause would be right for your business, reach out to the Law Offices of Donald W. Hudspeth, P.C. to discuss all things business law.

Categorised in: Arizona LLCs, Business Law, Starting a Business in Arizona

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