Non-Compete Clauses in Employment Agreements Most Companies Have Some Form of Non-Compete Clauses for Some Employees and They Ought to, Say Business

Transcription

1 Non-Compete Clauses in Employment Agreements Most Companies Have Some Form of Non-Compete Clauses for Some Employees and They Ought to, Say Business Panelists, But Non-Compete Clauses Are Difficult to Enforce COMPAS Inc. Public Opinion and Customer Research

2 1.0 Overview Most companies have some form of non-compete clauses for at least some employees and they ought to, say CEOs and business leaders on the COMPAS business panel. Non-compete clauses are especially appropriate, say panelists, when trade or technical secrets are involved. Some panelists nonetheless note that non-compete clauses may be difficult to enforce in the courts. These are the key findings from this past week s Internet survey of CEOs and business leaders on the COMPAS panel. The weekly business survey is undertaken for Canadian Business magazine under sponsorship of BDO Dunwoody LLP. 2.0 Details Table 1 displays the proportion of organizations with non-compete contracts or similar agreements with at least some of their employees, according to panel members. Table 2 displays data on panelists views of the circumstances when non-compete contracts are appropriate. 2

3 Table 1: (Q1) Thinking of your organizations and the ones you know well, do they have employees sign non-compete contracts or similar agreements? 1 % Yes for all significant employees 37 Yes for some very significant employees 18 Yes for only the most senior employees 15 No 24 Don t Know 6 Table 2: (Q3-8) In your view, under which circumstances should an organization ask an employee to sign a non-compete? % Yes No DNK In situations where an employee has direct access to technical secrets In situations where an employee has direct access to trade secrets Senior executives Where an employee receives extra compensation for signing a non-compete clause Where the non-compete period is two years or less In situations where an employee leaves voluntarily Full question wording: Non-compete clauses in employment contracts have come into the news as a result of Mark Hurd being sued by HP for taking a job at Oracle. HP is saying that he will reveal secrets about their strategy and that he violated the terms of his severance agreement Thinking of your organizations and the ones you know well, do they have employees sign non-compete contracts or similar agreements? 3

4 The following verbatim comments provide a nuanced sense of respondent opinion: If an employee has trade or corporate secrets he should be required to sign a non-competition clause, period. It is no different from an inventor working for a company and creating an item that is OWNED by the Company and a person that works for a company that is wholly or partially responsible for development or implementation of trade/operation secrets. These have been paid for by the Company and are the Companies right to protect and ensure secrecy from competitors. Unfortunately, the courts in Canada view employers as charitable organizations that are to be operated for the benefit of former employees. They generally have an extremely under-developed appreciation of the value and importance of intellectual property owned by a company, that key employees can exploit if they choose to leave and enter into competition with their former employer. This needs to change. One of the main dangers of hiring the wrong employee is that they will leave for reasons of benefit to themselves. This is great most of the time, however in situations such as those involving strategic planning and true trade secrets, real harm can and is done to corporations. The question then is if someone is willing to do that to a former employer, how much trust could you possibly have that they won't do it to you? Non-competes are an important tool for businesses. The tricky part is enforcing them. In H-P's case, they provided him a generous severance and should have the right to expect that he won't turn around and compete against them. Non-competition agreements are very if not impossible to enforce and should be avoided as much as possible. 4

5 It is very sad that people employed in good faith have, in large part, become so disrespectful of their former employer they force the use of non compete clauses, regardless of the fact that to enforce the non compete clause is very difficult and expensive to enforce. I, personally, wish that people maintained their own integrity and were more respectful of former employers. How does one justify the denial of anyone making a living and supporting ones family? Courts have ruled some of the non-competes agreements to punitive. Do any of the big boys on 2 year non-competes, provide a 3 year package to live on? Not likely. What s its matter the Chinese have already have most of the trade secrets. They were given them! 3.0 Methodology The COMPAS web-survey of CEOs and leaders of small, medium, and large corporations was conducted September 13-14, Respondents constitute an essentially hand-picked panel with a higher numerical representation of small and medium-sized firms. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of n=91 are deemed accurate to within approximately 10.3 percentage points 19 times out of 20. The principal investigator on this study is Conrad Winn, Ph.D. 5