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JA4. Non-Compete Agreements

Statement

Read the case study entitled “Cases from the Real World: Non-Compete Agreements” from Chapter 7 (under 7.1 - pg 202 ) of the Business Ethics textbook.

Write an essay based on the reading above and include the information/the discussion below in your paper.

  • What purpose do non-compete agreements serve?
  • Explain the conflict of interests between employee and employer when it comes to non-compete agreements. How do you reconcile this conflict?
  • Suppose an executive chef or vice president of marketing or operations at Jimmy John’s or any large sandwich franchise leaves the firm with knowledge of trade secrets and competitive strategies. Should he or she be compelled to wait a negotiated period of time before working for a competitor? Why or why not?
  • What is fair to all parties when high-level managers possess unique, sensitive information about their former employer?
  • Objectively analyze differing perspectives and value systems and relate them to your own beliefs. Describe at least two for and against arguments. Clearly state at least two ethical considerations from different perspectives.
  • Name a major ethical theory or theories and present the summary of said theory.

Answer

There are a few types of restrictions that are placed on employees when they leave a company; the purpose of such restrictions is to protect the company’s confidential information and trade secrets. Some of these restrictions found on employment contracts include non-compete, non-solicitation of customers/employees, and non-disclosure agreements. The main focus of this essay is on non-compete agreements (Byars & Stanberry, 2022, p. 203).

The purpose of Non-Compete Agreements (NCA) is to protect the company from its own information used by competitors, as the name indicates. The agreement prevents the employee from working for a competitor or starting a competing business after leaving the company; some agreements restrict the employee for a certain period, within geographical distance from the company, or both. These agreements ensure that all knowledge, skills, training, and trade secrets acquired by the employee during their tenure are not used against the company, and as a side effect, reducing the risk of losing employees and keeping them in the company as long as possible (Investopedia, 2024).

The conflicts associated with Non-Compete Agreements (NCAs) arise as it is a one-sided commitment from the employee towards the company. NCAs protect the company’s interests; but, on the other hand, they limit the employee’s options to seek better employment in their area of expertise (as competitors usually work in the same industry); they may lead to decreasing employee income as they don’t have the privilege to leave (Byars & Stanberry, 2022); NCAs may prevent employees from getting job completely until the agreement expires (Investopedia, 2024).

Such conflicts can be reconciled, in my opinion, by making them fair to both parties; this includes that NCAs should expire immediately after unreasonable firing or layoff, the company should provide decent compensation if the employee can not find work after leaving, and discussing any new job offers with the company and they may decide to expire the agreement if the job will not use the company’s trade secrets; and the best solution is not to have NCAs at all if the role does not involve trade secrets or sensitive information.

In the case of high-level managers, it is a bit different from normal employees as they have access to a wide range of information and the company’s strategy as opposed to other employees. It is best for both parties that such managers do not work for a competitor and wait for the NCA to expire; however, good managers can easily find jobs in other industries and if not, the company should keep paying them until the NCA expires. It is an ethical dilemma, as working for a competitor requires you to work against the old employer, and it is unfair with the amount of internal information a manager holds.

Two perspectives on NCAs; the employer’s perspective which is usually in favor of NCAs as they protect the company’s secrets and prevent employees from leaving; which is reasonable based on the idea of fairness and justice. The employee perspective is usually against NCAs as they limit their options and income; which is reasonable based on the idea of freedom and autonomy. My personal belief is that no solution fits all; however, NCAs may be necessary in some cases where the fate of the company depends on what the employee knows; however, there should be measures to prevent employee abuse; that is, if the company used the NCA to treat the employee unfairly, the NCA should be void. On the other hand, there is no point in having NCAs for low-level employees as they do no favor to the company but harm the employees (DLA Piper, 2023).

The Kantian ethical theory is a major theory created by philosopher Immanuel Kant(1724-1804); where Mehdizadeh (2021) sees that theory is very similar to the current corporate code of conduct; “Capitalism respects corporate autonomy, agency, growth, and property right, just as liberalism appreciates human autonomy, agency, development, and property right” (Mehdizadeh, 2021). The empiricism of the Kantian theory requires judging the morality of an action based on the action itself, not the consequences; that is, working for a competitor is ethical even if its consequences are harmful to the company; but also it is unethical to use competitor’s secrets while working for another company.

To conclude, NCAs are necessary sometimes to ensure the health of a market that relies on fair competition and preserving the company’s efforts and intellectual property; however, they should be fair to both employees and employers, and employees should be compensated if the NCA has caused them harm while protecting the employer’s interests.

References

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