A Publication of WTVP

Are non-compete clauses ethical? That’s a question that frequently comes up when I do human resources consulting. The non-compete clause may be part of an employment contract, and some employers are including it in personnel manuals.

What a non-compete clause says, essentially, is an employee may not resign (or be fired) from one company and then go to work for a competing company for a specified period of time. Until the last decade, these clauses didn’t appear in employment documents.

There are two main reasons they appear now. First, many employees have received valuable training and have become knowledgeable about different processes and products in one company. That could bring harm to a company’s competitive advantage if the employee went to work for the competition.

Secondly, and more importantly, that knowledge is part of the company’s “intellectual capital” and intellectual property. It’s not only processes and products that have value—ideas and concepts do as well. Leaders in a company are eager to know what a competing company is thinking and preparing to implement, and some are willing to pay dearly for such “corporate spies.”

There’s an important question, however, that needs to be asked. Whose knowledge are we talking about? Whose concepts? Whose research? I recently went to my alumni reunion and learned the university administration is paying faculty members to teach (which one would expect), but when they do research or consulting, the benefits of that work go to them directly. So some enterprising faculty members can make a small fortune on their research, development, and consulting while pulling a salary from the educational institution for teaching.

“That’s the norm,” the alumni representative said. “If we didn’t do that, professors would leave for an institution that did allow this practice.” Universities aren’t the only place this practice occurs, but they’re one of the few sectors in business and enterprise where individuals reap the reward of their work. The viewpoint of most employers is employees are paid for all work the employee performs for the company—whether on-site or off-site, during or outside of standard business hours. Employers “own” the work of employees.

Employees—especially younger employees—increasingly don’t see intellectual property the same way. The tech sector has created a business model where knowledge is common property, ready to be shared. The entertainment sector—namely music companies—are struggling with this notion because of the free and widespread sharing the tech sector has enabled. To whom does music “belong”?

So it’s not unusual now for employees to feel free to take “their” knowledge with them from one company to another. They chafe at the notion that anyone “owns” their thought processes, ideas, inventions, or innovations.

Such conflicts are found not only in the rarefied atmosphere of the university, the fun atmosphere of music and entertainment, or the free-for-all of the tech sector. Employees increasingly believe if they come up with an idea to improve manufacturing processes, product quality, or research use, the benefit belongs to them because they came up with the development. They don’t feel a degree of loyalty to the company or believe the company owns their thinking.

So non-compete agreements are facing legal challenges. The entire issue gets to the heart of business ethics. Is an employee obligated to the company for which he or she works? Does the intellectual property they develop in their mind belong to them, or to the employer who pays them? Once we determine to whom the intellectual property belongs, the ethical responsibility is very clear. One can’t “steal” or “share” property without the owner’s permission and without a clear statement of benefit to the owner. The owner can set the terms of use.

We’re in a fluid time now regarding employee-employer relationships. If we live in a “free-agent era,” as some have called it, the traditional view of property, ownership, and accountability is more muddled. Even when economic times are tough, the work relationship has changed forever with younger generations entering the workforce. The ethical dilemma of ownership will grow more complicated over time.

So if your company or business insists on a non-compete clause with employees, expect to be challenged in court, especially where significant money is involved. Employees want the freedom to move from employer to employer at will, and not to eliminate a line of employment simply because the current employer is worried about knowledge-sharing.

If you’re an employee presented with a non-compete clause, be sure you realize what you’re signing, because you’re agreeing you have an ethical responsibility not to share intellectual property which, although you created it, doesn’t belong to you. IBI