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HUMAN RESOURCES

Non-Compete Agreements: Bad for Business?
 

If you're looking to grow and innovate, probably so.

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Rob Stevens, vice president of sales and marketing at GrabCAD, writes in Xconomy how non-compete agreements--contracts that keep employees from leaving your company to work with competitors--are bad for business.

"Non-compete agreements are unfair to the employee, harmful to startups, and unnecessary to protect intellectual property," he says. "They're bad business, but as long as everyone else is doing it companies go along. We as a society should put a stop to them."

Stevens, who's helped hire over 1,000 people in his 20-year-long career, says these agreements can make or break a potential hire. That's because more established companies use them as a long-range rifle to prevent competition and the loss of intellectual property. And since start-ups often lack the funds to go to court over one employee, the threat of lawyer fees is often enough for them to hire someone else.

Some states, like California, do not bother with enforcing non-competes. However, the prospect of a lawsuit can often stifle a company's growth. And in weighing the consequences, an employer might think, "maybe we should avoid hiring people with experience in the industry," says Stevens. "Maybe we should grow a little slower and lower our goals. And that's how non-competes kill innovation and growth."

Stevens knows companies want to protect their intellectual property. But most new hires sign a confidentiality agreement, which more than offsets the issue. 

"And when a company tries to prevent employees from taking that sort of knowledge to other companies, they are confusing the employee--the 'key asset' that they claim to value so highly--with a DVD, a cheap piece of plastic with no real value other than the information a company puts into it," says Steven. 

Not a smart way to handle your business. 

Last updated: Oct 10, 2013

WILL YAKOWICZ is a reporter at Inc. magazine. He has covered business, crime, and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper. He lives in Brooklyn, New York.
@WillYakowicz




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