ARE NON-COMPETE CLAUSES ETHICAL?

Non-compete clauses are super controversial in present-day. Are they ethical or not? Do they restrict freedom? What about the well-being of the business? The questions almost seem infinite. Let’s back up for a sec before we dive into this complicated debate. What even is a non-compete clause? Simply put, a non-compete clause is a contract term that restricts an employee from working for a competitor or starting a competing business for a set period of time after leaving a company. Immediately, there’s tension; businesses always claim to give workers freedom of labor and movement, but at the same time the most popular ones have these contracts. In fact, it feels like the company traps the employee even after that employee is done working for said company. 

We’ll start off with the case FOR non-compete clauses being ethically defensible. First, let’s take a look at the freedom of contract argument. This argument states that since the employee is voluntarily signing the non-compete clause, they have consented to the tradeoff and accept the cost. Another argument is that it is necessary to protect legitimate investment; while this argument can be unpopular because it supports the big corporation, it does make sense. Since companies invest a large amount of money in training, trade secrets, and clients, non-competes protect that investment rather than letting it go to waste, which only seems fair. Finally, there’s the innovation incentive argument, which is that companies will be far less interested in investing in R&D since the likelihood that they are simply funding a future competitor is high. Hence, companies are likely to under-invest in innovation altogether, hurting our economy and society.

Let’s move on to the side AGAINST non-compete clauses being ethically defensible. The first argument is that consent to the clause isn’t truly consent due to the imbalance of power. Philosophers argue that the consent is questionable, as the alternative to not signing the agreement is not getting the job at all, which can disproportionately cause coercion for lower-wage workers, to whom it may feel like there isn’t a choice at all. Economists have also argued that non-competes reduce job mobility, which can suppress wage growth; this can occur because workers have less negotiating power as they cannot threaten to leave for a competitor, meaning employers have less incentive to improve conditions or raise pay. Finally, we have the benefit of a lack of non-compete clauses on innovation. California, which does not have non-competes, demonstrates how not having non-competes can lead to a job-hopping culture in areas such as Silicon Valley, which in return demonstrate rapid innovation. 

Honestly, both sides of the arguments here have a pretty valid reasoning, and it’s pretty easy to understand why this topic is so widely debated. I leave you with this question to think about: If non-competes were banned completely, would companies simply move onto NDAs and trade-secret lawsuits instead? If so, would that be more ethical?