Over-using Non-competes Harms Logistics Employees And Employers
Companies in competitive industries like logistics and transportation must strike a balance between protecting sensitive information and promoting integrity, a trusting culture, and opportunity for young employees. While seemingly minor on its face, overusing non-compete clauses in employment agreements could upset that delicate balance, leading to potential state investigations and negative company image. It also could discourage young talent from entering the industry, which ultimately hurts us all.
The logistics and transportation sector continues to grapple with this issue. In the end, the issue should resolve itself as the industry punishes those who needlessly impose non-competes. But, in the meantime, employees must learn to protect themselves.
Why Most Entry-Level Employees Should Avoid Non-Competes
A non-compete clause (or a covenant not to compete) is a contractual provision usually found in the offer letter or employment agreement. Generally, the employee agrees not to perform work in competition against the employer for some period after leaving. So, the employer can prevent departing employees from working elsewhere in the same capacity or industry.
Non-competes can be a trap for the unwary. Schools mostly fail to teach students about the perils of non-compete clauses, which can dramatically curtail an employee’s right to work. For new hires, who generally lack the awareness to scrutinize their employment agreements, this is particularly dangerous. Even those savvy enough to review their agreements closely often struggle to understand the consequences of violating a non-compete clause – namely that their employer could sue to prevent them from working elsewhere. This is especially punitive for young employees with experience in just one industry.
Although enforcement differs by jurisdiction, employees should assume that their employer will enforce agreements as written. The adage that non-competes are unenforceable is not always true, and in any event, the threat of litigation alone can compel submission or scare off a potential employer.
To be sure, non-competes are often appropriate, including for executives, senior-level employees, top salespeople, critical technology resources and others. This is especially true in competitive industries like logistics and transportation, where non-competes help dissuade competitors from stealing confidential information and trade secrets by soliciting competitors’ employees. Yet, their justification does not regularly apply to younger, entry-level employees who, unlike their senior counterparts, often lack similar access to or control over sensitive information.
There are several ways younger employees can nip potential non-compete issues in the bud. Striking non-competes from employment agreements before signing, limiting their scope or duration, or simply selecting an employer that does not impose non-competes unnecessarily are just a few. Doing so will make transitioning from a first job – whether for more money, more responsibility, or just a change of pace – much simpler.
Employers Should Curtail Non-Compete Use
Overusing non-competes is bad business. Historically, employers injected non-compete clauses wherever possible, reasoning that the restrictive covenant will give them options and leverage when an employee threatens to leave. This anachronistic approach will cost companies in the long-run.
Government agencies have grown increasingly skeptical of these clauses, and companies that overuse non-competes could make themselves targets for costly investigations. Late last year, the White House urged states to ban non-competes for certain workers, reasoning it would create a more competitive labor market and drive faster wage growth. More recently, the Illinois Attorney General settled a years-long case against Jimmy John’s, which agreed to pay $100,000 for over-zealously extending non-competes to sandwich makers and drivers. Likewise, the New York Attorney General has settled a handful of similar investigations for “unconscionable contractual provisions.”
This activity is not lost on our employees, who may elect to forgo negotiated releases or legal battles in favor of sympathetic state enforcement agencies. Given the state’s power and purse, this is a potentially daunting specter. Costs aside, the negative publicity of such an investigation could punish the company and the industry for years to come, as young talent elects to invest elsewhere.
More importantly, employees in today’s information age are increasingly likely to grow skeptical of employers that aggressively impose non-competes. Millennials strongly value business morality, and nearly half expect to seek alternative employment within a few years. These new recruits are less likely than their predecessors to respect what they consider unfair contractual formalities. They’re also more likely to share negative experiences broadly across social media.
In the short term, companies that abuse non-competes risk swift backlash from media, clients, and prospects alike. In the long term, they risk demoralizing existing employees and jettisoning informed talent, who increasingly refuse to limit their mobility and growth potential. In the end, business leaders who seek over-restrictive protections will embroil themselves in disputes and cease to attract employees capable of driving their businesses forward.
Dan Broderick is general counsel at AFN Logistics, a dynamic third-party logistics provider. Dan has over 12 years of experience in legal, planning, and operational roles in the transportation, telecommunications, government contract, and energy industries.
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