Why you shouldn’t make your employees sign a non-compete clause
Canadian Business – Deborah Aarts | January 6, 2015
Like most employers, Markus Latzel asks new hires to sign contracts detailing what will happen if they quit or get fired. The documents contain the standard fare: confidentiality rules, non-solicitation provisions and, as usual, a non-compete clause. It’s meant to protect the business and its trade secrets. “I have the non-compete language in place because the lawyers told me to do it, but I’d never enforce it,” says the CEO of Toronto-based Palomino System Innovations. “I see it as problematic and unfair.”
Part of the problem is how the law has evolved. The modern non-compete dates to an early 1700s spat between a pair of bakers. In the landmark case Mitchel vs. Reynolds, an English court acknowledged that a business person may enforce partial restrictions on another if the two parties had agreed not to trade against each other. Bosses, unsurprisingly, liked this idea very much and, in the 300 years since, non-compete clauses have become a blanket salve for paranoid employers. Last summer, New Jersey–based sandwich chain Jimmy John’s found itself at the centre of an online storm when a staffer posted details of the company’s restrictive contract—one blogger called it “utterly psychotic”—which prevents even front-line employees from leaving for a competitor. A “competitor” was defined as any company that derives more than 10% of its revenue from selling “submarine, hero-type, deli-style, pita and/or wrapped or rolled sandwiches.”
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This information is not intended as legal advice.