by Frank Schiavo
Ryan Johnson worked for a pest control company in Charleston for seven years.
When he wanted to change jobs to a different company in Columbia, where he could make more money, he had an unexpected surprise from his former employer.
A lawsuit.
So now Johnson is paying a lawyer to defend his right to work in the same industry in a different city and not be sued.
And all this time and expense is because of one culprit.
A non-compete agreement.
Johnson had signed a non-compete agreement in 2022 when his contract was renewed, which prevented him from going to another company in the same industry for six years.
Purpose of the non-compete agreement
Non-compete agreements are defined by Investopedia as “a contract where an employee agrees not to compete with an employer after the employment period is over.”
These agreements aim to protect a company’s confidential information, ensuring that former employees don't use the knowledge gained during their employment to benefit a rival organization or future personal business for a set period of time and/or geographic area.
These agreements date back to medieval times to make sure apprentices would not go on to compete with the masters after acquiring all of their knowledge.
The first known situation is Dyer’s Case, which dates back to the 1400s but had no known outcome.
Since their origin, non-compete laws have greatly varied between states, due to the massive differences in labor markets around the country.
Now that the United States is more of a service and knowledge economy than a manufacturing economy, non-competes are becoming even more important.
There are non-solicitation agreements, which allow former employees to stay in the same industry as they were previously employed, as long as they don’t take any clients/ employees away from the company that they left.
A lot of the laws are outdated, and when the economy evolves this fast, the law can struggle to keep up.
Case and point was the recent attempt by the Federal Trade Commission to ban non-compete agreements, which was blocked in court by a Texas federal judge.
The court ruled that the FTC didn't have the ability to enforce the ban, even though they found that the ban would be very beneficial for the economy.
This means that all non-compete agreements will still be enforceable.
How are individual employees affected?
Helping workers progress is one of the biggest concerns when it comes to non- compete agreements. Some people believe that forcing people to stay at a certain company decreases the need for incentives and fair pay, while making some industries become stagnant.
Johnson, a team leader at the Charleston pest control company, changed companies for a better salary.
“I ended up being sued due to taking on the same position at a different company that offered me something that made more sense,” Johnson said.
He now has the expense of paying a lawyer to fight back, not wanting to cough up $95,000 to his former employer.
In the words of FTC Commissioner Rebecca Kelly Slaughter in a 2022 statement, “Effective competition policy is an important way to improve the everyday lives of real Americans.”
On the other hand, one of the important reasons people want to keep non-compete clauses is to protect businesses.
Owners trust their employees to learn trade secrets and keep them safe, because it is the only way that they can gain a competitive advantage. Top performers are usually the most likely to have enforceable non- compete agreements for this reason.
Author and Entrepreneur Troy Knauss has managed hundreds of employees at the same time, while also investing in many ventures.
He believes that non- competes are most important for protecting key players in a company, while lower level employees should have the ability to move around more, because it will not hurt the company as much.
“I completely see where people are coming from,” Knauss said, adding that non-competes can be necessary to ensure former employees will not take business away with them.“ A lot of the times it is necessary to have key performers sign these agreements, to keep your own company safe.”
Jimmy Turner, vice president of sales at Aruza Marketing, thinks there can be positive and negative effects for everyone involved.
“It really depends on the person, and I would be interested to see how the labor market reacts. I think companies would hire more carefully, and employees wouldn’t move around much anymore, but it would definitely benefit those who do.”
He doesn’t think that the agreements do much for the business in the first place.
“I don’t think it would change a lot of my guys’ minds [about non- competes] either,” he said. “If they really wanted to leave, a paper wouldn’t stop them.”
Are there alternatives?
A solid substitute for regular non-compete agreements would be a non-solicit agreement.
A non-solicit agreement would be something that prevents employees from taking business from their old company, but allows them to stay in the industry as long as they move out of territory.
These typically focus on bigger players as well.
“The smaller level guys go basically unnoticed,” said William Bonds, a salesman for Aruza Marketing.
Turner also made note of his thoughts on non- solicit agreements during a second interview, “I think they are much more useful.”
“These types of agreements allow former employees to continue their career paths if they see fit somewhere else,” Turner said, “but also protect the company from having so-called ‘trade secrets’ used against them.”
These non-solicit agreements provide a sort of middle ground between ex- employees being able to run loose and being stuck at their current space in the industry indefinitely.
Non- compete agreements have been a useful tool in the past, and will continue to be in the future. The question is, should the same agreements be forced on regular employees and executives?
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