What are the pros and cons of noncompete agreements?

| Jul 19, 2021 | Noncompetes

As a worker, you have likely at least heard the term “noncompete agreement” before, even if you have not worked with one yourself. Many people have mixed opinions about these agreements and what they do.

Like everything in business, there are two sides. While noncompete agreements do have several benefits for different parties, it can also have potential downsides.

Pros of noncompete agreements

The Balance takes a close look at noncompete agreements and what purpose they serve. A noncompete agreement typically helps protect a business from the poaching of employees, which other businesses use to get at your trade secrets and production information. Under these agreements, any employee under it cannot join or aid competing companies or businesses for a certain period of time.

Among the incentives, there is the possibility of reducing turnover, as it encourages individuals to stick with the company rather than rotating out quickly. It is also great for employers, as it protects trade secrets and other sensitive information from competitors. Finally, it might provide incentive for employers to provide training that might be costly. Employers will usually work harder to keep employees satisfied so they do not leave.

Suffering from potential drawbacks

On the other hand, you also have some major pitfalls. First, it can actually have the reverse effect from what an employer intended. It might prevent the top talent from utilizing experience or skills to continue progressing, which shuts them out of the field. Second, it can reduce the bargaining power of a worker. 37 percent of all workers sign these agreements, and it leaves them with little leverage for bargaining and no chance to move somewhere better.

Noncompete agreements still provide exactly what some businesses look for. It is just important to understand all facets before implementing them, and ensure employees understand them as well.