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Employment Contracts Must Attract Talent, Not Eviscerate Innovation

Contract Basics

The days of individuals committing the bulk of their working years to just one company are long behind us. Employees and laborers currently in their 40s, and the younger generations following them, are far more likely to jump from one employer to the next over the course of their lifetime. On average, these employees will spend two to four years working at each place, and many of these folks end up working for ten or more different companies or organizations.

This recent phenomenon has been a boon to the economy. People are constantly gaining news skills and knowledge, which they use elsewhere to further innovate. A lot of folks even acquire the confidence and capability to establish their own businesses, creating even more opportunities and further stimulating the economy.

Unfortunately, this employee hop has quite a few companies feeling threatened. There are legitimate fears regarding the misappropriation of valuable intellectual property, as well as concerns about the prospect of competition. As a result, more and more companies are relying on employment contracts that contain restrictive clauses, including non-compete, non-disclosure, and confidentiality agreements. Although these are understandable contract inclusions in some cases, it can be risky to overly restrict employee movement, as this undoubtedly hinders creativity and innovation.

Here are a few of the pros and cons of including restrictive contract clauses in employment agreements, as well as some tips on striking a balance to avoid undue disparities:

PRO: Employees may stay with the company longer to avoid the hassle of any post-employment restrictions.

CON: Employees may feel trapped and resentful, which inevitably disrupts their motivation and productivity.

TIP: If there are going to be restrictions on employees with respect to their post-employment opportunities, then it is wise to provide ample incentives encouraging them to stay. This can be anything from generous paid time off to providing daily meals to increasing stock options with seniority, among so many other alternatives. People are loyal to companies when they feel that their company values them.

PRO: Employees cannot use the knowledge and skills gained at the company to benefit their next employer, allowing the company to retain its edge.

CON: Employees may be hesitant to commit and contribute to the company knowing of this future constraint.

TIP: Negotiate a non-compete clause that is brief in duration and limited in scope. It is unreasonable to preclude someone from working within his/her respective industry for a significant length of time. Any non-compete should be specific to the exact work, not the general nature of it, and it should be confined to a very short period of time. For example, an app developer who has created sports-related products can be temporarily restricted from doing that precise sort of app creation for his/her next employer for perhaps six to twelve months. However, trying to prevent said developer from continuing to develop in any capacity for several years seems too restrictive. Overly broad restrictions will deter talented individuals from working for or with companies that impose such strict limitations, which can eviscerate innovation.

PRO: Company trade secrets will remain secrets.

CON: Stifling the spread of knowledge stifles progress.

TIP: Carefully determine what company information actually constitutes trade secrets. The definition of trade secrets continues to expand, and it seems to encompass an awfully extensive amount of information now. Obviously, information relating to a special formula or code would fall under the trade secret umbrella, but general information about running a particular company does not necessarily qualify, contrary to the assertions of many fiercely protective leaders. We live in an information age, and it is unrealistic for companies to assume that they can control the dissemination of knowledge by controlling former employees.

Smart companies encourage their employees to utilize their skills and knowledge to their full potential, recognizing that a rising tide lifts all boats.

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