The Case for Ethical Non-Compete Agreements: Executives versus Sandwich-makers

Abstract

The implied tone of the majority of management articles on the topic that non-compete agreements are “bad,” and some scholars even use the term unethical (e.g., Bishara & Westermann-Behaylo, 2012). But are such agreements actually unethical? I assert that the noncompete agreements themselves are ethical, but acknowledge that there are circumstances under which a noncompete may be unethical. A employee non-competition agreement is, in my opinion, ethical when it is reasonable based on the specificity of the terms of the agreement, including (i) who qualifies as a competitor; (ii) what activities would be considered competitive; (iii) where such competitive activity should be prohibited; (iv) when competitive activity will be prohibited; and (v) how the parties reached such an agreement. This criteria loosely matches that for determining when noncompetes will be legally enforceable. I start this normative analysis with a definition of noncompetes and a brief legal introduction to the topic of employee noncompete agreements. Next, I compare and contrast two situations in which the ethicality of noncompete agreements appears to differ, to develop an overarching theory of what constitutes an ethical employee noncompete agreement. I then highlight the normative ethical principles affected by non-compete agreements and close with a brief discussion of open issues and future avenues for research.