Non-compete Clauses, Confidentiality and Capitalism

What does loyalty mean between employer and employee in a dynamic capitalist economy?

Employers often insist that employment contracts contain clauses restricting employees who leave from working for competitors in a certain geographic areas for a certain amount of time.

Legally, these arrangements can take different forms. In addition to non-compete agreements, a common requirement is for employers to require employees to sign confidentiality agreements, which prohibit employees or former employees from disclosing confidential data. For sales-oriented jobs, there may also be restrictions on the use of customer lists.

In part, such restrictions are understandable, given the need to protect sensitive client data. But employees are also justly concerned about their freedom to pursue job opportunities with other employers in the future.

Misuse of Customer Lists

In Minnesota, problems with misappropriation of client lists in the rare coin industry are one example of the challenges involved in crafting effective non-complete and confidentiality agreements.

In the 1990s, a now-defunct Twin Cities company named National Rarities developed an extensive database containing the names of hundreds of thousands of people who were known to be interested in buying gold, silver or other precious metals.

The database also contained phone numbers. It was so useful that came to be known simply as The List.

A former employee of National Rarities eventually sold the list to other coin brokers. The price ranged from $200 up to $4,000.

Unfortunately, the list has circulated so widely that it has been frequently misused. This includes being used to solicit potential victims in Trevor Cook’s multi-million dollar Ponzi scheme. Cook, a former Minnesota coin dealer, is now in federal prison.

Reputable companies in the coin industry try to prevent or minimize egregious misuses of information through non-compete clauses and confidentiality agreements. The goal is to prevent former employees from making wrongful use of information about their former employers’ clients.

Moving On After a Non-compete Lapses

Non-complete clauses and confidentiality agreements are only half the story. They must be balanced against the legitimate needs of an employee to freely sell his or her labor to another employer.

After all, Americans do not believe in indentured servitude.

In the wake of the Great Recession, many employers have tried to take advantage of their enhanced bargaining power by imposing increasingly burdensome non-compete clauses.

In practice, this can mean that an employee who has lined up a new job isn’t able to take it for many months, if at all.

This waiting period can put employees in a difficult spot, even if it is not enforceable – especially if the new employer refuses to keep the new job open that long.

Both noncompete agreements and confidentiality agreements have their place in a capitalist society. The conditions they impose, however, should not prevent an employee from fairly using their knowledge or finding work reasonably close to their home.