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The Case for Ethical Non-compete Agreements: Executives Versus Sandwich-Makers

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Abstract

Human capital, the knowledge, skills, and abilities of employees, can be a powerful driver of firm performance, yet the mobility of human capital raises questions over how to protect it. Employee non-compete agreements, which limit an employee’s ability to start or join a rival firm, have received recent attention. While past research considers whether non-competes are effective tools at limiting employee mobility, few have considered if non-competes should be used. Filling this gap, I propose a normative schema for when employee non-competes can be considered ethical. A review of the limited existing literature on the ethics of employee non-competes finds that prior research has mostly focused on questions of property rights, which I propose as being nested within other ethical constructs. Analysis of two real-world illustrative examples of employee non-competes (an executive at Amazon and a Jimmy John’s sandwich-maker) leads to a three-prong approach to evaluating non-competes based on ethical dimensions of power, autonomy, and fairness. I end by proposing—although further research is warranted—a measure of employee-level absorptive capacity, which is closely coupled with an employee’s pre-employment human capital, as an employee-level attribute independent of, although likely coincidental with, the tripartite requirements of power/autonomy/fairness for ethical employee non-compete agreements.

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Notes

  1. These include a dummy variable indicator for 10 states used by Stuart and Sorenson (2003); a binary scale used by Marx et al. (2009); a 12-factor additive scale use by Garmaise (2011) based on Malsberger (2004); a weighted version of that scale used by Bishara (2011); and a reweighted using factor analysis version developed by Starr (2019).

  2. Although Bishara and Westermann-Behaylo (2012) analyze non-competes under a utilitarian analysis and find them to be unethical, they do not specifically discuss the in terrorem issues with non-enforceable non-compete agreements being requested of employees.

  3. I thank an anonymous reviewer for this point. “A contract of adhesion is an agreement whose terms are standardized by dominant parties; weaker (adhering) parties are usually given little room to negotiate but are offered the deal on a take-it-or-leave-it basis” (Keeley 1995, p. 247).

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Acknowledgements

I am immensely grateful for comments on prior drafts from doctoral seminar participants at Rutgers Business School, my dissertation committee (Petra Christmann, Fariborz Damanpour, and especially Danielle Warren from Rutgers, as well as Evan Starr from Maryland), Lisa Lewin, and Scott Newbert. Thanks are also due to conference participants at and reviewers for the Academy of Management and the Society for Business Ethics annual meetings and at the Sustainability, Ethics, and Entrepreneurship Junior Faculty and Doctoral Consortium, particularly Jill Purdy, and feedback from two anonymous reviewers.

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  1. Zicklin School of Business, Baruch College, The City University of New York, One Bernard Baruch Way, Box B9-240, New York, NY, 10010, USA

    Lauren E. Aydinliyim

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Jimmy John’s non-compete zones around New York City (SigActs 2014)

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Jimmy John’s non-compete zones around Chicago, IL (SigActs 2014)

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Aydinliyim, L.E. The Case for Ethical Non-compete Agreements: Executives Versus Sandwich-Makers. J Bus Ethics 175, 651–668 (2022). https://doi.org/10.1007/s10551-020-04570-w

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