Strategy

The CEO Poll: Non-competes are fair game

CEOs say non-compete clauses are necessary to protect company secrets.

Business leaders give the federal mini-budget high marks.

When Mark Hurd, the recently fired Hewlett-Packard CEO, went to work for Oracle, HP sued him, arguing he would use his knowledge of the company’s business strategy against it. The dispute was resolved when Hurd agreed to waive his right to some severance stock units. Canadian CEOs are sympathetic with HP, and they believe that companies need to protect their secrets by asking certain employees to sign legal agreements that limit their ability to work for competitors.

In a recent Compas Inc. poll of business leaders, respondents agreed that non-compete clauses (in which an employee agrees not to take a similar job with a competitor) are necessary to protect secrets from being divulged. Despite the fact that the clauses can be difficult to enforce and can get in the way of employees finding new jobs, most felt that companies needed to protect themselves from having key employees jump to competitors. “These people are paid by the company, and it’s the company’s right to ensure secrecy from competitors,” said one CEO.

When executives were asked about the circumstances under which an organization should ask an employee to sign a non-compete, 93% said that staff with direct access to technical or trade secrets should be subject to an agreement. In regards to senior-level executives, 69% agreed that they should sign non-compete agreements. However, executives believe companies should pay for the privilege — 63% said employers should offer extra compensation for agreeing not to work for a competitor.

According to the CEOs, non-competes are common — 70% said their companies and those they were familiar with used non-competes or similar agreements. “If an employee has trade or corporate secrets, he should be required to sign a non-competition clause, period,” said one CEO. “It is no different from an inventor creating an item that is owned by his company.” Of that 70%, 37% said those companies asked all significant employees to sign a non-compete contract. Another 18% of CEOs said just some of the significant employees were asked to sign, while 15% said it was only the senior staff who were required to sign.