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Editorial: Restrictions impair employees, industry

Gavin Souter

Keeping hold of high-performing employees has long been a major concern for many organizations, and the current competitive job market only makes employers more anxious not to lose some of their best people to their competitors.

Devising ways to attract and hold on to top employees has led to many metaphorically golden incentives — whether they be handcuffs, handshakes, hellos or parachutes. Companies, though, have also resorted to contractual requirements that benefit them but offer little to employees.

Noncompete agreements, for example, are implemented ostensibly to prevent people from moving to a rival after an employer has invested in training or to preserve trade secrets. They are sometimes applied, though, in absurd circumstances to staff who are in no position to negotiate. For example, sandwich maker Jimmy John’s infamously required employees to sign a noncompete that effectively barred them from moving to make sandwiches at a rival.

In addition, noncompetes are often included in boilerplate employment agreements without much thought about their necessity or the possibility of enforcing them. 

Noncompetes, though, may be on the way out. As we report on page 9, the Federal Trade Commission has proposed a ban on the agreements in employment contracts, saying they block workers from freely changing jobs and deprive them of higher wages and better working conditions. Legal challenges are expected, but the move at least puts their use under the spotlight.

Rather than noncompetes, the insurance sector often uses nonsolicitation or nondisclosure agreements in employment agreements, which are less restrictive but still lead to plenty of disputes, especially among brokerages. Lawsuits proliferate alleging that brokers did things like downloaded client lists before exiting to join a competitor or set up a rival shop. The suits are often settled by the new employers who seem to regard the payments as a cost of winning new business.

In some countries, such as the United Kingdom, employers use extensive notice periods that departing employees serve out away from the office on “gardening leave.” Such an approach could help employers in other jurisdictions, but the agreements seem cumbersome.

All the various restrictions don’t seem to account for the preferences of the clients. In an industry that relies so heavily on relationships, why shouldn’t a client stick with an individual that he or she has trusted for years if they change firms? Conversely, if they value the support, products and market clout of a brokerage firm, there is nothing to stop them from staying and starting a relationship with a new account executive.

Freedom of movement also has the benefit of promoting innovation as ideas and skills are spread. 

Clearly there are circumstances where poaching companies are gaining benefits that they should be paying for, but unnuanced restrictions that stop employees from working where they want to work can’t be good for the industry in the long run.