As is the case in most ethical scenarios, intent, communication, and action are key.

Employee turnover can be costly and disruptive. To mitigate their risk when employees leave and to protect intellectual property and trade secrets, some companies require certain employees to sign noncompete agreements. However, some of these agreements fail because they are overly broad in trying to keep workers from freely moving to other organizations.

In a marriage, a prenuptial agreement can provide either great clarity or create contention when one spouse chooses to leave. In a professional setting, establishing an ethical standard for post-employment takes effort from both employers and employees. Let’s consider the case for noncompetes and the viewpoint of each party.

The Environment of Noncompetes

The private lending community is full of diverse skillsets. Employees learn some of them before accepting a new employment arrangement, and they learn others using the resources of the new company.

Although most companies likely support personal growth and encourage ambition, many companies find it difficult to balance that with talent retention. Some companies try to incentivize retention and loyalty through upward mobility and higher compensation, and others may establish roadblocks to keep a professional from moving on and thriving in another work environment.

The central issue is employers want to ensure the time and money they invest in new hires pays dividends. And, if the arrangement turns out not to be a good fit, employers want to know that any proprietary data the employee had access to gets restricted or destroyed. Most important, companies want to make sure its trade secrets aren’t used against them or shared with a competitor.

Historically, companies have worked to establish legal boundaries for their data and other sensitive information. Enforceability has become increasingly difficult, because the view on noncompete agreements has trended in an employee-friendly direction. With more and more hostility toward noncompetes and with less likelihood a company will prevail in the event of litigation, how can companies protect themselves? What are the best practices for members of AAPL? What part does the community play?

New regulation may eliminate some of the historical strategies employers have used and misused. For decades, noncompete covenants and agreements have provided a standard defense for companies wishing to protect their data when an employee leaves. But use of the tool has dramatically decreased over time.

In July 2021, President Biden charged the Federal Trade Commission with determining how noncompetes can be eliminated or restricted nationally and replaced with mandates on how companies control stored and shared information. Illinois, Maine, Maryland, New Hampshire, New York, Rhode Island, Virginia, and Washington, D.C., have introduced new state laws in the last five years for low-wage earners, and other states have been more aggressive with noncompete alternatives.

The Employer’s Perspective

Businesses work hard to establish a brand and a product or service consumers will demand—and it’s not uncommon for founders to expend significant money and time creating them. Confidential information is created and articulated in business plans and projections. Pricing structures and sales strategies are established. Training materials are published. It is not only ethical for businesses to protect these investments, it’s necessary for sustaining the business.

Companies today have greater concerns about how freely and quickly information can be shared in the market. The debate often arises around how to protect these properties and data.

Who owns what? If a loan originator is independently licensed and closes a loan with company resources, whose lead is it?

If a company sponsors an event or conference at which a team member collects business cards and creates relationships, but then the employee leaves the organization, what are the rules of engagement with those contacts moving forward?

If a team member learns how to successfully complete projects with company resources, is it appropriate for the employee to independently identify how to do the same thing, while still employed? What about when they leave the organization?

What if a new employee signs with a company without disclosing their intention for the position is temporary? With remote work, a member of the team could technically hold more than one position at time, even at competing organizations. What should be disclosed?

If a competitor approaches a gainfully employed member of another organization with an offer, what should the ramifications be, if any, for the competitor or the team member? And are those ramifications enforceable?

These are just some of the circumstances companies try to avoid by implementing a noncompete or confidentiality agreement. It’s important to note that noncompete agreements can be both ethical and binding.

The Employee’s Perspective

Noncompete agreements create challenges and disadvantages for employees. They may restrict upward or lateral mobility, within or outside a company. They may restrict an employee to a certain field or position for an extended period of time. They can also be outright abused, even when employers maintain full autonomy to layoff or fire anyone, for any reason, at any time.

Noncompetes can lower the market value of a skilled employees merely exercising their right to change careers or organizations. Some employers have earned a reputation for litigating against former employees, even after terminating or laying them off.

What if an employee signs a noncompete and then the market forces the company to layoff much of its work force?

What if an employee signs a noncompete but doesn’t actually gain any access to the property or relationships the employer is trying to protect?

Employers should understand that human capital comes with human emotion, and sometimes people just need a change. A departure isn’t always rooted in a negative reason. Employers may have a natural curiosity about the reason behind someone’s decision to leave an organization, especially when the relationship between the parties was amicable. Sometimes that curiosity comes from a place of support for wherever the employee lands next, and sometimes it’s to ensure that more discussion doesn’t need to occur about the company’s data and property.

Even when the departing employee is moving to a competitor’s organization, if the company did things appropriately, there should be little to no fear about the employee’s next move.

Ethical Answers

Until laws around noncompetes and employee confidentiality evolve, adhere to local counsel before implementing or unwinding any major policy. If you’re employed, know your rights. The following suggestions may protect an employer’s trade secrets while providing employees with their right to explore and secure a better-paying position or one that is more aligned with their skills or career goals:

Before accepting a position (and then again if an employee is considering other employment), communicate needs and expectations with the employer to ensure they know what is expected so you can grow with the company.

Establish policies and procedures for the organization that define what the company refers to as proprietary, who can access and share it, and with whom.

Enter into employment agreements or contracts that define each party’s role, where both can agree on what is deemed sensitive and pre-existent, as well as what each party is permitted to retain in the event of termination of the relationship.

Implement security protocols and role-based access so parties are allowed access only to what is needed to accomplish tasks at hand.

Be clear about who owns what data—and even equipment—so all ambiguity is removed (i.e., if an employee uses their own computer, phone, and lending license, then leaves an organization, what protocols are taken to unwind the relationship while allowing the party to maintain their equipment).

Establish clear employee onboarding and off-boarding procedures and task someone with the management and consistency of the processes.

As is the case in most ethical scenarios, intent, communication, and action are key. Employees and employers must strive to remove doubt and make expectations clear. Organizations should foster a culture where employees desire to stay as long as they’re valued and growing.

When they choose to move on, perhaps they first attempt to reconcile differences or find an appropriate role or structure internally before moving to a new organization. And if a relationship does end, beyond the establishment of the policies and procedures outlined above, separations should always be amicable between professionals and high-functioning organizations.