Are there other HRM practices that could be substituted for non-compete agreements?

CASE STUDY–3: HRM PRACTICES

Companies in high-technology and creative industries (such as publishing and advertising) often worry about the turnover of high-potential employees. High-potential employees (sometimes called key employees) are people who have rare and special talents and who provide valuable contributions that can directly affect the firm’s performance. Some well-known examples of high-potential people are film director Steven Spielberg (whose films are more profitable than those of any other director) and baseball stars Mark McGuire of the St. Louis Cardinals and Sammy Sosa of the Chicago Cubs– both of whom set records for home runs in baseball. Because most organizations have only a few high-potential employees, retaining these employees has important strategic implications for the business.

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To protect themselves against the loss of high-potential employees and the intellectual property (such as trade secrets) that they may take with them, some companies are requiring all employees to sign non-compete agreements that restrict their freedom to work for a competitor after quitting the organization. For example, Career Track, a Colorado company that provides professional training seminars on business-related topics, took a former star trainer and workshop developer to court to enforce a non-compete agreement after this high-potential employee quit to work for a competitor in California. The company wanted to avoid losing business to a competitor; it also wanted to let other high-potential employees know that the company is prepared to defend its rights if someone decides to challenge the non-compete agreement.

QUESTIONS

  1. Do you think non-compete agreements are ethical? Should a company require all employees to sign them or only high-potential employees? What problems could arise from the use of non-compete agreements?
  2. Are there other HRM practices that could be substituted for non-compete agreements that would be likely to improve the retention of high-potential employees? Which ones would you recommend?

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