Essay on Business Ethics - Prohibition against Competition

There are certain types of contracts that are known as contracts of adhesion.  This is because these contracts are pre-prepared and pre-printed documents made by one party by which the other party has no other participation in this contract except to adhere or give consent to the contract.  Among the examples of these contracts are contracts of employment and contracts of insurance.  It is common to see stipulations in these types of contracts that are completely favorable to one party and unfavorable to the other party.

One such example is the stipulation in the contract of employment against competition.  Some contracts are usually stipulated in this manner, to wit: “the employee unconditionally and irrevocably agrees that he shall not directly or indirectly, whether as an individual or as a syndicate, as a director, stockholder, owner, partner, employee, principal or agent, or in any other capacity, as of the Commencement date and until the first anniversary as of the termination date shall for its own benefit or that of a third person, be employed by, or act as a consultant, or lender to or be a director, officer, employee, principal, licensor, trustee, broker, agent, stockholder, member, owner, joint venturer, enter into partnership, have any sort of remunerated or unremunerated relationship of any nature, or permit his name to be used in connection with, or any of the activities of any other business or person which is engaged in the same business as the business of the employer.”

In simple terms, the contract prohibits the employee from being connected with another company which is engaged in the same business as his former employer.  I feel that this stipulation is improper because it deprives the employee of his opportunity to look for a suitable employment.  It deprives the employee of the chance to look for greener pasture elsewhere.  It can be argued that this stipulation violates the provision in the US Constitution which protects the right of the people to life, liberty and property. (Fifth Amendment 2) Looking for better options from other companies to earn a decent living is a property right which is protected by law.  This is most prejudicial in cases where the employee, for example, was terminated by the company.  In these situations, the employee cannot take advantage of his work experience in his previous employer for fear of violating the said stipulation in his contract and being sued for damages for breach of contract. 

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However, it can also be argued that there could be no violation of the US Constitution in the sense that the stipulation in the contract does not completely deprive the employee of his property right.  It bears stressing that the prohibition does not absolutely prohibit the employee from accepting employment elsewhere.  The contract only prohibits the employee from accepting employment in a competitor for one year from the date of the employee’s termination.

From the point of view of Utilitarianism, this act can be considered ethical.  Based on this principle, the rightness or the wrongness of an action only depends on the consequences of an action.  (Encyclopedia Britannica 1)  The stipulation can be considered ethical because this contract which is also applied by other companies ensures that they are protected from any act of their employees that can prejudice their business.  In the end, every company will be benefited.  The company’s trade secrets are protected.  It ensures that the employee will not be able to share any information that the employee may have learned while he was still employed with the company.  This stipulation protects against the possibility of company secrets and methods may be used by its competitors against it. 

From the point of view of deontological theory, the act itself without regard to any consequences is unethical.  (Larry Alexander 2) It does not matter that the reason for such stipulation is the protection of the companies.  It is clear that the act alone of depriving someone of his opportunity to earn a decent living is unethical. 

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