We all know that a well-drafted non-compete agreement is necessary to protect a company’s customer relationships and confidential information when an executive jumps ship. What you might not have considered is that an employment agreement with inadequate post-termination restrictions might subject a company to criticism by shareholders or others. In the instance described in a piece in The Globe and Mail (Vancouver), an executive compensation expert blasts the B.C. Lottery Corporation for failing to limit the post-employment activities of the former CEO of the lottery, who moved from what is described as a “highly sensitive” government position to a private company developing a Vancouver gambling casino.
In his criticism, the expert, Professor Michael Graydon, called the CEO’s agreement “poorly drafted and negotiated” and a “failure on the part of the . . . board of directors.” The agreement was only 3 ½ pages with a “bunch of holes” and, according to Mr. Graydon, did not contain a non-compete clause, as he thought it should have. For its part, the lottery company responded that its standards of ethical business conduct, to which the CEO was bound, provided sufficient protection.
BURR POINT: Failing to adequately restrict an executive’s post-employment competitive activities is bad business, but it also might result in bad publicity.