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Document Type

Article

Abstract

Organizations today face numerous challenges: worldwide competitors, changes in information technology, increased reliance on knowledge workers, and a shifting economic environment. Faced with the difficulty of securing advantage by traditional means, management has increasingly focused on employees as a key asset and driver of productivity. Many organizations have adopted the human capital theory, which holds that employees form an asset of the organization. Organizations will seek to maximize their human capital as a differentiator. Presumably, an organization that invests in its human capital will find itself rewarded with increased productivity and higher returns. But here is where the problem develops. Although it makes theoretical sense to label human capital as an asset, employees differ from other forms of assets. The organization has no ownership interest in the employees and the human capital that they represent. Instead, only the employment relationship secures the retention of human capital. Investment by an organization in its human capital, in its employees, leads to a paradox. And to date, proponents of the human capital theory, in their eagerness to create a new strategic role for the human resources department, have not addressed this paradox. A company that invests in its employees, providing those employees with new skills and knowledge, will find that it has increased the employee's value. This added value, however, does not necessarily correspond to increased value for the employer. Instead, gained skills and knowledge and experience will enhance the employee's mobility, permitting her to transfer the benefits of the organization's investment to a competitor. A company that invests in human capital without taking the steps to secure that capital will find its investment flowing to its competition. The employment relationship, the relationship that binds human capital to the organization, is an odd beast. For the most part, the employment relationship is governed not by contract, but by a complicated mix of common law and statutes, both state and federal. To preserve its investment in human capital, management needs to understand this peculiar area of the law. The law provides several tools to manage the employment relationship. The best tool to solve the problem of preservation and retention of the organization's human capital is the noncompete agreement. I conclude the article by discussing the drafting of an enforceable noncompete agreement. The noncompete agreement, carefully drafted and tailored to the employee's situation, will help firms to retain the benefit of investment in their workforce. Employees governed by a noncompete agreement are less likely to leave the company. Furthermore, in the event that the employee decides to leave, the noncompete agreement will prevent the employee from immediately taking his new skills and experience to a competitor.

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