FTC Ruling On Non-Competes and Non-Solicitations – here’s what we know

With their recent ruling on the future of non-complete clauses, the FTC has stepped in in a major way that will impact several facets of business.

For those of us in the recruiting space, the impact on hiring and retention are – of course – of great interest.

As it stands, the ruling will go into effect 120 days after it’s published in the federal register, which is anticipated to happen in late summer/early fall.

As we await its implementation, here are a few things we’re thinking about.

First, a brief overview of the ruling from FTC.gov:

• The final rule bans new noncompetes with all workers, including senior executives after the effective date.
  • Specifically, the final rule provides that it is an unfair method of competition—and therefore a violation of Section 5 of the FTC Act—for employers to enter into noncompetes with workers after the effective date.

• For existing noncompetes, the final rule adopts a different approach for senior executives than for other workers. For senior executives, existing noncompetes can remain in force. Existing noncompetes with workers other than senior executives are not enforceable after the effective date of the final rule.
  • Fewer than 1% of workers are estimated to be senior executives under the final rule.
  • Specifically, the final rule defines the term “senior executive” to refer to workers earning more than $151,164 annually who are in a “policy-making position.”

In summary, all non-compete agreements for employees not defined as “senior executives” will be nullified on the date the ruiling goes into effect. Those “senior executives” with current non-competes will still be expected to follow the guidelines they agreed to, however, going forward, no new non-competes will be permitted at any level. 

What does this mean for organizations looking to hire? Quite a bit.

To start, “Companies will have to switch from the mindset of locking in their employees to locking in their secrets.”

If you’re wondering how employers might be able to do this – that remains up for debate – but options could include “…non-disclosure agreements (NDAs) and trade secret laws to protect sensitive information.”

Regardless of how that particular challenge is addressed, freeing up employees to take their talents elsewhere will lead to increased movement between companies and industries. Meaning competition to secure the best workers is going to heat up.

This will likely come in waves, with lower-level employees being released from agreements immediately, followed by senior-level job seekers who may have years until they can take advantage of the same benefits.

“Workers will have the freedom to move from one company in the industry to another with no legal repercussions. This means the war on talent could get even more competitive.”

How can employers combat new levels of competition and continue to attract the best and brightest to their organization?

A re-focus on employee loyalty is a good place to start.

Showing current and potential workers that they are valued is the first step, but further action to prove your commitment will be essential.

“Companies will need to focus on how to increase loyalty in their employees. Organizations can get creative in encouraging loyalty through what they can offer employees. This likely will look like higher compensation packages and fostering better workplace environments. To be competitive in a tight talent pool, companies can leverage options such as offering growth opportunities, continued education, flexibility, etc.”

While the ruling itself is facing quite a bit of pushback with detractors predicting its ultimate demise, the potential implementation should not be ignored. As always, the unpredictability of the market continues to surprise us, but preparing for the shift this ruling would cause is one place where we have plenty of time to prepare and react. Want to make sure you’re prepared? Connect with us today and we can talk thought your plan.