At the beginning of January, the Federal Trade Commission (FTC) proposed a new law that would ban the use of non-compete clauses, as well as rescind any previously signed agreements.
This may seem like a drastic change – especially with nearly a third (31.8%) of employers making all their employees sign a non-compete – but the banning of these clauses will very likely have a positive effect overall.
For one thing, non-compete agreements are notoriously US-centric. If you look at companies in Europe – as well as states such as California, who have not enforced these since 1872 – it is clear that the absence of these binding agreements has not hindered profitability.
And this is because there are many ways that are more effective than non-compete agreements to protect yourself as a business. The reality of a non-compete is that they are like threatening someone with a blunt hammer; they’re very difficult and very costly to argue in court, so usually won’t have much effect. But they hold weighty connotations that are enough to deter people from attempting to break them.
Instead, employers can hold employees to their duty of loyalty, which means that while they are working with them, they will not do anything that is inconsistent with the organization’s interests.
As well as this, the FTC’s new rules still allow for the recovery of reasonable costs of training, as well as the implementation of a non-solicitation clause so that a reasonable degree of confidentiality is still intact after an employee terminates their contract. So from a legal standpoint, you are still covered in the areas that you need to be, while also making room for an acceleration of innovation to take place in the market.
It will also set into motion the recalibration of retention strategies. For lack of a better word, a non-compete agreement is a lazy tool, and so with its revoking, this paves the way for businesses to focus on using more positive, people-centric strategies to promote retention. These will emphasize how a company values its team members, and with leaders demonstrating the trust they have in their staff, they will foster a healthy sense of loyalty without the need for it in writing.
What employers need to take from this proposition is that job mobility does not mean the free flow of confidential information. It simply means that the labor market becomes more flexible and competitive, and is an opportunity for businesses to gain access to top talent. But the companies that are examining their attraction and retention strategies and taking into account the changing needs of the workforce will be the ones who get ahead in this raging war for talent.
Copyright OrgShakers: The global HR consultancy for workplace transformation founded by David Fairhurst in 2020