After making its way through the courts, the FTC’s much-talked-about noncompete ban appears to be halted for good. Ahead of its planned September start, an August 20 ruling in federal court barred the FTC from enforcing its ban nationwide. U.S. District Judge Ada Brown in Dallas struck down the ban for two reasons: one, that the FTC does not have the power to institute such a rule, and two, that even if they did have that authority, the broad rule would not be enforceable.
This ruling is yet another twist in a lengthy and occasionally confusing conversation around controversial noncompete agreements. What does the latest update mean for your team, and what are your next steps? Here’s what we know so far.
Noncompete Bans May Continue in Some Forms
Although the broader FTC ban has been struck down, that doesn’t mean laws against noncompetes are totally off-limits. State-level laws already may place some restrictions on noncompete agreements, and more bans are likely to appear at that level in light of the federal-level ruling. Those state bans, in turn are likely to wind up going through the court system as well, with more uncertainty ahead.
This atmosphere of changing laws and uncertain future means that it’s more important than ever for HR to keep ahead of these developments. This goes double for companies that do business in multiple states and may have to keep up with differing laws at the state level. HR leaders will also have an important role to play in communicating these updates to their teams. In the absence of clear information, rumors can grow and lead to an atmosphere of fear – which is not conducive to employee satisfaction or productivity.
Narrowing Noncompete Rules
The ruling against the FTC points to the breadth of scope as one of the key factors making the ban unenforceable. That’s a point that can and should trickle down into individual companies and their noncompete policies, too.
When determining the parameters of a noncompete agreement, successful companies typically tailor them narrowly to protect proprietary information and trade secrets. The goal is, of course, to prevent competitors from luring talent away and using those people as a gateway to poach ideas too. This type of noncompete agreement is (and has been) relatively common, especially for higher-level employees or those dealing with sensitive information.
The problem comes, however, when companies try to implement much broader noncompete policies that do real harm to employees’ ability to find future employment. For instance, noncompete agreements that attempt to block any employment within the same industry, or that target lower-level and lower-wage employees, are unlikely to be justifiable and may do more harm than good.
With noncompetes in the news, it’s a great moment to check in with your current strategy. HR leaders can take the time to evaluate current policies and ensure they’re still truly targeted at necessary protections. Well-tailored noncompete agreements can better shield your sensitive information while avoiding negative repercussions for your company and your employment brand.
Hire Top HR Leaders to Navigate Change
As the guidelines around noncompete agreements – and other elements of HR – keep changing, companies need responsive HR leaders who will stay up to date, guide policy decisions, and effectively communicate those decisions to the rest of the company. During times of change, these leaders are a much-needed beacon of stability. With our extensive talent network and our proven recruiting solutions, Kaizen is here to help you identify and successfully recruit the leaders you need now and for the future. Talk to our team to learn more about our turnkey executive recruiting solutions and how we can help!
By Rose Dorta
Are you a high-performing leader or believe you have the potential to tackle a more challenging role? Would you be interested in career opportunities that are seeking these attributes?
I’d love to chat with you and answer any questions that you have. Email me, Rose Dorta, Managing Director of Kaizen HR Solutions, here.
