After winding its way through the legal process, the FTC’s headline-grabbing noncompete ban is off the table – at least for now. Before it could go into effect in September, an August 20 ruling in federal court barred the FTC from enforcing the planned nationwide ban. U.S. District Judge Ada Brown in Dallas decided the appeal based on two determinations: first, that the FTC does not have the power to institute such a rule, and two, that even if they did have the authority, the proposed broad rule would not be enforceable.
Noncompete agreements have long been a hot topic in the hiring space, and perhaps in no industry quite as much as the fast-moving, talent-shuffling tech world. How does this reversal affect your business and your hiring strategy? Here’s what we know so far.
Noncompete Bans Aren’t Totally Off the Table
The broad-ranging FTC ban has been struck down, but that doesn’t mean laws against noncompetes are wiped away completely. Different states may already restrict noncompete agreements, and in light of this federal ruling, future restrictions are much more likely to be instituted at those lower levels. Because of the ongoing litigation over noncompetes in general, though, those laws will also most likely hit some uncertainty and challenges in courts.
Tech is used to an atmosphere of rapid changes and regulatory uncertainty. In this environment, it’s especially important for companies to keep tabs on these developments and maintain a clear strategy for dealing with multi-state differences. The same leaders will also have an important role to play in communicating these updates to their teams. Remember: without timely communication and transparency, rumors can grow and lead to an atmosphere of fear – which is not helpful for supporting employee satisfaction or productivity.
Narrowing the Scope of Noncompetes
The ruling against the FTC indicated that the breadth of scope as one of the key factors making the ban unenforceable. That fact may prove pivotal for individual companies and their noncompete policies, too.
It’s understandable, in the tech and cybersecurity space, to keep data security and trade secrets tightly held. Over-caution, however, can harm your employment brand and your ability to secure top talent. Research from CWJobs found that 57% of surveyed tech employees changed jobs in 2022-2023; 42% made those changes voluntarily, with just 15% being made redundant. The expected pattern of job-hopping makes noncompetes both more expected (to protect data) and more challenging (because it limits a common piece of tech culture).
Successful companies are likely to be the ones that narrowly tailor their noncompetes to truly protect high-level information and critical trade secrets without harming future employment prospects. Top tech talent doesn’t want to be locked into a single company. 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. It’s a great moment to evaluate your strategy and ensure that it’s specifically aimed at protecting your valuable, proprietary information without negatively impacting your employer reputation.
Top Leaders Can Effectively Manage Change
As the guidelines around noncompete agreements continue to shift, companies need effective leaders who can stay informed, make thoughtful policy decisions, and effectively communicate those decisions to the rest of the company. During times of change, these leaders provide stability while ensuring your proprietary information stays well-protected. With our highly-qualified talent network and our customized recruiting solutions, Velocity Search Group is here to help you successfully recruit the leaders you need to protect your information and attract top talent – now and long into the future.
By Daniel Midoneck