Just weeks before the FTC’s ban on noncompete agreements was set to go into effect in early September, a federal judge hit the brakes. An August 20 ruling barred the FTC from enforcing its broad ban nationwide. U.S. District Judge Ada Brown in Dallas struck down the rule on two points; her ruling said that the FTC does not have the power to institute such a rule, and that even if they did, such a broad rule would not be enforceable.
The ruling is just the latest chapter in a somewhat confusing saga around controversial noncompete agreements. What does this mean for your company, and what’s the best path ahead? Let’s take a look.
Noncompete Bans Aren’t Entirely Dead
Although the FTC ban has been struck down, other bans may still appear. State-level laws already place some restrictions on noncompete agreements, and more bans are likely to appear at the state level now that the federal ban has been halted. Those state bans, in turn are likely to wind their way through the courts as well.
Combine that with the differing noncompete rules between states, and it’s more important than ever for HR to keep ahead of these developments – especially for companies that do business in multiple states. HR leaders will also have an important role to play in communicating these updates to the team at large. After all, in the absence of clear information, rumors, fears, and misinformation can abound.
Narrowing the Scope
The FTC ruling itself notes the breadth of scope as one of the key factors making the larger ban unenforceable. That’s a lesson that can and should trickle down into individual companies as they make noncompete policies, too.
The basis for a noncompete agreement should be tailored narrowly to protect specific information and trade secrets, discouraging competitors from “poaching” talent instead of developing their own ideas, strategies, and resources. This type of noncompete is common and has been for a long time. The problem comes, however, when companies try to implement blanket noncompetes that harm employees’ ability to find future employment. For instance, noncompete agreements that attempt to block any employment within an industry, or that target lower-level employees who don’t actually deal with sensitive information, are unlikely to be justifiable.
This FTC ruling, while a win overall for companies looking to protect their secrets, does present a golden opportunity to check in. Take the time to evaluate your current policies and confirm if they’re truly targeted at necessary protections or if they’ve grown a bit too broad. Better-tailored noncompete agreements can better shield your sensitive information while avoiding negative repercussions for your company or its employment reputation.
The Role of HR Leaders
The changing landscape of noncompete agreements requires attentive HR leaders who are prepared to monitor changes, shape policies, and effectively communicate those guidelines (and the reasoning behind them) throughout the company. When rules are shifting around, it’s more important than ever to have exceptional HR leaders to provide stability and clarity. Blue Rock Search has the expertise and talent network to identify the right leaders for your company’s unique needs. Talk to us today to learn more about our executive recruiting solutions and how we can help!
About the Author
After a 25-year career in Corporate Human Resources and HR Executive Search, Ruben Moreno and his two partners co-founded Blue Rock Search based on a simple but ambitious vision of creating a firm that would “Change Lives and Organizations One Relationship at a Time.” Ruben leads the Blue Rock HR Executive Search practice specializing in the identification, assessment, recruitment, and onboarding of Chief HR Officers and Chief Diversity Officers and their respective teams — inclusive of leaders in Talent Acquisition, Total Rewards, HRBP’s, Learning & OD, HR Technology, HR Operations, and HR Analytics. Ruben has helped place hundreds of HR Executives and built deep relationships within the CHRO community across multiple industry verticals. His clients consider him a trusted partner who takes the time to understand their business and add value beyond executive search.