Recent developments from the Federal Trade Commission (FTC) have signaled a pivotal change in the landscape of employment contracts with the announcement of a proposed ban on non-compete clauses. Employers and team members alike may feel they are navigating a new legal environment, even though the enforceability of non-competes has always been tricky.
Rather than staring for too long at the closed door, businesses seeking to safeguard their interests should find solace in the realm of non-solicitation agreements.
These provisions protect business assets while fostering an ethos where team members choose to stay out of loyalty, not compulsion.
Understanding Non-Compete Clauses
Traditionally, non-compete clauses were crafted to prevent former team members from joining competitors or starting similar businesses within a certain period after leaving a job. The intent was to protect trade secrets and proprietary information. However, the FTC’s ban reflects a justifiable concern that these clauses may also unfairly limit workers’ mobility and earning potential. The FTC estimates that the ban will generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation. (FTC Announces Rule Banning Noncompetes | Federal Trade Commission) Whether or not you agree with the FTC’s optimism, we can all agree that there is a public policy interest in full employment that is not skewed by underemployment. Therefore, actively limiting former team members from working in roles for which they are trained is contrary to public policy (not to mention not great for your karma if you believe in that sort of thing).
Why Binding Team Members Is Not the Answer
As comedian Chris Rock once sharply quipped, “A man is only as faithful as his options.” Why would you want to enforce loyalty through restrictions, thereby forcibly retaining team members who want to leave? Rather, employers should focus on cultivating an environment where team members choose to remain faithful because they value their current situation over their options. This is where non-solicitation agreements shine—they focus on protecting a company’s most important assets, their talent and client relationships, without unduly restricting a team member’s future employment opportunities.
Additionally, in an era celebrating mobility and innovation, binding team members to a company against their will is counterproductive. The imposition of such restrictions can create a workforce that is compliant due to a lack of options rather than committed out of satisfaction and dedication. These disengaged team members are highly unlikely to be bought into growth strategy and you will be lucky to get the bare minimum from them in terms of production. Furthermore, team members who feel trapped will undoubtedly have a negative impact on company culture and can harm both the reputation of the company and its relationships with current and future talent.
The Value of Non-Solicitation Contracts
Non-solicitation provisions prevent departing team members from poaching clients, customers, and colleagues. Such agreements respect a team member’s right to move freely in the marketplace while protecting the significant investments a company makes in its people and business relationships. As long as these agreements are more narrowly tailored than non-competes—targeting the aspect of post-employment behavior that can directly impact a company’s competitive position and bottom line—and do not have the effect of preventing a team member from seeking or accepting other work or starting a business, they are not prohibited by the FTC Non-Compete Clause Final Rule (ftc.gov).
As we adjust to the FTC’s proposed ban, the true protection for businesses lies in well-constructed non-solicitation contracts. By focusing on these provisions, companies guard the considerable resources spent on training team members and developing client relationships—arguably their most valuable assets.
Additionally, non-solicitation contracts often hold up better in court. They are easier to enforce because they are viewed as less restrictive and more directly connected to the legitimate business interests that companies are entitled to protect. As such, they are an essential tool for maintaining competitive advantage without infringing on team members’ rights.
Conclusion
In a free market, it’s essential to strike a balance between the rights of workers and the needs of businesses. Considering the FTC’s actions, the corporate focus should pivot towards non-solicitation agreements. These agreements offer a more targeted approach to safeguarding a business’s vital resources without shackling a team member’s future. Companies that can navigate this shift effectively will not only ensure their own protection but will also foster a work environment based on mutual respect and genuine loyalty—a goal that ultimately benefits everyone.
