How Employers Can Respond to the FTC's Ban on Non-Compete Clauses

The US Federal Trade Commission’s (FTC) landmark ruling last month banning non-compete clauses is putting employers on notice: be prepared for a possible exodus of workers. According to the Wall Street Journal, the edict affects 30 million employment contracts in which talent is prohibited from working for competitors, or even in the same industry. This was the most significant employment decision the agency has made in more than five decades and will undoubtedly lead to more job switching. 

Set to go into effect in August 2024, the ban means all kinds of workers, spanning from hairdressers to high-level managers, would be free to seek employment with competitors. Viewed as a victory for labor and a setback for employers, the ruling may not stand if lawsuits brought by the US Chamber of Commerce and other business groups are successful. However, companies should not wait until August to prepare their organizations for what lies ahead. It’s imperative to develop a contingency plan for a potential loss of talent and for retaining valuable workers in light of a very different legal environment. 

The FTC’s decision comes as the labor market has cooled and layoffs have grown, so the incentives for people to leave their jobs may be tempered. At the same time, employee engagement in the US workforce is at an 11-year low, while dissatisfaction among tech workers is remarkably high, according to Lorien’s 2024 "What Tech Candidates Want" report. The abolishment of non-compete clauses may be the spark that motivates workers to seek better jobs. If that happens, could the ruling trigger another bout of the "Great Resignation” 

That remains to be seen, but any measurable volume of resignations, especially among important knowledge workers, can be detrimental to businesses. One of the biggest repercussions feared by companies is the loss of not only talent but also intellectual property. Undoubtedly, some employers will see the FTC’s decision as a green light to recruit competitor talent who can provide valuable insights.  

Where have recruiting capabilities gone?  

Whether they are looking to hire workers from competitors or to replace those leaving their jobs, many employers currently don’t have the capacity to conduct large-scale or specialty recruiting due to the downsizing of their talent acquisition function. Over the past year, a growing number of tech firms have laid off recruiters, and more are occurring every day. With a bare-bones talent acquisition staff, these companies would likely experience delays and make poor hiring decisions if pressed to fill roles quickly. Such delays could ultimately hinder the company’s growth plans in today’s precarious economy. 

Ramping up talent acquisition is an option, but as any human capital leader knows, recruitment is a unique function that requires deep knowledge of the skills and roles a company needs, and that can only be achieved over time. There is no substitute for being ready for any contingency that may occur.  

Here are some best practices to consider: 

Refresh succession planning and talent mapping. Begin by assessing the flight risk of high-value employees who are currently bound by a non-compete clause. Consider the characteristics, demographics, and attitudes of these individuals, and determine what succession options are available. If a talent map exists, identify employees with adjacent skills who can potentially be a successor to the departing worker. With many months before the legal challenges can even be exhausted, organizations have sufficient time to refresh or create their succession plans and talent maps.     

Bolster the company’s EVP and brand. Of course, employers who offer competitive wages, generous benefits, and a powerful employee value proposition (EVP) shouldn’t need to worry about losing great talent, but it doesn’t hurt to reemphasize these offerings. Winning talent doesn’t hinge on offering the highest pay. In fact, Lorien’s first North American edition of  
‘What Tech Candidates Want’ report found that people don’t always leave an organization for money; the top reason among tech workers is to learn a new technology followed by a lack of career progression. To retain great talent, make sure there are ample opportunities for people to learn, grow, and advance. These will also be powerful incentives for attracting talent. 

Fortify internal and external talent pools. Recruiting is less onerous when organizations invest in talent pools. During the hiring spree in the two years following the pandemic, many companies invested in such pools. As hiring has slowed, talent communities have become less of a priority. These may again help employers address what could be a significant challenge with increased talent mobility. Even with the status of the ruling still undetermined, employers can be prepared by engaging with candidates early on. Not to mention, a stronger economy later on in the year could potentially spur on another hiring frenzy.    

Rely on partners for recruitment support. If talent simply want to leave, it’s imperative to find replacements in a timely and efficient manner. With limited internal talent acquisition resources, HR leaders will have to think hard about which of the "buy, build, or borrow" talent strategies they should pursue. Deploying contingent talent may be one solution, but such workers might not possess the same skills and knowledge as permanent hires. Relying on recruitment agencies is another alternative, but they can be costly and slower to achieve results, especially at higher volumes. For organizations that need a cost-effective solution that can scale on demand, a recruitment process outsourcing (RPO) solution may be the better choice. 

Whether it’s implementing measures to attract and retain talent or facilitating the recruitment process, employers facing significant employee flight risk as a result of the FTC’s decision should prepare for any outcome that may result from the legal jousting ahead. Even if the ban is struck down, companies will surely benefit from investing in a more robust and cost-effective way to recruit great people.