In April the Federal Trade Commission (FTC) issued a final rule that bans most noncompete agreements for employees and contractors nationwide — a move the FTC hopes will promote competition by allowing workers to change jobs more easily.
The FTC claims about 30 million U.S. workers (about 18 percent) are currently subject to a noncompete agreement.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” stated FTC Chair Lina Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
The FTC’s decision, which passed on a 3-2 vote, negates current noncompetes for most workers while preserving agreements for senior executives earning more than $151,164 annually. In addition, it prevents employers from establishing or enforcing new agreements and requires employers to notify workers that they will not be enforcing noncompetes against them.
According to the National Law Review, the final rule “will impact most US businesses, specifically those that utilize non-compete agreements to protect their trade secrets, confidential business information, goodwill, and other important intangible assets.”
The legal battle begins
At this point, it’s unclear when — or if — the FTC noncompete ban will begin. While the ban is slated to start in early September, the FTC is facing a growing number of legal challenges that may delay or prevent the action from moving forward. For example, the U.S. Chamber of Commerce and several business groups are suing the FTC in Texas federal court, claiming the FTC lacks the authority to issue a ban.
More legal challenges may appear in the months ahead.
“The sheer economic and political significance of a nationwide noncompete ban demonstrates that this is a question for Congress to decide, rather than an agency,” stated the U.S. Chamber in its lawsuit.
U.S. Chamber of Commerce CEO Suzanne Clark views the FTC’s decision to ban non-compete agreements as a government overstep that can potentially harm employers and workers.
“The Federal Trade Commission’s decision to ban employer non-compete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” Clark said.
Differing opinions
A recent Ipsos poll indicates the majority of Americans support the FTC ruling against noncompetes. But as The Channel Advisors CEO Eric Brooker pointed out, opinions can vary depending on who you ask.
“I have a dear friend who would tell you that he has been ‘stuck’ in his role for many years due to his non-compete agreement,” Brooker said. “He has read the FTC proposed language and is excited to freely go find new work in this industry without the recourse of a former employer. With that said, I understand his firm has historically sued people that have left and found work in the same industry. The premise of the lawsuit is a violation of their non-compete agreement.”
“I think I can speak for their employer when I tell you they are not excited about this announcement,” Brooker continued. “In the end, I believe the employer is still protected via a customer non-solicitation and non-disclosure, and this is a value to the market, the tech sector and the employee. Ultimately, the employer benefits too as they are going to have less people employed that simply don’t want to be there.”
Happier workers, stronger cultures
Brooker believes that FTC’s noncompete ban will ultimately lead to a happier and stronger workforce.
“Companies are going to have to work harder and focus on the things that matter (people and culture) to retain their staff,” Brooker said. “This ruling puts the power back in the employees’ hands, and if the employer can keep them happy, I think all will be good. Job satisfaction is going to be key here. That starts with taking care of your people.”
Brooker pointed to a Gallup poll which suggests a happier workforce results in more productivity, longer tenure, and a stronger work ethic. The study reveals that those who feel connected to their organizations are 3.7 times more likely to be engaged at work, 5.2 times more likely to recommend their office as a great place to work, 68 percent less likely to burn out at work and 55 percent less likely to look for a job.
“The landscape has been in a pivot for a handful of years now,” Brooker explained. “People-first organizations with a strong culture and good leadership are thriving. The technology in the telecom channel is moving at a pace we haven’t seen before. New leaders are emerging. With all the new suppliers in the sector and the recent FTC announcement, I believe we will see professional growth for many individual contributors in the marketplace.”
This announcement and the emergence of the new suppliers, Brooker said, is an opportunity for growth and career advancement.
“The Channel Advisors have interviewed countless people that work in the channel,” Brooker continued. “As an industry, we used to provide new hire training that offered sales training. Most of our feedback from channel today is that most of their training is product and internal process. The question then becomes, if there is career advancement opportunities with this announcement, where are these leaders of tomorrow going to receive their training? Where are they going to learn how to build compensation plans, coach their teams, learn how to manage, etc.?”
“This gives employees the ability to show up to work, and if the company doesn’t have a strong onboarding or training program, they can go find one that does,” Brooker added. “It is going to force us to have more authentic conversations through the hiring process because we will have to get to know one another better in terms of what everyone’s wants are before we pull the trigger and start working with each other.”
Tips for navigating the changing landscape
Channel professionals may view the upcoming noncompete ban as a chance to explore different options. However, Brooker is cautioning telecom professionals from rushing out and jumping into new opportunities.
It’s also important to remember that the FTC noncompete ban is still in development and subject to change.
“I wouldn’t use this as an opportunity to simply jump ship to the next thing,” Brooker said. “The reality is, the grass is greener where you water it. You might be in exactly the spot you are supposed to be in. With that in mind, I might take it upon myself to be more mindful of changes going on in the business.”
At the same time, Brooker believes that executives are gearing up for the change — and expects that some will use this time to focus more on their people.
“This upcoming rule change might be exactly what you were looking for and an opportunity to remain in your role in the new post-non-compete era,” Brooker said. “Successful salespeople are often people who have learned to overcome obstacles and hurdles and find success in the face of adversity. If you keep running because you can’t find success in your current job, you will always find that problem no matter where you go. Find ways to overcome the hurdles. Chase opportunities, don’t run from problems.”
Business leaders and executive teams should use this opportunity to evolve and help create healthier environments for workers.
“Build relationship capital with your team members,” Brooker concluded. “Build a people-first organization. The TPS report is important but get to know your people and where they are at in their employment journey. Support them in their personal and professional goals. Allow them to aspire to greatness even if that means leaving your company. Give them the tools to be successful short-term and long-term. Coming in with this mindset will serve them well and ultimately, they will serve you well while they work with/for you.”
How do you think the FTC noncompete ban will unfold? Reach out to gerald@bekabusinessmedia.com and share your thoughts.
