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  • Writer's pictureNick Andriacchi

Are Non-Competes Really Effective?

Ex-employees with an axe to grind can be disruptive for any business. The goal is for the employer and employee to cordially part ways, but that unfortunately is not always the case. Some employers require certain employees sign a covenant not to compete. The idea behind non-competes is to protect the assets of the business, without restricting the right of an individual to earn a living.

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A non-compete clause is a contractual term between an employer and a worker that typically blocks the worker from working for a competing employer, or starting a competing business, within a certain geographic area and period of time after the worker’s employment ends. - Fox Rothchild LLP

As the business world evolved, so did legal views of non competes. Many states have made it difficult (if not impossible) to enforce. Three states: California, North Dakota, and Oklahoma prohibit the enforcement of non-compete agreements all together.

The Federal Trade Commission (FTC) has recently proposed a rule that will effectively ban non competes nationwide. The open comment period is open through April 19,2023. The FTC will review the comments and may make changes, in a final rule, based on the comments and on the FTC’s further analysis of this issue.

The following is an excerpt by Steven K. Ludwig and Robert C. Nagle Fox Rothchild LLP published January 5, 2023.

The Federal Trade Commission’ (FTC) proposed rule, if adopted, would be nationwide in scope and would apply to almost all private employers, regardless of size or location.

The proposed rule would define the term “non-compete clause” as including any contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment. The proposed rule would, among other things, provide that it is an unfair method of competition for an employer to:y

· Enter into or attempt to enter into a non-compete clause with a worker.

· Maintain with a worker a non-compete clause.

· Under certain circumstances, to represent to a worker that the worker is subject to a non-compete clause.

They are also seeking public comment on non-solicit agreements, in which employers agree not to solicit or hire one another’s workers, and wage-fixing agreements, in which employers agree to limit wages or salaries (or other terms of compensation) should be barred.

This will have an impact on staffing companies – no doubt.

The question now becomes: What can a staffing company do to best protect its business?

The best answer: Own the relationship with your client.

Let’s face it, if the relationship with your customers relies on one individual, when the individual leaves – so will your customers even if they don’t “follow the ex-employee”. A tight relationship with you customer will go much further to keeping the customer than a non-compete.

Staffing owners should know how valuable each customer is and seek to provide better candidates and service. From my experience, successful staffing owners train their team to spend time with the customers and learn exactly what they are trying to achieve and deliver towards those goals. They become trusted advisors that build relationships that won’t leave, even if a key employee does.

Remember, a business can't own an employee but it can own the relationship.

This post should not be taken as legal advice. Please contact legal council for specific guidance.

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