How Will the Elimination of Non-Compete Agreements Change the Way You Hire?

Non-compete agreements are restrictive contracts that span across different industries, affecting many workers, from employees to contractors to medical professionals. The purpose of a non-compete agreement is to prevent the signatory from working for a competitor for a period of time after the termination of their current employment or from starting their own business. These agreements can also keep workers from sharing industry knowledge or practices. Now, the Federal Trade Commission is making a move to ban new and existing non–compete agreements, with the hopes of increasing freedoms for employees and preventing exploitative contracts. 

As a recruiter or a hiring manager, this prospective ban presents some interesting questions about the future for candidates and employers. According to USA Today, “A 2019 survey by the liberal Economic Policy Institute found that nearly 30% of the businesses where the average wage was less than $13 an hour used non-compete agreements”. So, while we might think of non-compete clauses as being reserved for only senior management, these agreements have certainly reached all sectors and levels of companies. 

Here are a few ways that this potential action by the FTC may impact your hiring practices:

More Candidates that are Women and People of Color

Studies show that non-compete clauses disproportionately negatively affect female employees and employees of color. These employees are historically more likely to already be at a disadvantage in the workplace due to discriminatory practices and gaps in pay. In some cases, non-compete clauses prevent these players from moving to new companies that might offer a valuable pay increase or increased benefits. These two groups are also less likely to break or violate non-compete clauses than their white, male counterparts. A ban on non-compete clauses may help you to draw from a larger pool of diverse candidates. 

Increased Innovation  

Another large section of the workforce impacted by non-compete clauses is skilled laborers. When skilled laborers are prevented from bringing their learned knowledge to new companies or prevented from moving to a new job at a new company, we see stagnation in that industry. Without the restrictions of non-compete agreements, hiring managers may see an increase in candidates with cutting-edge and innovative ideas, leading to growth in skilled sectors.  

Invigorated Labor Market

If the FTC ban on non-compete clauses or agreements does eventually nullify existing non-compete clauses, we may see a wave of new hires who are keen to seek out new opportunities after months or years of inability to search for new roles. This could lead to a pool of experienced workers and a competitive market for employers looking to fill open positions. 

As this proposed ban continues to unfold it’s a good idea to keep an eye on the news and to seek out resources from the FTC to better understand how and when new regulations might come into play for your business or industry. After decades of these practices, a labor market without non-compete contracts will certainly look very different and has the potential to change the hiring process in impactful ways. 

*Disclaimer this article is not offering legal advice.