Non-Competes in Limbo: What Recruiters Should Watch For

How the FTC's Non-Compete Ruling Could Transform Hiring Practices.

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May 20, 2024

The FTC recently announced the end of non-competes for all employees. Now, the chances of this going through are pretty slim. The US Chamber of Commerce filed a lawsuit in Texas less than 24 hours after the announcement, and while we won’t have the outcome of that lawsuit for a long time, it’s doubtful that the result will be a complete ban on non-compete agreements.

Regardless, the FTC’s ruling brings about a shift in the world of non-competes, especially in hiring. While most of the focus has been on how this affects individuals, recruiters are the biggest group affected by this change. After all, who cares more about non-competes?

What does it mean for recruiting? Will this free up candidates, or is it just more smoke and mirrors that won’t affect any major change?

Who is really bound by non-competes?

A recruiter, who needs to remain anonymous for obvious reasons, shared that her company requires all new hires to sign a 42-page agreement, including a non-compete. These employees include janitorial staff.

She acknowledges that the senior leadership that insists on these documents fully understands that they are completely non-enforceable at this level. There are no company secrets to cleaning toilets. However, it’s quite an effective tool for intimidating employees. Janitorial staff are unlikely to understand that the document isn’t worth the paper it’s printed on.

This type of intimidation won’t end with the end of non-competes. In 2019, researchers found that “almost 30% of establishments offering an average hourly wage below $13 require noncompetes for all their workers.” While that study was small (634 employers) and probably ideologically driven (even NPR called the organization “left-leaning”), it illustrates that this isn’t unusual.

The U.S. Government Accountability Office found that 55 percent of employers use non-competes, and, of those, 55 percent require all their hourly employees to sign one as well.

So, in theory, these non-competes–enforceable or not–affect a large portion of employees. Even if companies ignore the ban and continue to ask people to sign these agreements, a recruiter can explain that the law has changed and that document is no longer in force.

This could definitely open doors for recruiters to find candidates.

Agency hiring

Another recruiter speculated that this would end problems with agency hires. Currently, if you bring someone on board as a temp or contractor who another company pays, you’re prohibited from hiring that person directly without meeting contractual obligations. These can include buying out someone’s contract or waiting a certain amount of time.

However, employment Attorney Jon Hyman explains that these are not non-competes but rather non-solicitation agreements. The agreement is between two corporations, and the individual isn’t bound by it. This FTC ruling does not affect those agreements.

So, while this may look like a boon for recruiters in areas that have traditionally used agency workers, it may change absolutely nothing except freeing agency employees to apply to other companies that haven’t entered into a contract with the agency.

A widened candidate pool

Non-competes vary in popularity from industry to industry, even if most industries use them in some form or another. By eliminating them, you will necessarily increase the available talent pool. Not all of those people will be looking to go into a new job–the FTC estimates estimates that there will be 8500 additional new businesses created each year.

They also estimate that this will result in increased salaries–at an estimated increase of $524 per year. This is a negligible number for high-level employees but meaningful for many Americans.

But the widened pool isn’t guaranteed. Non-competes are not the only legal tool to keep employees from jumping ship. Non-disclosure agreements don’t limit who a person can work for, but they do limit their ability to take knowledge with them.

Companies can also require clawbacks for training and education, which increases the cost of an employee moving on. There are rules around when these things are legally viable, but lawyers will always find a way.
In other words, the candidate pool may not widen as much as one might expect.

Slow and steady

The FTC decision will be held up in court, and when it comes out, there’s no telling what the fine print will say. However, one thing is clear: recruiters must be on top of the new rules and will be a primary source in educating candidates–especially passive candidates–on their options under the new rules. Right now, recruiters should proceed as normal and await final decisions.

Hopefully, companies will throw out their 42-page non-compete agreements as well. They are antithetical to a fair relationship between employer and employee.

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