Offer letter – check.
W4 – check.
Non-compete agreement – not so fast…
HR professionals, take note: New hire paperwork might be in for a major disruption. Just days ago, President Biden issued an Executive Order calling for the ban or limitation of non-compete agreements.
And the effects are posed to be far-reaching. According to the official Fact Sheet released by the White House, “roughly half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 36 to 60 million workers.”
So, what is a non-compete agreement? Why does Biden want them banned? And what would a ban (or limitation) on non-competes mean to small businesses? We took a closer look at the answers to these questions, below.
What Is a Non-Compete Agreement?
A non-compete agreement, according to Investopedia, is “a legal agreement or clause in a contract specifying that an employee must not enter into competition with an employer after the employment period is over. These agreements also prohibit the employee from revealing proprietary information or secrets to any other parties during or after employment.”
In many states, companies require employees to enter into non-compete agreements upon hire. And if employees leave and violate that agreement? Organizations, and their corporate lawyers, can pursue legal action against them.
However, some states, such as California, Montana, and Oklahoma, refuse to enforce non-competes. Washington, D.C. also banned non-competes earlier this year.
What Will Biden’s Executive Order on Non-Compete Agreements Do?
According to the official White House statement, “President Biden is taking decisive action to reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America’s consumers, workers, farmers, and small businesses. […] The Order includes 72 initiatives by more than a dozen federal agencies to promptly tackle some of the most pressing competition problems across our economy. Once implemented, these initiatives will result in concrete improvements to people’s lives.”
As it relates to non-compete agreements, Biden has directed the Federal Trade Commission (FTC), the federal agency responsible for protecting the American consumer and enforcing civil antitrust law, to ban or limit organizations from requiring employees to enter into non-compete agreements. Banning or limiting non-compete agreements will “make it easier [for people] to change jobs and help raise wages,” says the White House.
So, what happens now? To be clear, an Executive Order is not a law. And while Biden has directed the FTC to take this action, when or if the agency will remains to be seen.
What Could This Executive Order Mean for Small Businesses?
Well, it depends on who you ask.
Some people believe that banning or limiting non-compete agreements would help bolster the American economy and support small businesses.
with its attention to #RightToRepair, non-compete restrictions, anti-monopoly policies, & so much more, this is one of the most empowering domestic moves from the @POTUS @JoeBiden admin yet. good for individuals, small business, the economy. love it. https://t.co/MQP4QxiTlb— David Kaye (@davidakaye) July 9, 2021
Namely, by expanding access to the talent small businesses can hire.
As well as giving people more freedom to move companies.
I support this part of Biden’s new executive order: curtail non-compete clauses, which restrict employee freedom. If the FTC finds a legal way to do this, it will spur innovation & startups outside California. Disallowing non-competes has been one of California’s advantages. pic.twitter.com/OzSE4F9C03— Ali Partovi (@apartovi) July 11, 2021
And generally support the employee-employer relationship.
“Non-compete agreements are hard to enforce now,” said Ashley Malin, a recruiter in the healthcare industry. “It’s basically a threat that doesn’t have much ground to stand on if an employer ever decided to pursue legal action on a former employee. I personally think this is a good thing.”
It also depends on how you operate your small business. As Jonathan Pollard, a Miami-based non-compete attorney, summarized in his now-popular LinkedIn post, the Executive Order could help eradicate (or severely limit) Corporate America’s iron-clad grip on employees. Right now, non-competes prevent people from switching jobs, limit competition for workers, and enable organizations to pay their employees lower wages.
So, if you’re a small business operating in this way, first—why? And second—you might need to make some major workplace changes this year.
Supplemental reading: The Great Reshuffling: Why Your Top Talent is on the Move and How You Can Win Them Back
At Eddy, we believe in hiring people we trust—and we encourage other businesses to do the same. Similar to how you trust your employees to be productive working from home, you should also trust that you’ve hired people that will do right by you when they leave—without a legally binding agreement.
And if you’re an HR professional trying to turn the tide on your employer’s workplace practices, and you know, foster a culture that promotes trust and loyalty, we should talk—because we can help.
We take the administrative tasks off of your to-do list, so you can focus on your people. And if you’re working for a company that issues non-compete agreements to new hires, it sounds like you might soon need all the resources you can get.
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