Will the New FTC Non-Compete Ban Hurt Employee Retention?

The market is only starting to rebound from the worst post-pandemic attrition levels, and a new rule announced by the Federal Trade Commission is worrying some corporations about their retention.

On April 23rd, 2024, the FTC issued a rule widely banning non-compete agreements (NCAs) nationwide. The agency lauded the final rule as a business and innovation generator that could potentially raise worker wages in the process. Critics say this ruling falls outside of the agency’s administrative authority, attacking a commonly used, centuries-old business practice.

What does your enterprise need to know about the new non-compete clause rule? And are there actions you can take to improve your retention, no matter the regulatory outcome? Read on to find out.

What to Know About the Non-Compete Clause Rule

The final Non-Compete Clause Rule takes a bold stance on NCAs. The FTC deems non-compete clauses to be an “unfair method of competition,” and makes existing agreements non-enforceable after the effective date of the final ruling. Companies will not be able to create any non-competes for workers (both FTEs and consultants) going forward.

There are some caveats to the new rule. NCAs with senior executives, those earning $151,164 or over in annual compensation and making policy decisions, are enforceable, but new agreements cannot be created. Additionally, any person “pursuant to a bona fide sale of a business entity” can be asked to sign a noncompete agreement.

Though the full effect of the rule will take effect 120 days after it is published in the Federal Register, the Non-Compete Clause Ban received pushback almost immediately. The US Chamber of Commerce and the Business Roundtable filed a lawsuit less than 24 hours after the announcement, declaring the FTC lacks enforcement power and the support of Congress for this blanket ban. Other lawsuits quickly followed, leaving the fate of the new rule in question.

How Companies Can Maintain Retention

Whether the suits against the final Non-Compete Clause Rule succeed, your organization will benefit from revamping your retention strategies. Relying on NCAs to protect your trade secrets and intellectual property fails to address the underlying issue: that not all leaders are acting in ways that make staying desirable.

PwC’s 2023 Global Workforce Hopes and Fears Survey finds that even though 64% of tech sector respondents were satisfied with their jobs, 32% would likely change jobs in the next year. This was before the non-compete ban went into effect.

What’s the cause? Companies, rather than just penalizing people for leaving, likely aren’t doing enough to incentivize them to stay. Candidates are engaged in their work, but not necessarily the cultures where they work. And as some corporations sprint to implement AI and automation, streamlining workflows take precedence over empowering people to innovate. By nurturing the creative and analytical passions of your people, you’ll improve retention.

Cost cutting has also hurt the ability of companies to maintain engaging corporate cultures. The rise of layoffs has hurt corporate morale and people are more eager to depart companies where they feel they might be on the chopping block. More than ever business leaders need to engage their workforce. That means clear communication that their talents are valued, acknowledgement of their feelings, and a focus on providing flexibility.

Who you hire matters. Recruiting tech professionals who are energized by and aligned with your company culture are more likely to stay for a longer tenure. Though you need to hire with skillsets in mind, focusing solely on skillsets can make it easier for competitors to poach your employees and steal your trade secrets.

Collaborating with the right IT staffing and recruiting firm can address this upstream issue. If recruiters are providing you with people who match your technical needs, desired work ethic, and cultural connection, then your workforce is going to be more firmly rooted. FTC non-compete ban or not, your people are going to feel much happier keeping their intellectual capital with your business.