Korn Ferry

Non-Compete Agreements Are Having a Moment

For decades organizations have used the threat of lawsuits to keep employees from leaving to go work for the competition. But now both employees and states are taking a look at so-called non-compete clauses, and recently states been ruling that companies need to dial those clauses back.

Non-compete agreements—written clauses that prohibit a worker from going to work for a competitor for a certain time period—used to be reserved for senior leaders or employees who had access to trade secrets or particularly specialized skills. But these days non-competes can be found nearly everywhere trying to lock up nearly everyone, including junior staffers at digital media companies and restaurant delivery drivers. This month an entry-level fashion stylist alleging that her former employer, an online clothing firm company catering to adults, is using a non-compete clause she signed when she was hired to keep her from working for an online clothing boutique that caters to kids.

It’s that movement down the employment food chain that has attracted the attention of states. Last month Nevada passed a new law narrowly defining when a non-compete clause is enforceable. That’s after recent moves in Hawaii, New Mexico and Illinois to make it harder to use non-competes. One major exception: Idaho, which last year made it much easier to enforce non-compete agreements made by businesses in the state.

Ron Porter, Korn Ferry Senior Client Partner, Global Human Resources Center of Excellence, says that the newfound attention being paid to non-compete agreements stems from the fact that people feel they can no longer rely on the organizations they work for to keep them employed. “People realize they are no longer safe being an effective employee who works hard and performs well," he says. "They know they might lose their job anyway, so they want more management over their own careers.”

Increased job market activity likely factors heavily into the focus on non-compete pacts. According to a Bureau of Labor Statistics study in 2015, the average person held 10.8 jobs from ages 18 to 42. That number is universally projected to swell as millennials replace baby-boomers in the workplace. A poll last year, for instance, found that 60 percent of millennials surveyed were open to new job opportunities and 21 percent of them had changed jobs in the past year. This churn costs the U.S. economy an estimated $30.5 billion annually.

Organizations have taken divergent views on the value of non-competes given the fluidity of today’s job market. Some have tried to use them to build moats around their talent, while others have dropped them altogether, believing instead in the merits of their organization to attract and retain talent. One major problem is that many non-compete agreements are written either too broadly or too narrowly to be legally binding. “Most organizations view them as largely unenforceable if they ever got to a court,” Porter says.

So why bother with them? Because there’s no reason not to. It costs nothing to include them as part of an employment contract and many workers don’t question them. Employees and companies may respect them even if they aren’t legally enforceable, too.

“A candidate can decline a non-compete agreement, but that would call into question whether the offer still stands,” says Porter, who adds that organizations are more likely to leave the condition in and move on to another employee rather than take it out, particularly if other current employees at a similar level have them.

Contributors

  • Ronald Porter

    Senior Client Partner, Global Human Resources Center of Excellence

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