Non Competes, The Great Debate

The proposal in front of the FTC is not a new one. For those of you who followed Biden’s early Presidency, in 2021 he signed an executive order that encourages the Federal Trade Commission (FTC) to ban or limit noncompete agreements. The order was meant to promote competition and economic growth by making it easier for workers to change jobs, among other objectives. I’m not sure that I’ve seen any significant change in non-compete and non-disclosure agreements use in the distribution industry since then. A majority of states currently recognize the enforceability of non-compete agreements to some extent. Generally, these agreements prohibit employees from working in the same or similar profession for a period of time following the termination of the employment relationship. 

 

For example, Florida recognizes that non-competes serve legitimate business interests, including protecting an employer’s trade secrets, confidential business information, client relationships and the company’s goodwill. So, in Florida, non-competes are generally enforceable, provided they are “reasonable in time, area, and line of business.” On the other hand, California law provides “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void” Other states have taken a more middle-of-the-road approach. For example, in Maine, the use of non-compete agreements amongst low-wage workers (defined as those earning at or below 400 percent of the federal poverty level) is prohibited. Seems like a lot of math. In 2023, the IRS had upped their definition of “highly compensated employees” from $135,000 to $150,000. 

 

On Jan. 5, 2023, the Federal Trade Commission (FTC) issued aNotice of Proposed Rulemakingthat seeks to align the nation closer to California’s approach. The proposed rule would prohibit an employer from entering into or attempting to enter into a non-compete clause with a worker; maintaining any existing non-compete clause; or, under certain circumstances, representing to a worker that the worker is subject to a non-complete clause. The sole exception is where the party restricted by the non-compete clause is an owner, member or partner holding at least a 25 percent ownership interest in a business entity. The notice clarifies, however, that non-disclosure agreements (NDAs) and non-solicitation agreements would not be included in the rules grasps unless such agreements are so broad in scope that they function as a non-compete. 

FTC Chair Lina Khan issued a statementdescribing the perceived issues with non-competes. First, the FTC estimates the proposed rule would increase employee earnings by close to $300 billion per year due to increased marketplace competition. Also, the FTC found non-competes reduce innovation and competition in products and services by reducing entrepreneurship and new business formations while driving up costs for existing products and services. As to the products and services market, the FTC notes these labor markets are fluid and spread across state lines. 

 

Although the FTC addresses some concerns that may arise if the proposed rule goes into effect (i.e., ensuring that employers maintain an ability to safeguard trade secrets through NDAs or non-solicitation agreements), several equally important concerns remain. For example, employers must now consider how they will safeguard their investment in employee training and career mentorship. Further, non-compete agreements are sometimes leveraged by employees to secure higher wages that the employer would not have agreed to without the restriction. Finally, the proposed rule prohibits the maintenance of non-compete agreements and with it, essentially rewrites millions of employment agreements across the country. 

The proposed rule provides interested parties 60 days to submit commentsfor the FTC’s consideration before the rule is finalized. I can’t imagine how many comments they’ve received. Employers and other interested parties may engage counsel to help draft and submit comments expressing any concerns that the FTC should take into account before a final rule is issued. 

 

I see this issue from both sides, although, in my opinion, an employee making $87,000 a year can download your entire customer database and pricing just as easily as one making $150,000, they just may fly lower under the radar. In my firm, this type of breach would cripple my business and for those who are supported by my efforts, devastating as the only recourse is litigation. Based on what I’ve read, that process could take years. Imagine how long it would take you to replicate the last 10 or 20 years of customer data, SPAs, rebates, employee records and the like…it’s crazy making. Regardless of how things fall with this new proposal, we will still require new employees to sign non competes and I expect the industry will continue to follow suit.  

Just do it!

As we settle into the New Year, it’s time to focus on YOUR growth, both personally and professionally.  That takes a well-prepared game plan.  Your path could include continuing formal education, more job training, participation in professional organizations, research on further becoming a subject matter expert, new roles and responsibilities, finding ways to increase your value to your organization, or improving your job performance.  Review your past successes and focus on areas to improve.  How are you going to get there?  How can you improve on your previous successes?  Who will help you get further out from your comfort zone?  What will it take for you to be open to change – to stretch yourself ever more?  Assess and challenge yourself. Environmental support is crucial in doing this.  Identify a manager, senior leader, or peer who can be that mentor for you.  You’re already successful.  It’s proven.  Now establish new metrics to measure yourself against.  Assess yourself constantly and adjust as needed, but always striving for the end goal.  Create a tolerance for risk taking and be prepared to fail as you reach your goal.  Failure is not a negative; you learn and grow from failure and it helps you make necessary adjustments to reach your goals.  Overcome failure just as you would overcome an objection from a prospective client.  Understand the “why” behind the challenge and get beyond it.  Feedback is critical in growth.  Be sure that your mentor is offering you open and honest feedback, even if you don’t like what you hear.  We’re here to grow, right?

Personally, where do you need to improve?  Leadership, time management, handling difficult situations, communication?  How can you become a better version of you?  Both personal and professional growth requires motivation, desire, and the willingness to make change.  The process never ends.  It’s not supposed to.  We hear the phrase, “Trust the process” all the time.  This applies to literally every aspect of growth.  In every facet of life.   Understand the process and follow it – without fail.  Do not deviate.

Whatever your goal is, it’s obtainable with a plan.  Break your goals down into smaller chunks to accomplish each day, week or month. Set reminders on your calendar to check in on your progress. You’ve got this!  You can and will get there!  Now be like Nike and “Just do it”!

GEN Z -The Purpose Generation

I attended a recruiting conference recently and a presentation on Gen Z’s stuck with me.  As our clients are struggling to hire, they should be planning for their future employees and a large portion will be  Gen Z’s

Gen Z includes people born between 1997 – 2012 so roughly ages 10 – 25.  According to the magazine Fast Company, Gen Z’s will comprise 30% of workforce by 2030. Gen Z’s are the largest, most diverse and inclusive generation ever and they wear it as a badge of honor. Because of the Pandemic, many of them didn’t get to go to their prom, graduation, sporting events and weren’t on campus for college, which made them resilient.  They are extremely tech savvy and their spending power is estimated at $360B.

Gen Z is very purpose driven. They prioritize purpose over profits. They will research a company before they buy from them to make sure the company aligns with their values. They don’t want to buy your brand, they want to join it and immerse themselves in the company.

When Gen Z’s choose a company to work for, the company’s culture is of utmost importance.  They value companies that prioritize diversity and inclusion and make them feel like they belong.  Gen Z’s crave engagement and experiences and being a part of a community.

The things that are most important to them are:

  • Mental health
  • Physical health
  • Financial wellness
  • Professional development

They don’t live to work; they work to live and they are looking for work / life harmony. They work hard but it’s not about how many hours they put in; it’s about working smarter. They want a company that values their work and ideas. They prefer a hybrid work model, where they can go into an office 1 – 2 days a week to build a connection with their colleagues.

TikTok is their most popular social media platform, followed by Instagram and then YouTube. They are finding jobs on TikTok! 50% of Gen Z is on LinkedIn, 28% is on BeReal. They love emojis, gif’s, meme’s and bitmojis. They also love audio content, especially music and podcasts, where they can listen anytime.

Companies need to engage Gen Zs’ entrepreneurial mindset and set up incubators where Gen Z’s can discuss new ideas for the company. Gen Z’s want to be engaged with the companies they work for and setting up mentorship programs helps with that engagement. Create communities for them to be a part of and engage with different departments in the company, such as book clubs, running clubs, etc. Also, make sure your company prioritizes mental health and offers mental health days (we’re starting to see companies offering 1 mental health day a quarter). If you want to grow and bring in new talent you have to engage and show them that you and your company care.

It’s Okay to Negotiate

It’s okay to negotiate during the offer stage of potential employment.  Both the hiring company and the candidate have presumably completed a successful interview process to get to this point.  Both sides have decided that the role, responsibilities, organizational culture, and employee value proposition match well for both sides.

Before the offer letter is drafted, the candidate will likely be asked, “How does this opportunity compare with others you’re exploring…If an offer were extended, would you accept?”  An outline of what the offer will look like should be shared.  Answer these questions and address each point openly and honestly.

Since both sides are working with a professional recruiter, when the formal offer letter is drafted, both sides should be in relatively close alignment with compensation offering / expectations, benefits, terms, and conditions of employment, etc.

We’ve established that negotiation is an acceptable practice for both sides.  The key now is to remove emotion during the negotiation process.  Be transparent.  On the company side, define what is not open for discussion, but articulate the ‘why’ behind not being able to move in certain areas.  The candidate may not understand your perspective at first.  On the candidate side, respond with what you would like to request to be changed in the offer.  Neither side should only focus on money.  While there may need to be some adjustments made, focus on the entire opportunity:  meaningful responsibilities, professional and personal growth, location, flexibility, perks, internal support, etc.  It’s important to address all concerns at once during negotiation.  Don’t address one on one, and don’t go back with additional points when you’ve completed negotiations.

Don’t be afraid to negotiate during the offer stage.  Both sides have agreed they ‘like’ each other.  The  negotiation process is not a protagonist vs. antagonist exercise.  It should be a well thought out, researched and completely transparent process.  One that is healthy for both the hiring company and candidate.

Retain Employees with Open Communication

Retention seems to be a strong focus for most of my clients. The Great Resignation saw more than 47 million Americans voluntarily quit their job in 2021.  The mass exodus was linked to low pay, lack of career opportunities, shifting priorities, and employee burnout (which is fueling Quiet Quitting)  As a result, Exit Interviews and Stay Interviews have become much more important.  Exit interviews are completed before the employee’s final day after they gave their 2 weeks’ notice.  Stay interviews are with your current employees to assess how they are feeling about the company. Below are a few examples of questions to ask in each type of interview.

Exit Interview Questions:

  • What prompted you to begin searching for another opportunity?
  • Do you feel your manager gave you what you needed to succeed?
  • What did you like best?
  • What did you like least about your job?
  • Do you think your job has changed since you were hired?
  • Did you feel your achievements were recognized throughout your employment?
  • Do you feel you had necessary training to be successful in your role?
  • What can we improve on?
  • Did you share any of the concerns we discussed today with the company or your manager before deciding to leave?

Stay Interview Questions:

  • Which aspects of your job make you eager to come to work each day? Which aspects do you not look forward to?
  • How well do you believe your talents are being utilized? What skills do you possess that you feel aren’t being utilized?
  • What are your career aspirations? How are we doing in helping you accomplish them here?
  • Have you ever thought about leaving the company? If so, what caused you to consider leaving? Why did you decide to stay?
  • What are the biggest challenges you face?
  • Is there anything you’d like to change about your job?
  • Are there things you would like to change about your team or department?

According to Gartner Consulting, the pace of employee turnover is forecasted to be 50-75% higher than companies have experienced previously and the issue is compounded by hiring taking 18% longer than before the pandemic.   You need to evaluate your company and drive strategies that will help keep and attract new employees.