By Brandon Harter
For years, businesses have used non-compete provisions to protect their investment in employees. In May 2021, the Pennsylvania Supreme Court’s decision in Pittsburgh Logistics v. Beemac Trucking LLC put a dent in that plan by holding a no-poaching provision between two commercial companies was not enforceable. In part because it bound employees who were not parties to the business’ relationship. Three years later, and we now have a much more sweeping elimination of non-competes even with the employees themselves.
The Federal Trade Commission (FTC) has announced the implementation of new rules that would invalidate non-compete agreements throughout the United States. While it is undoubtedly going to be the subject of litigation that will delay its implementation, it makes sense to start preparing for this sea change now. So, let’s look at a few alternatives:
1. Nondisclosure Agreements (NDAs)
- NDA Basics: NDAs can be used to prevent employees, vendors, potential investors, and others from using your business’s confidential information. So, while you may not be able to prohibit a former employee from working in the industry, you can stop them from walking out the door with your customer list, price schedule, or other key internal documents. While many are drafted as broadly as possible, I recommend putting some specific examples in NDAs that you know exist and are important. That way there is no dispute about whether a particular document is truly confidential.
2. Non-solicitation Clauses
- Client and Employee Non-solicitation: While often found in non-compete agreements, non-solicitation is actually an entirely separate (and enforceable) restriction. While non-competes seek to block someone from working in an entire industry, non-solicitation provisions stop them from abusing the relationships they have with your other staff and your customers. Want to stop a customer from poaching an employee to work in-house? A non-solicitation clause can do that. Want to stop a departing employee from asking their colleagues to come with them? A non-solicitation clause can do that too.
3. Garden Leave Clauses
- Garden Leave: This approach allows employers to place departing employees on paid leave for a specified period (e.g., three months). During this time, employees cannot work for competitors but continue to receive compensation. While not as restrictive as non-competes, garden leave provides a buffer for businesses to better prepare for the employee’s departure. These provisions are seen as less “unfair” than pure non-competes because the former employee is being paid to “take a walk,” essentially. A related provision is used when someone sells their business. You don’t want them to start up again across the street and steal the customer base you just purchased, so you document that the compensation the seller got included a period of peace where they won’t jump back into your same market.
4. Focus on Retention and Culture
- Employee Retention: Rather than relying solely on legal agreements, invest in employee retention strategies. Create a positive work environment, offer competitive compensation, and provide growth opportunities. Happy employees are less likely to jump ship.
5. Document Your Procedures
- Create Standard Operating Procedures: No matter what we do, some turnover is bound to happen for any employer. Rather than putting all your eggs in the “keep them forever basket,” you can also take steps to make transitions easier. Don’t wait until someone is leaving to start writing down what they do and how they do it. Set up routine methods of keeping track of the procedures you do day in and day out. That way when someone leaves, there is a trail of breadcrumbs for your new hire to follow.
Conclusion
The sky is not falling with this new FTC rule (now or whenever it actually takes effect). There are plenty of other ways to protect your business’s interests. Think about what is most important for you to protect, then talk with your lawyer about the best ways to secure them.