Human Resources Consultant, Outsourcing & Services

Human Resources Consultant, Outsourcing & Services

Non-compete agreements

According to a brief submitted last week in a lawsuit that is still pending in Texas, SHRM, the largest HR group in the world, does not endorse the Federal Trade Commission's plan to outlaw almost all non-compete agreements.

Supporters of "reasonable, narrowly tailored non-compete agreements," SHRM worries that a "blanket ban" will "stifle innovation, limit training opportunities and harm business and workers alike." As a result, SHRM has submitted four arguments and requested that the court grant the plaintiff's request for an injunction.

1. SHRM contends that failure to do so will cause irreversible harm to its HR members, namely, "an economic burden in the form of additional administrative and organizational costs to change, adapt, and enforce company policies and agreements that remain unsettled and may be moot in time."40th percentile alidated, additionally 

SHRM wonders what would occur if the FTC Rule is upheld but subsequently declared unconstitutional by a court:

  1. Does an employer have to give fresh consideration in order to continue the previous arrangement?
  2. Is the period of non-compete tolled in the interim?
  3. Is an employee responsible for a breach while it's happening?
  4. Will the increased financial strain on firms and the unpredictability of the future affect hiring or total worker wages?

According to SHRM, these unanswered concerns may cause companies to cut down on hiring as well as their investments in training and innovation.


2. According to SHRM the FTC rule will hurt employees and reduce funding for human capital development and training. It provides evidence in the form of multiple studies, demonstrating that employees who sign non-compete agreements as a requirement of their first jobs typically get paid more and receive more training. Their businesses, meanwhile, make greater investments in R&D and capital equipment. hence, "it is reasonable to expect that after an employer invests in its workers, those workers will not immediately join a competitor who may freely acquire and exploit those investments made by the previous employer."


3. The FTC's "near-total ban" on non-competes has not been sufficiently explained. In fact, according to SHRM, the FTC "disregards" research that demonstrates the advantages of non-competes because it "used flimsy, unsupported reasoning to reach its predetermined conclusion that the benefits of training and human capital investment do not justify any potential harms from noncompetes."


4.  The FTC failed to take less burdensome options into account. Instead of outlawing almost all non-competes, the FTC could have, for instance, (1) set minimum compensation levels to enforce them, (2) restricted non-competes to highly compensated individuals or others with access to information that would be competitive, (3) outlawed non-competes in particular industries, or (4) concentrated on duration and geography.

Additionally, SHRM points out that Congress made it apparent that it did not give the FTC that jurisdiction by considering non-compete laws and failing to pass any of them.


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