Non-compete agreements had some highs and lows in 2024.
The Federal Trade Commission (FTC) banned non-competes last April, arguing that they limit employees’ earnings and hamper innovation. The ban was struck down by a federal judge in August, only for the FTC to appeal the ruling in October. Even as the future of non-competes remains foggy, they still impact roughly one in five Americans, according to the FTC.
Many companies use non-competes as a way to retain workers. Hedge fund Citadel recently extended its non-compete for some portfolio managers to 21 months, Bloomberg reported, longer than the average 12 months required by its competitors, in an effort to retain these employees amid the industry’s hiring war.
A spokesperson for Citadel declined to comment on the news to HR Brew.
While non-competes may make some employees think twice before quitting, said Cy Wakeman, best-selling author and founder of leadership consulting firm Reality-Based Leadership, if they want to leave, they’re going to go.
“Non-competes aren’t a retention strategy,” said Joe Mull, keynote speaker and author of Employalty: How to Ignite Commitment and Keep Top Talent in the New Age of Work. “Retention strategies are the things that we do, not to trap people, but to make them want to stay and be a part of our organization.”
What non-competes achieve. Non-competes are most effective at retaining senior-level employees and executives, Wakeman told HR Brew, because these professionals sometimes have “clawback bonuses,” or other stipulations, in their contracts that make leaving a company, before a certain period of time, less enticing.
But a company’s real objective with non-competes is often protection, Wakeman said. High-level employees usually have access to company assets, intellectual property, or otherwise sensitive information, she said, so they’re frequently wielded not necessarily as a retention strategy, but as a way to safeguard the business.
“For the company, it’s not trying to limit your ability to work. It is saying that because you designed the system, part of my IP is inside your brain, and I have the right to protect my IP,” Wakeman said, later adding, “a lot of people are calling it the retention strategy, and it’s really a protection of assets.”
When non-competes should not be used for retention. Employers in many industries, like hair styling and medicine, have asked workers to sign non-competes. Even fast-food chain Jimmy John’s once had its sandwich makers sign such agreements (it stopped the practice after legal push-back in 2016). But when it comes to individual contributors or non-senior employees, Steven Nevolis, labor and employment attorney at law firm Ellenoff, Grossman, and Schole, said companies generally shouldn’t use non-competes just to retain workers.
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Nevolis told HR Brew that some companies may view their non-competes as “protecting a real interest” and not a way to seemingly “enforce” it against employees who “would not actually cause a significant impact.” Instead, he said, employers might consider asking workers to sign confidentiality or non-disclosure agreements to prevent them from sharing sensitive information without limiting their ability to work elsewhere.
“There’s a view amongst a lot of people that confidentiality and non-solicitation of customers may be enough to achieve what a non-compete is looking to achieve without stopping someone from actually getting a job,” Nevolis said.
Mull said non-competes potentially make sense in competitive markets when sharing information “would inflict lasting and significant harm on a past employer” but notes we must acknowledge this is not the case for most people.
What to do instead. Wakeman said there are other, more effective strategies for retaining employees, especially younger and entry-level ones, like focusing on company culture, mentorship, learning and development opportunities, and career mobility.
“As an employer, I want volunteers, not hostages. At companies that retain people via better wages, a better culture, better working conditions, these are organizations that consistently outperform their peers,” Mull said. “It’s the difference between saying, ‘We’re going to create an environment that you want to be a part of and don’t want to leave,’ versus saying ‘We’re going to create systems that trap you here.’”
Employees want to be treated as humans, Mull added, making the most effective retention strategies those that improve their overall quality of life.
“Non-competes are just another way that employers treat workers like a commodity to be leveraged. No employer should have that much influence over the long-term careers and lives of their workers,” Mull said. “There’s just no good reason to tell a cook, or a plumber, or a call center worker that you either work for us or nobody else…It’s the exact kinds of tactics and approaches that people are rejecting in this new age of work.”
Correction 01/10/25: This piece has been updated to reflect that Citadel CEO Kenneth Griffin has not commented on the non-compete extension, and that it applies to some portfolio managers.