The 2020 Mid-Year Economic Update_long

Are Noncompete Clauses the Answer to Hiring Woes?

Restrictive covenants face many challenges in today's work environment.
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No one wants an investment in their company to help a competitor, and that includes investment in employee development and training. As a result, more distributors are considering noncompete clauses to prevent workers from leaving.

As one distributor told me earlier this year: "Too many of them are jumping ship for just a little more money after we've put all that time and money into them."

But enforcing noncompetes can be complicated, and if they aren't set up right to begin with, they can be costly for your company. The legal goal of noncompete and restrictive covenants is to prevent unfair competition, but they can't prevent someone from earning a living.

A common issue with restrictive clauses, such as noncompetes, is that companies write them too broadly or don’t clearly define restrictions on geography or industry.

“Essentially some of these can take you out of your industry altogether and prevent you from making a living,” says Skip DeVilling, president of DeVilling & Associates LLC, a recruiting firm focused on industrial and construction markets. “Almost no jury in the U.S. would allow for that to stand.”

In addition, the enforceability or even legality of these clauses is coming into question in more places, as well. Hawaii passed a law earlier this summer essentially outlawing the clauses. In addition, a bill banning noncompete clauses for "low-wage employees" is currently being considered in the U.S. Senate Health, Education, Labor and Pensions committee.

That doesn't mean that noncompetes and other restrictive clauses should be completely abandoned; they just need to be considered with care.

Read more about avoiding some common pitfalls of noncompete clauses in The Challenge of Noncompetes.

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