By Paul Bubny
Assuming a pending court challenge is surmounted, the Federal Trade Commission’s ban on employee non-compete agreements will take effect 120 days after its publication on April 23. The ban does exempt existing non-compete agreements with senior executives; however, no new agreements will be enforceable after the prohibition takes full effect.
Across the spectrum of U.S. industries including commercial real estate, the non-compete ban represents a further shift in “the balance of power between employees and their employers,” Kent Elliott, founder and CEO of CRE executive search firm RETS Associates, told Connect CRE.
Employees who are no longer bound by such agreements may have more leeway in changing jobs. It follows the trend a few years ago of prohibiting employers from asking job interviewees to disclose their salary histories, an inquiry that is now prohibited in most states.
However, it’s not illegal in all states: Texas, to cite a notable example, currently has no law prohibiting interview questions about salary history. In contrast, assuming that the FTC’s non-compete ban takes effect, “what everybody has to remember is that [a non-compete] is going to be unenforceable for everybody,” said Elliott. “Every employer is going to be on similar footing at that point in time.”
The FTC’s recent announcement of the non-compete ban didn’t come out of the blue. “It’s been out there for at least a year now,” Elliott said. “But now there has been a ruling and the four-month clock is ticking.”
That being the case, Elliott believes that many CRE firms will take a wait-and-see approach, responding in a reactive rather than proactive manner. “I think that there are going to be some groups that just say, ‘you know what? I’m more focused on doing deals and finding the right opportunities and leading our organization. Let’s see if this does in fact happen and keep monitoring it,’ ” he said.
Among larger CRE organizations, Elliott anticipates more intensive review of existing non-compete agreements, with a view toward revising and updating the agreements if necessary. “They want to make sure that they have some type of protection in place with individuals who have sensitive or proprietary information.”
At present, he said, “we’re in this purgatory period where nothing is set in stone. At the same time, employers have to be aware that non-competes cannot be included in employment agreements.”
In addition, said Elliott, “There are non-solicitation agreements and confidentiality agreements that are in the realm of these [non-compete agreements]. But the enforceability of these efforts is also in question.”
Summing up, Elliott described hiring in CRE as “the windshield wiper phenomenon,” where a click in one direction or another shifts the velocity. “There are times when the employer is clearly in control,” he said. “And when the employer is clearly in control, they can have a little bit of the pick of the litter of the marketplace at compensation levels that are more favorable to the employer. And that would imply that there’s unemployment. The last time we really saw that was back in 2010.”
