Creating a Retention-First Culture: Alternatives to Non-Compete Agreements

Quick look: On September 4, 2024, non-compete clauses will be banned for most U.S. employees. While this news might startle employers, several alternatives to non-compete agreements can help them stay protected and simultaneously encourage employees’ career growth. Additionally, business leaders can boost retention by improving their benefits packages, workplace culture, internal advancement opportunities, and more.

Major change is on the horizon for businesses utilizing non-compete agreements. Beginning on September 4, 2024, the agreements—which prevent employees from working for competitors in a specific geographic area or industry for a limited time after their employment is over—will be banned or severely limited.

Employers typically use non-compete clauses to protect proprietary information and to minimize litigation risk. However, in April 2024, the FTC issued a final rule stating that existing non-compete clauses for most staff won’t be enforceable after the rule’s September effective date (which occurs 120 days after May 7, 2024, its Federal Register publication date).

Key features of the non-compete ban include:

• Existing non-competes for senior executives (defined as policymakers who make at least $151,164 per year) can remain active under the new rule.
• However, employers are banned from entering or attempting to enforce new non-competes, even if they involve senior executives.
• Additionally, employers will be required to provide notice to non-senior executive workers bound by existing non-competes that they will no longer be enforcing any non-competes against them.

This new legislation aims to:

• Create over 8,500 new businesses annually.
• Help workers earn higher wages, with estimated average earnings increasing by $524 per year.
• Reduce health care costs between $74-194 billion over the next 10 years.
• Boost innovation, with an estimated average increase of 17,000 to 29,000 more patents each year for the next decade following the rule’s enactment.

Alternative policies to non-competes

While administering new non-compete agreements will no longer be an option for many businesses, several alternative policies exist that can help safeguard organizational data while enabling employees’ career mobility:

• Nondisclosure agreements (NDAs): NDAs protect confidential information without restricting former workers’ employment opportunities. These agreements prevent sharing sensitive information while allowing employees to freely change career paths.
• Non-solicitation agreements: Non-solicitation agreements prevent former staff from poaching clients, customers, and coworkers for a specific period after leaving the business. These policies can prevent harm to the company while not overly limiting individuals’ career opportunities.
• Garden leave clauses: A garden leave clause involves keeping employees on the payroll for a certain period after they resign, during which they are not allowed to work for the business or its competitors. This enables organizations to remain protected without permanently restricting career progression.
• Training repayment agreements (TRAs): TRAs require staff to repay part of their training costs if they leave the company within a certain time. These agreements promote loyalty and can recoup expenses if a worker departs shortly after receiving pricey training.
• Enhanced severance agreements: Businesses may offer larger-than-standard severance packages in exchange for an employee’s voluntary commitment to temporarily not compete.

Boosting retention through enhanced culture and total compensation

Another critical component of retaining talent is developing an engaging, welcoming environment where employees feel valued. Businesses can organically reduce turnover by thoughtfully optimizing their total compensation, professional growth, employee engagement, diversity, employee recognition, work-life balance, and leadership development strategies.

Competitive total compensation

Paying staff a fair wage is a must. Employers should conduct salary benchmarking to ensure each employee’s pay aligns with industry averages for their role.

Total compensation also includes employee benefits, and businesses should examine their benefits packages to identify opportunities to make their plans more enticing for today’s diverse workforce.

Professional growth

Almost 60% of employees say they’d leave their company if they didn’t receive professional development opportunities. This figure demonstrates the importance of offering staff a variety of growth-focused perks, like training sessions, mentorship programs, career advancement options, tuition reimbursement, student loan assistance, and more.

Employee engagement

Workers want to feel involved in their companies. Business leaders can cultivate that engagement by encouraging open communication, including employees in decision-making, acting on feedback collected through an anonymous suggestion box or employee engagement platform, and hosting team-building activities (both within departments, organization-wide, and virtual events for remote employees).

Diversity, equity, and inclusion (DEI)

Over half of job seekers state that an organization’s DEI initiatives play a critical role in whether they choose to work there. A sense of belonging is essential for employee satisfaction, and business leaders can promote DEI in the workplace by maintaining a diversity calendar, hosting special events and training, and creating employee resource groups. Additionally, employers may use a tool like ExtensisHR’s DEI Dashboard that provides real-time data on pay equity, salary trends across both gender and race demographics, employee turnover, promotions, and more.

Employee recognition

Saying “thank you” matters. Research shows that when workers feel their efforts are “meaningfully recognized,” approximately two-thirds are less inclined to look for new job opportunities, and almost 60% are less likely to take a call from a recruiter.

Organizations can foster employee recognition by encouraging open communication and regular feedback, sharing promotion and work anniversary updates during team meetings and town halls, and adopting performance management software that enables workers to thank each other.

Work-life balance

The pandemic permanently changed workers’ expectations regarding flexibility, and offering an adequate work-life balance is now necessary. To do so, employers can allow flexible work hours and hybrid and remote work options when possible. Additionally, generous, personalized paid time off (PTO) should be provided, including floating holidays, volunteer time off, school activity time off, and more.

Leadership development

Company leaders shape the organization’s values, attitudes, and behaviors. Implementing management training, open-door policies, and encouraging managers to be transparent and approachable goes a long way toward fostering a work environment where employees want to stay.

How a PEO can help you succeed without non-competes

Employment laws may fluctuate, but your success doesn’t have to. A professional employer organization (PEO) can help your company navigate legislation changes and create an appealing work environment where employees are less likely to seek greener pastures.

PEOs are a type of human resource outsourcing service that manages their clients’ employee benefits, payroll, risk management, compliance, and more. A PEO like ExtensisHR helps employers protect their business interests and hold on to valuable staff by providing:

• Fortune 500-level employee benefits at competitive large-group rates and comprehensive administration and management services.
• HR guidance and support in policy creation (including alternatives to non-compete policies), employee handbook updates, and more.
• Risk and compliance expertise to ensure organizations abide by all relevant laws and regulations.
• An intuitive DEI Dashboard that highlights real-time data across multiple variables.
• Affordable access to 15Five, a top performance management software that facilitates public and private recognition and 1-on-1 meetings where feedback and acknowledgment can be shared.
• And more

Your small business can continue to grow and innovate—even without non-compete agreements. Contact the experts at ExtensisHR to learn more about how we can help you stay competitive and compliant.