The Ban on Noncompetes
A non-compete agreement is a legal agreement or clause in a contract that specifies the inability of an employee to enter into competition with an employer, even after the employment period is over. Noncompete agreements have long been criticized for hindering innovation and restricting mobility.
Marketers and agencies remain cautious of people taking their IP and talent to competitors—and rightly so. Yet many use them to bind their workforce, restricting their ability to seek new opportunities or even start their ventures.
This has changed
In a groundbreaking move, Lina Khan, assuming the role of FTC chair, heralded a significant stride:
Ban most noncompete agreements nationwide
This decision will protect the fundamental freedom of workers to change jobs and is projected to improve business growth by 2.7%.
An International Perspective on Noncompete Agreements
While the FTC’s decision to ban noncompete agreements marks a significant shift in the US, it’s important to consider how other countries handle these clauses.
Noncompetes in Germany are only enforceable if the employer compensates the employee during the restricted period, typically with 50% of their last salary. Similar to France, these rules also require financial compensation and limit the duration and geographic scope of such agreements.
In India, noncompetes are generally considered void under the Indian Contract Act, except in specific circumstances involving trade secrets. China allows noncompete agreements but mandates that employees must be compensated during this period.
What Does This Mean for Adland?
NVIDIA’s inception traces back to Jensen Huang’s departure from his previous company, enabled by the lack of a noncompete clause. Similarly, Intel’s origins lie in Shockley Semiconductor Laboratory’s absence of restrictive contracts.
One thing is apparent: Innovation will surge.
The ban on noncompete agreements has the potential to level the playing field, particularly benefiting smaller companies that were once hesitant to attract top talent due to these constraints.
Post-ban, agencies gain access to a broader pool of skilled professionals who can now freely bring fresh ideas and strategies previously restricted by noncompetes.
New Business Priorities Ahead
The ban on noncompete agreements changes how businesses retain talent and protect interests:
- The ad industry is divided: Some see them as vital for protecting investments and client relationships, others view them as unnecessary restrictions on employee freedom, and some believe the impact of banning them will be minimal.
- Without noncompetes, companies will need to focus on building appealing workplace cultures and benefits that naturally keep employees.
- To attract top talent, firms may need to offer more attractive compensation plans that include benefits beyond salary, such as career development opportunities.
- Employers can still use non-disclosure agreements (NDAs) and trade secret laws to protect sensitive information effectively.
Adland Can’t Agree on a Sentiment
Many marketing and agency executives value noncompetes in certain circumstances. However, their objective was never to prevent people from making a living.
Commercial litigator Maryann Stallone stated, “The proposed rule does not consider the potential harm to employers—many of whom have made substantial investments in developing their client base and protecting their confidential information—if key employees were to leave and misappropriate client goodwill and confidential information to benefit competitors.”
On the other hand, Marc Yudkin, global chief operating officer and general counsel at media agency VaynerX, said, “FTC’s proposed ban on noncompete agreements is consistent with our current and historical perspective relating to employees’ ability to work in the marketplace. Specifically, at VaynerX, we’ve always been aligned with this approach and have not required our employees to agree to the type of restrictive covenant that the FTC is proposing to ban”.
There’s a third opinion that’s also gaining traction, one that’s rooted in neutrality.
Shiv Gupta, managing partner at U of Digital, a digital marketing education firm, says, “The ad industry is already heavily conflicted and incestuous. Regardless of noncompetes, people and IP move somewhat freely across the space. Do noncompetes prevent this from happening? Maybe a little bit, but clearly not enough. I don’t expect this to have a major impact on Adland.”
While many ideas conflict, that’s the beauty of marketing and business in general. Different opinions drive the industry forward. This diversity of thought will continue to shape and advance Adland, fostering innovation and growth.
More Brains = More Creativity and Innovation
The ban on noncompete agreements will likely lead to more hiring of experienced workers in the digital marketing realm. Agencies can now hire skilled professionals who can move between companies freely, nurturing new ideas and strategies.
Not only that, but smaller digital marketing agencies can deliver a BIG impact.
They can now hire top talent without worrying about noncompetes. Seasoned professionals will be able to move freely and share their experiences and ideas from different roles—leading to better campaigns and strategies.
However, this could also have a different impact. Larger agencies might entice skilled workers away from smaller firms with the promise of higher pay and better resources.
That’s why, regardless of your company size, offering improved benefits, more opportunities for career advancement, and a strong focus on company culture and values should be top-of-mind when it comes to keeping your best employees.
These strategies can address the challenges posed by the ban on noncompetes, safeguarding the brand legacy and ensuring smoother operations.
To mitigate risks related to losing trade secrets and clients, you can still include NDAs and non-solicitation agreements in your contracts. Coupled with trade secret laws, you can safeguard your operations without restricting where employees choose to work in the future.
Conclusion
The FTC’s ban on noncompete agreements is set to reshape the digital marketing landscape. While it introduces both challenges and opportunities, the industry’s diversity of opinions will drive innovation and growth. By adapting to these changes, businesses can build stronger, more dynamic teams and foster a more competitive and creative environment in Adland.
Learning from global practices can help US companies develop fairer, more effective strategies to protect their interests while promoting employee mobility. This comparative approach not only mitigates potential risks but also opens up new avenues for growth and collaboration on a global scale.
Alternatively, you can opt for Bloomberg’s “ultimate loophole”: Become a lawyer.
The American Bar Association’s Model Rule 5.6 states that lawyers cannot create or agree to noncompete clauses that prevent them from practicing law after they leave a firm, except in cases involving retirement benefits. This rule ensures the integrity of the attorney-client relationship.
