What could the Federal Trade Commission's proposed ban on non-compete agreements mean for executive search?

What could the U.S. Federal Trade Commission's proposed ban on non-compete agreements mean for executive search, market competitiveness and candidate recruitment?

As an executive recruiter out in the market, more often than not, the first place to hunt for relevant candidates is within a client’s direct competitive landscape. The problem we as headhunters sometimes run into is that of executed non-compete agreements and the restraints that come along with them. The number of candidates who become ‘off limits’ in a search can sometimes add up. Non-competes can restrict candidates / employees in a number of ways, including: time frame constraints, geographic location, compensation incentives (i.e. stock options), etc.  

What could the Federal Trade Commission's proposed ban on non-compete agreements mean for executive search?

Of course, executives are privy to the highest level of confidential and inside information… so this restriction can make sense. However, their use is not universally accepted (they are notoriously disregarded in certain States like California). As such, the FTC has recently put this long-standing business practice under the microscope by calling its nationwide fairness into question. (The FTC has not suggested though that the proposal will compromise confidential information such as that protected by NDAs, which allows employers to still sleep at night!)

An important question to be addressed: “How will this proposal change the world of headhunting moving forward? Enquiring minds want to know."

  • Will the willingness of candidates to make a move at the executive level increase? If so, what does this mean for turnover and the need to go out to search for C-level executives?
  • Are we creating a new class of candidates who will truly act like free agents on year-to-year contracts?
  • How much will the candidate pool in any given search expand?
  • Will the speed of value creation within companies improve due to the increased mobility of top talent - considering they will be less restrained from joining top competitors? 

If the FTC approves the ban, executives will have the opportunity to not only work for a competitor company but also to go down the entrepreneurial route for themselves - starting their own business with similar services or products to that of their former employer. Could this fragment an established market or vertical? Or could it affect market share?

As it stands now, a breach of a non-compete contract comes at a cost to the employee or the prospective employer (if the company hiring the executive is willing to back stop legal fees). This has historically been a real disincentive to breaking them. But if they’re wiped away, and there’s an unfettered freedom to move jobs, will we be looking at mercenary free agents selling their services to the highest bidder? Some might argue that we need that flexibility, but there will be an equal amount of vigorous debate against it coming from the other side of the argument. Someone’s not going to be happy.

For the time being, the world of executive search continues to be business as usual. But we keep a watchful eye on this issue, waiting for the final verdict: One that carries significant implications in the ever-increasing competitive hunt for talent.

Marie Deller

Marie is a Partner with Lancor's Reno / Tahoe office, starting with the firm in 2017. She supports the firm in managing and executing retained search engagements. She specializes in technology focused CFO assignments for Lancor’s Private Equity sponsors.

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