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Non-Competition Agreements: Unlikely Contributors to the Talent Gap

Schaffer Associates

Non-Competition Agreements: Unlikely Contributors to the Talent Gap

At last month’s National Hardware Show, we heard from many organizations about the difficulty they are facing in finding talented individuals to build back their bench as they (and our industry as a whole) enjoy the vibrancy of a post-recession economy.  As we’ve previously discussed, there are a number of factors contributing to this talent gap:  baby boomers are retiring; millennials often lack senior leadership experience (as well as the willingness to relocate for various opportunities); and many individuals with transferrable skill sets left the industry during the recession and have yet to return.  But there is an additional factor that is now emerging as a contributing cause for the talent gap that continues to plague the industry:  non-competition agreements.

Prior to the onset of the recession, non-competes were relatively few and far between in the hardware, home improvement, and building products industry.  Since then, however, their frequency has increased at least four to five times.  This perceived shift is largely the result of companies rightfully wanting to proceed cautiously in a recovering economy, and we certainly recognize the role of non-competes:  protecting a company’s legitimate business interests while not unreasonably restricting an individual’s ability to make a living.  However, there are important market considerations to make when implementing non-competes.

There are certain factors that determine the legality and enforceability of non-competes, namely the scope of the restriction, the duration of the restriction, and the geographic limitation of the restriction. Assuming that an organization’s particular non-compete clears these legal hurdles, companies would be wise to carefully determine if such agreements are completely advisable under the circumstances.  Oftentimes, they are not. What we are seeing more and more today is that broad, though still legally enforceable, non-competes are exacerbating the talent gap by forcing talented workers with transferrable skill sets into different industries, much like the recession did, for one to two years. Once there, these individuals are frequently acclimating to their new industries and have no plans to leave.  This process causes our industry to be even more strapped for talent, and can make hiring the right person an even more difficult task for your company.

At this juncture, we are operating at full employment, which means we are in a recruiting economy rather than a hiring economy.  In other words, good candidates are, at least generally speaking, the ones in the driver’s seat when it comes to the hiring process.  And they are quick to question the relative sanity of leaving a perfectly good, stable job to take on a new opportunity that will necessarily involve the additional burden of a non-compete, particularly when the enforcement of that non-compete against them in future years could force them out of the industry altogether for a significant period of time.  If a company does succeed in getting a candidate to sign a non-compete that would have the practical impact of forcing that individual out of the industry if it were ever enforced, then that company’s legitimate business interests may very well be served, albeit temporarily, during that enforcement period. This kind of scenario played out over hundreds of organizations and potentially thousands of talented individuals, however, would have the overriding effect of putting the “legitimate business interests” of the entire industry in jeopardy. The bottom line is that in the midst of this recruiting economy, companies should use non-competes with wisdom and not in such a way that could have the collective impact of driving much needed talent out of our already talent-strapped industry.

Here at Schaffer Associates, we have our finger on the pulse of the market and the talent pool.  And while our organization cannot provide legal advice to companies faced with the decision of whether to implement a non-competition agreement on its employees, we can certainly provide important market considerations as to when these at-times useful tools might be best left in the toolbox.  We can also assist our clients in navigating the frustrating circumstance of having a highly sought-after candidate reject an offer strictly based on the prospect of signing a non-compete.  We hope you’ll call us today – we’ll help you HIRE SMART not only to build your company, but to build the industry as a whole.

The foregoing article is not intended to constitute legal advice and is provided for information purposes only. Companies should consult an attorney for legal advice regarding non-competition agreements.

Schaffer Associates

Schaffer Associates is an executive search firm specializing in talent acquisition for the hardware, home improvement, building materials, and consumer products industries. As premier executive recruiters with expert focus on your industry, we help you HIRE SMART.

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