A Case Against Non-Competes in Community Banks & Credit Unions
I get it. For ten years I clung to non-competes like a warm security blanket – not only for my own company but for my clients. But after dozens of terminations and resignations in my own company along with helping design thousands (literally) of employment agreements, I’ve gained a different perspective relating to the value of non-competes inside community banks and credit unions…
The US Federal Trade Commission is proposing a ban on non-compete clauses in employment contracts. The proposal would bar employers from entering into or enforcing such clauses. Bank lobbyists did earn their paychecks – there is an exclusion for banks and federal credit unions. But don’t count on this exclusion lasting very long. It’s not a matter of if, but when banks and federal credit unions will be included in this new rule, yet to be adopted.
80/20 RULE APPLIES to NON-COMPETES TOO
We’ve all heard the “80/20” adage; 20% of our sales force is responsible for 80% of the revenue. Would it surprise anyone that the 80/20 rule applies to non-competes as well? It’s my experience (generally speaking) that the coveted 20% referenced are not impacted that much by non-competes. Yes, we may have prevented them from taking clients for 90 days, but that crowd is top 20% for a reason – they will be successful. It’s also why employers that hire them are generally not concerned about that non-compete we made them sign and are happy to wait out the 90 days.
With very few exceptions, non-competes make recruiting top talent more difficult and sometimes more expensive. Non-competes are often not brought up until offer negotiations are nearly complete making it appear as if the non-compete language is something we are trying to hide. This alone brings questions. If non-competes are not an issue, why not lead with them? Why do we wait until the 11th hour to spring the non-compete? Or worse, some don’t even mention a non-compete at all and just wait for the candidate to see it on their own.
CHANGE THE MESSAGE
For fifteen years now we have changed our messaging around employment contracts and encouraged our clients to do the same. Employment is “At Will” – we can let you go any time for any reason, and you can leave any time for any reason. While you are here, you are part of a family. If you ever feel like your interests are not best served by this family, let us know and we will work to alleviate your concerns. If we can’t alleviate your concerns, you should find a place that you feel will better serve your interests. The message: we want you here as long as you want to be here.
Written correctly, non-solicitation agreements in employment contracts are very effective and work, as designed. Employers should not want to restrict an individual’s ability to earn a living for their family. And employees should not have free reign to take the information they gleaned while their employer was paying them. The best non-solicitations I have read make it clear what a resigning employee can and cannot do. There is little to no grey area.
Lastly, unlike non-competes, non-solicitations are generally considered a fair trade-off for the job opportunity. They don’t get in the way of recruiting top talent. And when presented along with the aforementioned messaging, they are often viewed as a non-factor in the decision-making process.
Compass Consulting has a bullet point template that outlines specific content we have found works well in designing non-solicit language for business development professionals inside community banks and credit unions. If you would like to receive a copy, please email firstname.lastname@example.org