Wall Street's preferred method for managing employees is facing opposition.

• The FTC is considering banning non-compete agreements, which could significantly impact how Wall Street and other major employers maintain control over their employees.
• Nearly 27,000 comment letters have been submitted to the federal government regarding its proposal, with a diverse array of business interests expressing support and opposition to the ban.
• Non-compete agreements were opposed by Wall Street firms, which were among the opponents to a New York bill vetoed by Governor Kathy Hochul.

Non-compete agreements, a popular tactic among Wall Street's favorite employees, are facing a significant challenge, which could have far-reaching implications for the financial industry's operations.

The Federal Trade Commission is considering banning non-competes, arguing that they are an unfair method of competition and violate the Federal Trade Commission Act. The final rule, expected in April, may significantly change the way Wall Street operates.

Wall Street is protesting against the proposed ban on non-compete clauses, stating that it will harm competition and the economy. SIFMA, a trade organization representing the securities industry, made this claim in a comment letter, which was one of the nearly 27,000 comments received by the FTC. The board of SIFMA includes executives from major financial firms such as Goldman Sachs, Morgan Stanley, Citigroup, and others.

A national ban on non-competes would have a significant impact on the economy, as evidenced by the number of major corporations that have expressed opposition to such a measure, including Google, Apple, Pfizer, Exxon Mobil, General Electric, Procter & Gamble, General Mills, and Nike. An analysis by the Economic Policy Institute in 2019 found that nearly half of employers nationwide have employees subject to non-competes. While it is difficult to provide a precise number, EPI's survey work estimated that between 27% to 46% of all private sector workers are subject to some form of a non-compete.

Wall Street firms are under scrutiny for the use of non-compete agreements. While a New York bill that would have banned all non-competes was vetoed by Governor Kathy Hochul, industry interests were among the opponents. California, home to many tech giants, already has strong legal provisions against non-competes, and its worker protections were recently enhanced. However, companies have found workarounds, and the EPI found that many employers still use non-competes that would likely be overturned by courts if challenged.

Laurie Chamberlin, head of LHH Recruitment Solutions for North America, stated that the FTC effort puts Wall Street in a precarious position that has already been tested by Covid. With major Wall Street firms already having among the least popular back-to-work policies in the market, "Wall Street is already in a position where they are recognizing they don't have all the hands they had before," Chamberlin said.

If the FTC's proposal is implemented, Wall Street's future could take a specific form.

Existing work precedents that could shape a final rule

According to Fierce Healthcare, FTC chair Lina Khan's perspective on non-competes is that an outright ban is necessary, and the majority of comments support this proposal. Khan stated in October that the FTC takes this seriously.

David Fisher, a labor and employment partner at Davis+Gilbert, stated that the FTC may choose to adjust the rule more narrowly, similar to how states have limited the use of non-competes.

Both Massachusetts and Oregon have "garden leave" provisions that require employers to compensate workers after employment while a non-compete clause is in effect. In contrast, Washington has limited the duration of non-compete clauses to 18 months, while Massachusetts and Oregon have a one-year limit.

Fisher stated that the rule could be crafted in various ways to recognize the value of non-compete agreements while protecting employees and their ability to earn a living and protect their families. However, the rule seems to ignore the possibility of a middle ground.

The FTC spokesperson stated that the agency would likely act on the proposal in April, but declined to provide further comment.

Legal challenges are likely, up to Supreme Court

Legal challenges are anticipated by industry participants, who argue that the FTC lacks the constitutional authority to implement such rules, a claim that legal experts believe may be persuasive to the current Supreme Court.

Juan A. Arteaga, a partner at Crowell & Moring, stated that he anticipates prompt legal challenges.

It is likely that opponents would request a pause in the implementation of the rule during legal proceedings.

An outright ban on non-competes could harm businesses, according to Wall Street firms. Arteaga stated, "If employees have access to sensitive proprietary information and can work for a rival, it's a real concern."

Unhappy employees should be identified now

If the FTC's ban is approved, it will increase mobility on Wall Street, particularly in M&A and sales and trading where non-competes are common, according to Paul Webster, managing partner for North America at Page Executive.

To prevent a "mass exodus" due to employee dissatisfaction, Wall Street leaders should prioritize employee engagement while the proposal is still pending, as advised by Matt Shore, CEO of StevenDouglas, a Wall Street recruiting firm.

Wall Street firms should conduct a comprehensive competitive analysis in every department to remain market competitive, regardless of legal challenges to the FTC's proposal. This analysis should consider benefits, paid-time-off policies, maternity benefits, career mobility, and employee satisfaction surveys. As Shore stated, "You can't control the laws and rules that may arise. However, you can control the work environment and compensation structure for your employees."

Impact on stock compensation, salary, bidding wars

If top talent is no longer restricted by non-competes, firms may offer more competitive compensation packages to attract them, according to Kareem Bakr, managing director at Phaidon International. Firms may need to sweeten compensation packages for individuals who are likely to be wooed away or be willing to counter-offer. This could result in "pretty aggressive bidding wars," said Bakr.

Wall Street can utilize alternative tools such as deferred compensation and stock or options to discourage employees from leaving. The industry may increase the use of these tools if non-compete agreements disappear. Additionally, higher compensation can be offered to attract and retain employees.

Webster stated that firms may need to become more flexible with their post-Covid in-office policies if it becomes a free market. Candidates will have more leverage to go to another employer who offers more flexibility. Even if firms like and can continue to demand five days in the office due to their stature, 90% of the firms would likely have to allow more flexibility, he said.

Despite the potential passing of the FTC rule, Wall Street firms can still take measures to safeguard their interests.

Leslie John, a partner with law firm Ballard Spahr, stated that businesses can have agreements to safeguard their proprietary information, trade secrets, and intellectual property. Many companies employ non-solicitation agreements, non-disclosure agreements, and non-competes to bind employees who have access to confidential information. Even if a non-compete agreement is no longer in effect, employees would still be bound by other enforceable contractual agreements, according to John.