In the year 2023, American companies are facing a trio of new employment regulations that demand their immediate attention. These regulations, covering noncompete clauses, pay transparency, and human capital disclosures, are poised to reshape the employment landscape. The implications of these changes may not be fully realized by many corporate leaders yet, but it’s crucial to start contemplating their impact. This article explores these developments and suggests a proactive approach for businesses to navigate these new regulatory challenges.
The Ban on Noncompete Clauses
The Federal Trade Commission (FTC) has proposed a rule to ban noncompete clauses as an “unfair method of competition.” The FTC’s rationale behind this move is to increase workers’ earnings by a significant amount, which is estimated to range from $250 billion to $296 billion annually. The ban aims to address the perceived unfairness imposed on employees, who are restricted from pursuing alternative career opportunities, and employers, who are hindered in hiring individuals bound by noncompete agreements.
The FTC’s Notice of Proposed Rulemaking was issued on January 5, 2023, and the public comment period closed on March 10, 2023. Once the final rule is published in the Federal Register, companies will have 180 days to comply.
While some research suggests that the elimination of noncompete clauses could enhance innovation across industries, it presents a different perspective for individual employers. Without noncompete restrictions, protecting investments made in employee training and development becomes more challenging. Competitors may find it easier to poach talent, reaping the benefits of a company’s investment in employee expertise. In response to this risk, employers must focus on providing career opportunities, fostering an inclusive culture, and enhancing the employee value proposition to retain their workforce effectively, particularly with higher-level employees and those with specialized skills.
Pay Equity Legislation
Several states and municipalities, including Colorado, New York, California, Washington, and New York City, have passed laws mandating that employers disclose salary ranges for both external candidates and internal promotions. The objective of these laws is to enhance employee bargaining and address gender wage inequality, but they also introduce significant implications for company talent strategies.
These transparency regulations expose a company’s pay strategy, potentially aiding competitors in setting pay levels to poach talent. However, pay transparency is a double-edged sword, as it also provides insight into competitors’ pay levels in regions with such laws. While the impact of these rules on employee retention and recruiting costs remains uncertain, it’s a good time for companies to reconsider the non-monetary aspects of employment, such as work-life balance, development opportunities, an equitable culture, and more, to make their organization an attractive workplace.
The current labor shortage, exacerbated by the pandemic, has led many employers to pay a premium for new hires. This situation has created internal tensions, as long-time employees may discover that new recruits are earning significantly more for similar roles. To address this issue, it’s essential for companies to ensure that the compensation of loyal, long-term employees remains competitive in the market, even if it increases human capital costs.
Proposed Human Capital Rules
The Securities and Exchange Commission (SEC) is planning to introduce human capital disclosure rules in April 2023. These rules will require publicly traded companies to disclose information regarding expenditures on skills training and development, workforce composition, turnover, diversity, compensation, and benefits. This shift is influenced by investor and academic pressure, recognizing that a significant portion of S&P 500 companies’ value is derived from intangibles, with human capital playing a vital role.
The new human capital management disclosure will be included in the 10-K filing, which currently only requires the disclosure of the total number of employees. Many companies may need to invest in additional resources to track information like the total number of contractors and overall spending on employee training across the organization.
In light of potential competitive threats posed by disclosing employee information, companies should assess whether additional measures are necessary to enhance employee retention.
Conclusion
These three developments in employment regulations are not exclusive to particular companies; they apply across the board. As a result, corporate leaders should not relegate them solely to the compliance team. Company culture and the provision of meaningful work aligned with a compelling mission are key factors in gaining a competitive advantage in talent acquisition and retention. Forward-thinking leaders should invest more attention in these aspects of the employee experience that are challenging for competitors to replicate. Preparing for these regulatory changes as opportunities to enhance talent strategy will be pivotal in the evolving employment landscape.
Note: Information found on this site is information only and is not intended to be used as legal advice. Please consult your attorney or counsel for specific legal information.