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Hiring Incentives – New Trends Incorporating Employee Covenants

EverythingHR Staff | 10/07/2021 | Blog

In the battle for talent these days, pretty much nothing is off the table!

No longer is it just compensation (or even total rewards) that is expected to move the needle.  Yes, compensation issues are still prevalent; but, in the current “buyers’ market” hiring environment, it is also perks like work-from-home arrangements, creative PTO, signing and retention bonuses and childcare incentives that are being thrust at applicants.

And now, we are even beginning to see some of the sacred cows of employee retention being reconsidered, including non-competes and non-disclosures.  Please continue to our blog for an insightful exploration of new recruiting strategies incorporating employee covenants.

Hiring is Tough, but Don’t Waive Restrictive Covenants

Hiring. It’s easily the most significant challenge facing almost every company as we try to move away from the COVID-19 pandemic economy. Businesses are having difficulty recruiting and keeping talent in almost every profession, field, and position. Now is not the time, however, to waive your key employment covenants.

How We Got Here

To increase their visibility and improve the odds of landing top-tier candidates, many businesses have started offering generous incentives to new hires. Full relocation packages, housing, extra vacation, and garish signing bonuses are now normal. Legally speaking, those kinds of incentive packages are generally fine, although every business should have a qualified employment and compensation attorney review the fine print to avoid any unintended consequences.

Through the grapevine, I’ve heard other companies have been more aggressive in the recruiting process by agreeing to waive key employment covenants like noncompetes and nonsolicitation agreements. The practice (similar to new homebuyers waiving all inspections) makes my head hurt a little.

Only One Shot for Employers

Businesses generally get only one shot at creating an enforceable employment covenant, and it’s at the time of hire. New Hampshire law, for example, requires noncompetes for new hires to be disclosed “prior to the employee’s acceptance of an offer of employment.” In other words, you can’t temporarily “suspend” noncompetes during a strained labor market and then reintroduce them later.

Neighboring states have similar restrictions that make introducing a noncompete during employment cumbersome if not impossible.

Challenges of Introducing Contract Mid-Job

For other types of covenants, like nonsolicitation, intellectual property, and arbitration agreements to name just a few, questions about consideration may arise when they aren’t disclosed before the employment. “Consideration” is the bargained-for exchange needed to support an enforceable contract. In other words, the employee must receive something in exchange for signing the agreement.

Employment contracts signed before work begins generally rely on the new employment opportunity as consideration. The dynamic changes, however, when the contracts are introduced mid-job. In that situation, “continued employment” would need to qualify as adequate consideration. Otherwise, the business will need to offer something more, like a bonus or extra paid time off (PTO) to support the contract.

Introducing a contract mid-job also raises questions about coercion. It’s one thing to say a restrictive covenant is required to join a company. It’s another thing to say acquiescence to the covenant is required for employees to keep their jobs. The presentation and power imbalance may create problems when the business attempts to enforce the covenant.

Consistency Counts

Finally, consistency matters when it comes to restrictive covenants. Some covenants are enforceable only to protect a business’ goodwill and propriety interests.

So, what message are you sending by requiring noncompetes for many years only to abandon them when the labor market tightens? Are the covenants truly needed to protect your organization’s goodwill? Pressing pause, in other words, may jeopardize the enforcement of both past and future noncompetes.

Bottom Line

Hiring is tough right now, no question about it. But instituting a temporary pause on employment covenants to land the ideal candidate may be more trouble than it’s worth and spell long-term problems for your business.

You may discover legitimate reasons to forgo certain employment covenants altogether, as there is no uniform approach to employee mobility that fits every business. The decisions shouldn’t be made in the moment, however, and should involve qualified employment and compensation counsel.

Article courtesy of content partner BLR.  Author, Brian Bouchard is an attorney with Sheehan Phinney Bass & Green PA in Portsmouth, New Hampshire.

In the battle for talent these days, pretty much nothing is off the table!

No longer is it just compensation (or even total rewards) that is expected to move the needle.  Yes, compensation issues are still prevalent; but, in the current “buyers’ market” hiring environment, it is also perks like work-from-home arrangements, creative PTO, signing and retention bonuses and childcare incentives that are being thrust at applicants.

And now, we are even beginning to see some of the sacred cows of employee retention being reconsidered, including non-competes and non-disclosures.  Please continue to our blog for an insightful exploration of new recruiting strategies incorporating employee covenants.

Hiring is Tough, but Don’t Waive Restrictive Covenants

Hiring. It’s easily the most significant challenge facing almost every company as we try to move away from the COVID-19 pandemic economy. Businesses are having difficulty recruiting and keeping talent in almost every profession, field, and position. Now is not the time, however, to waive your key employment covenants.

How We Got Here

To increase their visibility and improve the odds of landing top-tier candidates, many businesses have started offering generous incentives to new hires. Full relocation packages, housing, extra vacation, and garish signing bonuses are now normal. Legally speaking, those kinds of incentive packages are generally fine, although every business should have a qualified employment and compensation attorney review the fine print to avoid any unintended consequences.

Through the grapevine, I’ve heard other companies have been more aggressive in the recruiting process by agreeing to waive key employment covenants like noncompetes and nonsolicitation agreements. The practice (similar to new homebuyers waiving all inspections) makes my head hurt a little.

Only One Shot for Employers

Businesses generally get only one shot at creating an enforceable employment covenant, and it’s at the time of hire. New Hampshire law, for example, requires noncompetes for new hires to be disclosed “prior to the employee’s acceptance of an offer of employment.” In other words, you can’t temporarily “suspend” noncompetes during a strained labor market and then reintroduce them later.

Neighboring states have similar restrictions that make introducing a noncompete during employment cumbersome if not impossible.

Challenges of Introducing Contract Mid-Job

For other types of covenants, like nonsolicitation, intellectual property, and arbitration agreements to name just a few, questions about consideration may arise when they aren’t disclosed before the employment. “Consideration” is the bargained-for exchange needed to support an enforceable contract. In other words, the employee must receive something in exchange for signing the agreement.

Employment contracts signed before work begins generally rely on the new employment opportunity as consideration. The dynamic changes, however, when the contracts are introduced mid-job. In that situation, “continued employment” would need to qualify as adequate consideration. Otherwise, the business will need to offer something more, like a bonus or extra paid time off (PTO) to support the contract.

Introducing a contract mid-job also raises questions about coercion. It’s one thing to say a restrictive covenant is required to join a company. It’s another thing to say acquiescence to the covenant is required for employees to keep their jobs. The presentation and power imbalance may create problems when the business attempts to enforce the covenant.

Consistency Counts

Finally, consistency matters when it comes to restrictive covenants. Some covenants are enforceable only to protect a business’ goodwill and propriety interests.

So, what message are you sending by requiring noncompetes for many years only to abandon them when the labor market tightens? Are the covenants truly needed to protect your organization’s goodwill? Pressing pause, in other words, may jeopardize the enforcement of both past and future noncompetes.

Bottom Line

Hiring is tough right now, no question about it. But instituting a temporary pause on employment covenants to land the ideal candidate may be more trouble than it’s worth and spell long-term problems for your business.

You may discover legitimate reasons to forgo certain employment covenants altogether, as there is no uniform approach to employee mobility that fits every business. The decisions shouldn’t be made in the moment, however, and should involve qualified employment and compensation counsel.

Article courtesy of content partner BLR.  Author, Brian Bouchard is an attorney with Sheehan Phinney Bass & Green PA in Portsmouth, New Hampshire.