What ruling on noncompete clauses means for banks — and job hunters
It just got a little harder for companies in Georgia to enforce noncompete agreements, and that could be good news for loan officers and wealth managers at BB&T and SunTrust Banks who could soon be in high demand.
Winston-Salem, N.C.-based BB&T and Atlanta-based SunTrust are in the process of merging and rival banks will not be shy about trying to poach client-facing employees — particularly high-performing ones — who might be looking to jump ship.
And thanks to a March ruling by a state appellate court, the banks’ employees in Georgia looking to move elsewhere may not be hamstrung by noncompete agreements.
Companies often invoke noncompete agreements to block ex-employees from taking clients with them when they change jobs — even though the Georgia law had never explicitly defined which groups of employees were covered by noncompete agreements.
In the March ruling, the Georgia court concluded that the vague language of the law could put companies on treacherous legal ground if they attempt to include noncompete clauses in contracts of client-facing employees.
So if BB&T and SunTrust want to enforce noncompete agreements with all their loan officers and wealth management experts stationed in Georgia, some of those contract provisions might not pass legal muster, according to legal experts.
Other states are also debating the legality of noncompetes, and the upshot is that banks and other companies could find it more difficult to enforce the agreements, said Scott Atkinson, an employment lawyer at Seyfarth Shaw in San Francisco.
That’s good news for job hunters, though from the perspective of management, the weakening of noncompete agreements “removes a tool from the toolkit for protecting client relationships,” said Atkinson.
Some states, including California and New York, have long banned or severely curtailed most forms of noncompete agreements. Employers seeking to enforce noncompetes usually face stiff resistance from New York state judges, one headhunter said.
“In New York state, judges are loath to enforce noncompetes against people because they don’t want to deprive them of the opportunity to earn their living,” said Sal Khan, head of the financial services practice at the headhunter firm Howard-Sloan Search.
More states could be joining the ranks of California and New York. Last month, the Washington state legislature passed a bill that significantly restricts the use of noncompetes, according to Skylar Sherwood, an employment attorney at Fox Rothschild in Seattle.
Under the legislation, noncompete agreements can only be enforced against employees in Washington who make at least $100,000 per year and the restrictions can only be for a duration of 18 months or less. Washington Gov. Jay Inslee, a Democrat, is expected to sign the bill, Sherwood said.
Companies with workers based in Washington state should immediately review their agreements for compliance with the new law, Tim O’Connell, a labor lawyer at Stoel Rives in Seattle, wrote in a legal alert. In some cases, the company may need to revoke existing noncompete agreements.
Labor unions and advocacy groups are also weighing in on the issue. A group of 20 organizations, including the AFL-CIO and Service Employees International Union, last month petitioned the Federal Trade Commission to ban noncompete agreements. The Open Markets Institute, which also signed the petition, estimated that one in five U.S. workers has a noncompete agreement. The FTC has not yet issued a response to the petition.
In the Georgia case, a construction company tried to enforce a noncompete against a former worker after he recruited a client to his new employer, according to a legal alert written by Jeffrey Mokotoff, a labor attorney at FordHarrison in Atlanta. The court ruled that a noncompete agreement couldn’t be enforced because the ex-worker developed the client relationship through his own actions, such as being trustworthy.
Noncompetes often come into play when banks merge and employees start scouring the job market to assess their options. This is especially true of workers who fear their jobs may be eliminated due to overlap, said Carrie York, an executive recruiter in Granville, Ohio, who works closely with banks.
Banks write noncompete clauses into employee contracts to try to minimize client defections when employees leave.
“It’s all about the clients,” York said. Many banks are fine if employees leave, “as long as they don’t take their clients with them,” she said.
It’s hard to know how many of BB&T and SunTrust employees have noncompete agreements in their contracts and which ones might be enforced if workers seem employment elsewhere.
SunTrust “uses noncompete agreements on a balanced and limited basis that is fair to our employees and consistent with market practices and legal standards,” spokesman Mike McCoy said in an emailed statement.
BB&T declined to comment.
Still, in-market mergers always create a fair amount of upheaval, so it’s no surprise that when BB&T and SunTrust announced their deal in February, rivals immediately pounced.
The $18 billion-asset Cadence Bank, for example, lured a senior vice president, BJ Green, from SunTrust to become commercial banking executive for Georgia, only a month after the merger was announced. Cadence moved its bank headquarters to Atlanta this year after acquiring Atlanta-based State Bank & Trust. (Cadence Bancorp., the holding company, remains headquartered in Houston.)
Banks can rely on trade secret rules and nondisclosure agreements as effective alternatives to noncompete agreements, Atkinson said. Both are typically viewed more favorably by the courts, he added.
What the courts are "really trying to do is ensure freedom of movement in the workforce,” he said.