How to Protect Your Investment in Employees in a Tight Labor Market

By: David A. Campbell

In a tight labor market, it is more important than ever for employers to protect their investment in their workforce. Faced with an inability to effectively hire from the market, competitors will seek to hire experienced, fully trained employees to immediately fill much-needed roles. The loss of such an employee in any market causes an employer increased costs in recruiting and training. However, in a tight labor market, the loss of a skilled and fully trained employee can have an outsized impact on a department or business segment. 

It is important to act proactively to avoid these departures. Here are four tips to help you to grow your workforce during this tight labor market.

1. Employee Happiness

Many studies have confirmed that employee turnover is tied to employee happiness. With many employees working remote, employers may find it difficult to gauge employee happiness or the impact of changes in policies on employee happiness. 

2020 was a year of uncertainty caused by the COVID-19 pandemic. Most employees, regardless of their skill level or position, were focused on keeping their jobs rather than looking for alternative employment. 2021 is the year of change. Many employers are deciding on whether work-from-home arrangements will be permanent. In addition, some employees desire strict COVID-19 workplace rules while other employees are seeking a return to normal. Adding to this change is a tight labor market that provides employees the opportunity to seek out greener pastures if they are unhappy. Employers should carefully navigate these changing times and monitor competitor policies in order to avoid being too far ahead or behind the curve.

2. Identify Key Positions and Employees

No employer can make all of its employees happy. Some employee turnover is necessary and positive. However, in a tight labor market, employers must identify key positions and employees and work proactively to reduce turnover in those areas of the business. For example, if certain sales employees hold relationships with critical customers, the company should target those sales employees as critical for retention. Similarly, if a certain service or product is critical to customer satisfaction, the employees with the skills to provide those services or products should be targeted for retention. 

Overall employee happiness is a long-term goal that an effective human resources department can target. In this labor market, an effective human resources department should be working with the business to identify key positions, determine if those key positions are paid at market level, and determine if actions should be taken to protect those key positions from competitor poaching. Acting after employees start leaving for competitor positions may be too late. 

3. Non-Compete, Non-Solicitation, and/or Confidentiality Agreements

Perhaps the most effective tool for guarding against competitor poaching is a non-compete agreement. Although a small, but growing, number of states prohibit non-compete agreements, most states still permit reasonable non-compete agreements tailored to your company. 

If a key employee is located in a state that prohibits non-compete agreements, an employer can consider a non-solicitation agreement that permits competitive employment, but prohibits the solicitation of customers, employees, and suppliers. Non-solicitation agreements are most effective with sales employees who may seek to take customers with them to their new employment. Similarly, employers could consider severance agreements tied to notice periods that provide employers with a cushion between notice of a resignation and the actual departure.

Finally, confidentiality agreements are tools to protect trade secrets. If an employee has access to customer lists, valuable customer information, financial information, or business plans, the employer should require a confidentiality agreement as a condition of employment. 

4. Some States Require Consideration Beyond At-Will Employment

If you are requesting current employees to sign a non-compete, non-solicitation, or confidentiality agreement, remember that many states require consideration beyond continued at-will employment for a binding non-compete agreement, including Hawaii, Kentucky, Minnesota, Missouri, Montana, New Hampshire, North Carolina, Oregon, Pennsylvania, South Carolina, Texas, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. Moreover, if you are implementing a non-compete program for current employees, it is best to couple the program with employee bonuses or promotions. When coupled with a benefit, an employer will have consideration beyond at-will employment, equity in case the employer needs to enforce the agreement, and incentive for the employee to happily execute the agreement. 

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