FTC Non-Compete Setback: Advice for Commodities Leaders

September 4th, today was supposed to be the day.

The Federal Trade Commission’s (FTC) new rule on non-compete clauses which was set to kick in has been blocked.

The FTC, a U.S. agency tasked with addressing unfair business practices, aimed to eliminate non-compete agreements to make it easier for people to switch jobs, encourage innovation, and boost competition.

“The FTC’s final rule to ban non-competes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market,” FTC chair Lina Khan said.

But what does this setback mean for the commodities industry?

With volatility surging in the commodities markets, hedge funds have been steadily making their way into the space. Major players like Citadel and Millennium are vying for dominance, with Citadel leading the pack, having raked in an impressive $8 billion in commodities trading profits in 2022. Even newer entrants, such as Jain Global, are gearing up, with around 20% of their strategy focused on commodities.

As more hedge funds and new players enter the commodities arena, they’re all chasing one key asset: talent.

A recent example of this is Balyasny and Squarepoint, two funds which have expanded their teams with traders and analysts specialising in natural gas and power, driven by the opportunities created by market volatility and the energy transition.

And unlike traditional physical commodities companies, hedge funds are no strangers to inserting strict non-compete clauses into their contracts. And we’re not just talking about senior staff or portfolio managers- oh no. The ‘sit-at-home-and-do-nothing’ club is extending invitations to technologists too as hedge funds double down on enhancing their tech and data systems.

At Cititec Talent, we’re already seeing the impact of these changes. Some of our clients are losing talent with just a month’s notice, yet they struggle to fill those same roles, with many top candidates on gardening leave, subject to non-compete periods, or facing long notice periods.

So, what now?

The FTC is likely to keep pushing their agenda, and in the UK, there have been discussions about limiting non-competes to three months. However, nothing is set in stone. While it might be tempting for other companies in the commodities space to introduce their own non-competes to prevent losing talent, this approach won’t improve the industry’s work environment or benefit candidates. Instead, we suggest you:

1. Focus on retention: To avoid losing out to hedge funds and facing a talent shortage, keep your top employees close by investing in their development and keeping them happy.
2. Upskill: Consider placing more resources into training and developing junior staff to fill the gaps left by departing senior employees.
3. Face the reality head-on: In today’s competitive market, you may need to offer higher salaries, sign-on bonuses, or other incentives to attract top talent. Benchmarking your internal salaries against industry standards is a good way to assess whether your compensation packages are competitive. Also, offering retention bonuses can help motivate current employees to stay for the long term.

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