California Further Tightens Restrictions on Non-Compete Clauses

Non-compete agreements are now entirely unenforceable in California courts, even if signed outside of the state.

California’s new restrictions on non-compete agreements, which took effect on January 1 in the form of two separate statutes, prohibit employers from entering into or enforcing non-compete agreements and require employers to inform past employees that their non-compete agreement is now void. The two statues expanded on previous restrictions established in 2017.

A non-compete agreement is a contract an employee signs, normally as a condition of employment, agreeing not to compete with their employer by starting a new business or joining a competitor for a set period of time after their employment has ended.

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The new rules, while affecting all businesses, has gotten particular attention from registered investment advisers, whose client base is often a key part of their practice. In early 2023, when the Federal Trade Commission proposed a national ban on non-compete contracts, the Investment Adviser Association, which broadly agreed with the proposed ban, called on the FTC to exempt senior-level employees involved in the creation of proprietary items, including strategy. The proposal is still pending decision.

California Senate Bill 699 makes non-compete contracts unenforceable in California, even if they were signed in another state. This applies to remote workers based in California and to Californians that commute to another state, Gabor says.

Additionally, via California Assembly Bill 1076, California employers must, by February 14, inform any past employees still subject to a non-compete agreement that it is now void. California workers are also entitled to a private right of action for civil damages against employers that attempt to improperly enforce a non-compete clause.

David Gabor, a partner in the Wagner Law Group, says there is some evidence of employers in other states that do business in California reducing their use of non-competes to limit their legal risk or simply to maintain policy uniformity and training nationwide.

Partially as a consequence of the non-compete prohibition, Gabor says he has seen the use of non-solicitation agreements grow. A non-solicitation agreement is an agreement not to take the previous employer’s customers when changing jobs or starting a new business, a contract not banned in California.

Gabor says the ban on non-competes is intended to improve worker mobility. It also incentivizes California employers to value employee retention more by providing better compensation so that workers are less likely to leave and compete against them.

There is “momentum on a national level” to end non-competes, Gabor says. The proposal from the FTC would have a similar national effect as the California law by prohibiting “employers from entering into non-compete clauses with workers” and requiring “employers to rescind existing non-compete clauses.”

Fidelity, Voya Report Workplace Plan Growth

Firms highlight retirement plan, participant count growth in Q4 and full year reporting.

Fidelity Investments and Voya Financial noted growth in retirement plan business and participant accounts in separate reports this week.

Fidelity, which is privately owned and does not report public earnings, noted in its annual report released Thursday that workplace retirement plan participant accounts rose 6% in 2023 year-over-year to 43.2 million.  It also reported growth, though lower, in its retail accounts, up 3% year-over-year to 38.7 million.

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Boston-based Fidelity’s chairman and CEO, Abigail Johnson, wrote in a letter with the results that while strong equity markets helped the results, “our diversified combination of robust, revenue-generating businesses gives us the financial and operating stability to deliver resilient results during both bull and bear markets.”

The firm reported record-high revenue of $28.2 billion for 2023, a 12% increase from 2022’s $25.2 billion.

Among its highlights for the year, Fidelity noted the launch of a student debt retirement offering to allow employers to match student loan repayments with retirement account contributions. The service has created a 500% increase in interest in student debt benefits since the passing of SECURE 2.0 Act of 2019, the firm noted in the report.    

Fidelity also noted going live with the Portability Services Network, an automatic portability network with other recordkeepers that transports workplace retirement plan savings when an employee enrolls in a new plan with one of the partners in the network.

On the individual investor side, the firm noted additions to exchange-traded-fund investments and direct indexing capability in Fidelity’s separately managed accounts.

Voya Adding Plan Assets

During its fourth quarter and full year earnings presentation Wednesday, Voya announced that its wealth solutions division increased plan and participant counts and “expanded sales opportunities” in the middle market and improved large-market retention. Recurring deposits grew 10.4% year-over-year from 2022 to 2023 to $14.7 billion. But 2023 net flows were down by $2.9 billion, in part from a “large case” surrender, according to the presentation.

Going forward, New York-based Voya has booked $15 billion in participant assets to be implemented in 2024, with expectations of further growth in 2024, says Doug Murray, Voya’s senior vice president and head of wealth solutions distribution and client engagement.

“This represents plans across all market segments and tax codes, as well as point-in-time commitments we have received for new plans transitioning to Voya in 2024,” Murray says. “We expect to see this increase as the year progresses as our commercial momentum is strong, with a robust pipeline in wealth solutions.”

For the full year, Voya’s adjusted operating margin was 37.3%, compared with 39.3% in 2022, due to higher administrative expenses stemming from business growth, including an increase in plan counts and recurring deposits, according to the announcement.

Murray notes interest coming through Voya’s workplace strategy across the range of benefits.

“This includes identifying ways to bring more holistic thinking across workplace benefits and savings through 401(k), HSA, non-qualified deferred compensation plan, etc.,” he says. “We also remain focused on delivering best-of-breed investments and increasing proprietary solution adoption through new opportunities and existing relationships.”

Product Evolution

Murray notes Voya’s proprietary myVoyage financial guidance platform and a new dual qualified default investment alternative the firm launched Thursday that starts participants in a target-date fund, then moves them into more personalized managed accounts in later years.

The firm highlighted increased supplement health participation via its retirement planning digital tools; a 30% increase in supplemental health participation; and, within this group, a threefold year-over-year increase in health savings account adoption.

Murray also responded to a question about the firm’s emergency savings program for employers, which is, as of this year, an option as a retirement plan sidecar via the SECURE 2.0 Act of 2022.

“We’ve found that most plan sponsors lose interest when they learn of their administration responsibilities,” he says. “As we move forward in 2024, we certainly expect to see an increase in adoption, as the employee need is clear, but from an employer perspective, it comes down to prioritization and customization within their own broader benefits package and offerings.”

 

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