JPMorgan’s Six-Month Notice Rule Is an Old School ‘Handcuff’

Forget two weeks. JPMorgan Chase reportedly wants employees to give the bank six months’ notice before they walk out the door.

The policy came to light after a veteran JPMorgan employee took to social media to seethe about it. Although the company hasn’t publicly commented, the notice requirement appears to be designed to prevent staffing shortages when employees decide to exit.

It’s an example of a “handcuff” policy, an outdated approach to retaining talent that runs contrary to the broader shift toward worker empowerment. They remain on the books at far too many companies, despite diminishing returns.

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As Spring blooms, it’s a great time for in-house corporate legal teams to do some housekeeping. Start by sweeping out employment policies that do little to protect your talent pipeline, are likely to be panned if they become public and may catch the attention of regulators.

Equity Grants

Since the 1970s, pre-IPO companies have used equity grants as incentives for employees to work for lower salaries. The promise of an ownership interest in a startup gives an employee a stake in the game and a chance for a big hit if the company is a success.

These deals often come with a catch, or, in corporate speak, a “cliff.”

An employee might earn 1,000 options per month over a three-year vesting period, for example. But the company could also attach a one-year “cliff,” meaning that the employee’s options don’t vest until 12 months after they are granted.

There’s logic behind the cliff: An employee who doesn’t stick around for at least one year isn’t committed enough to share in the company’s long-term success. The vesting delay also serves as a trial period, both for the company and the employee.

But companies have taken to attaching to cliffs to “refresh grants” for employees who have already put in significant time on the job. At that point, the cliff serves no real purpose beyond simply controlling the employee and delaying payment on what has practically already been earned.

The refresh cliff becomes a brand embarrassment when layoffs hit.

Just ask Coursera, the education company that handed out refresh grants with two-year cliffs before it went public. When it announced layoffs late last year, the cuts were said to include some longtime employees who were just a few months shy of hitting the cliff.

Many companies have abandoned cliffs for all grants. At a minimum, they should agree to waive cliffs for employees who are laid off.

Non-Compete Clauses

Non-compete clauses are not just out of touch with today’s world, they may also soon be unlawful.

The Federal Trade Commission made headlines earlier this year when it proposed a ban on non-compete clauses, which generally prevent employees from leaving to join rivals or launching their own businesses in the same space.

For decades, employers have included non-compete clauses in contracts for positions as wide-ranging as cardiologists, hairstylists, fast food cooks, security guards and engineers.

There are circumstances in which a narrowly crafted non-compete agreement might be justifiable for employees in very senior or sensitive positions. But the overuse of these pacts in the last several decades has limited opportunities for millions of employees in low paying jobs and thrust the issue into the public spotlight.

Non-competes may yet survive the FTC crackdown, particularly if a court rules that the agency doesn’t have the authority for such a sweeping action. Still, now is a good time to carefully consider whether you’re using them because of a true business need or simply because you can.

Employers who get ahead of the FTC by announcing now that they will no longer enforce non-compete agreements are likely to earn a warm reception from employees.

Notice Periods

In light of the FTC’s concern with non-competes, it’s not difficult to imagine how the agency might react to employers following JPMorgan’s lead and extending notice requirements for exiting workers beyond the standard two- or three-week mark.

The implication of these extended notice periods is staggering.

No company is willing to wait six months for a new employee to start. That means an employee facing a six-month notice requirement can either stay with the company or risk unemployment by starting a job search months after giving notice.

In a world where everyone has to give six months’ notice, employees planning to leave undoubtedly would lose motivation and be less productive during the notice period. Worse, companies would be stymied in efforts to fill newly created positions for months.

A better option is to ditch these and other policies that restrict employee movement.

The most effective handcuffs: great leaders, strong cultures and compelling missions that keep people longer because they want to stay. Smart legal executives will recommend more investment in these areas, and clean out old policies before bad publicity or emboldened regulators force them to do it.

Rob Chesnut is the former general counsel and chief ethics officer at Airbnb. He spent more than a decade as a Justice Department prosecutor and later oversaw US legal operations at eBay. The author of “Intentional Integrity: How Smart Companies Can Lead an Ethical Revolution,” Rob consults on legal and ethical issues.