Good Riddance to Non-Compete Agreements!
The FTC estimates that 1 in 5 people are bound by a non-compete clause in their current jobs. These legal agreements or clauses block an employee from working for a competing employer for a specified time. These agreements also prohibit the employee from revealing proprietary information or secrets to other parties during or after employment. These agreements affect everyone, from hourly employees to C-suite executives. Such agreements incentivize companies to invest in business activities such as worker training and developing specialized technologies. Proponents of non-competes assert that employers wouldn’t make such investments if they think their employees can easily defect to competitors.
The reality of such agreements is that they restrict people from freely switching jobs, lower wages, stifle innovation, block entrepreneurs from starting new businesses, and undermine fair competition. The free flow of talent and ideas creates innovation. When non-compete agreements restrict that movement, it harms employees, companies, and the economy. Limits on future employment dim workers’ external prospects and decrease their perceived ownership of their jobs, sapping their desire to perform at the top of their games. The resulting drop in performance may be more damaging to companies than the loss of employees. Non-compete agreements also do long-term damage to employers, tainting their brand and making markets less dynamic.
Certain states have had long-standing bans on non-compete agreements, most notably California. In California, the absence of non-compete agreements has enabled the mobility of talent that created the many tech companies in Silicon Valley. In other words, innovation and creativity spread when workers can move freely from one company to another.
On Tuesday, April 23, the Federal Trade Commission (FTC) ruled effectively banning non-competes for most employees. This will prevent for-profit employers from issuing new non-competes to anyone, making existing agreements unenforceable after the rule’s effective date. However, companies will still be able to issue and enforce non-competes for executives, defined as employees “in policy-making positions” who make at least $151,164 annually. It also orders employers to notify nonexecutive employees bound by an existing non-compete that it will no longer be enforceable. However, employment lawyers expect there to be legal pushback from employers and business groups that may delay enforcement of the rule while it is challenged in court and possibly prevent it from ever going into effect.
If you have a non-compete agreement, you should check with an employment attorney to determine what this new ruling means for you. If your employer asks you to sign any legal documents such as non-competes, non-disclosure agreements, and severance/separation agreements, it is in your best interest to consult with an attorney before signing. For more information on this new ruling, visit the FTC website.