No More NoncompetesNo More Noncompetes

Hiring Manager Hacks 6.5.24

No More Noncompetes

  • Brady Hitchcock
  • 06/05/2024
  • Find Talent

Noncompete clauses in employment contracts are going away and that’s great for individuals, innovation, and industry.

 

The Federal Trade Commission (FTC) recently made a new rule banning non-compete contracts and making existing noncompetes unenforceable for nearly all U.S. workers.

 

Get the straight facts here.

 

Read on to find out why this is WONDERFUL news for all of us!
First things first, if you are unfamiliar - a noncompete clause, also known as a restrictive covenant, is a legal agreement between an employer and an employee that restricts the employee's ability to work for a competitor, start a competing business, or otherwise engage in similar activities after their employment ends. The agreement usually includes geographical and time restraints such as, “for the period of one year and within 100 miles.”
Noncompetes are in name and nature designed to stifle competition. They have been a source of contention among employees and employers for several decades. Critics rightfully argue that they act as shackles on worker mobility and can lead to caps on wages. These clauses are designed to prevent employees from pursuing similar positions with competitors after leaving their current jobs, forcing them into a series of difficult choices.
People give up on entrepreneurial dreams, get stuck in undesirable roles, are forced to switch to lower-paying jobs, relocate, or even be pushed out of their preferred field entirely. Not to mention the prospect of facing retribution and/or litigation from their former employees!
Until now, the pervasiveness of noncompete clauses has been staggering. The FTC estimates that around 30 million employees (nearly one in five Americans) are subject to such restrictions. This widespread practice limits individual opportunities and hinders economic and technological vivacity.
As FTC Chair Lina M. Khan recently stated, "Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned."
With the new regulation, the FTC has ushered in a transformative era for American workforce mobility and opportunity. This landmark decision, aimed at fostering competition and empowering workers, is projected to unleash a wave of innovation and entrepreneurship across the nation. It acknowledges that noncompete clauses distort the labor market by preventing employees from seeking better opportunities and employers from attracting the best talent.
The Commission predicts that the ban will be a catalyst for economic growth. They estimate a 2.7% annual increase in new business formation, resulting in over 8,500 additional startups each year.  Furthermore, workers are expected to see an average annual increase of $524 in earnings. A step in the right direction!
"The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market," declared Chair Khan, highlighting the rule's potential for empowering individuals and fostering a more vibrant marketplace of ideas.
Beyond the immediate economic benefits, the rule is also projected to drive innovation. The FTC estimates that the ban could lead to an additional 17,000 to 29,000 patents filed annually over the next decade. This surge in innovation has the potential to revolutionize industries and improve the lives of Americans across the country.
While the vast majority of workers are now free from the constraints of noncompete clauses, a narrow exception exists for senior executives. Existing noncompetes for these individuals (earning over $151,164 annually and holding “policy-making positions”), may remain in effect. However, employers are strictly prohibited from implementing new noncompete agreements, even with senior executives.
The FTC recognizes the importance of a smooth transition for both employers and employees so the rule requires employers to notify workers bound by existing noncompetes that these clauses will no longer be enforced.  The Commission has provided model language to simplify this process and ensure compliance.
The new rule received overwhelming public support and FTC's rulemaking process was surprisingly transparent and inclusive. The proposed rule received over 26,000 comments, with a resounding 25,000 in favor of the ban. Such incredible public backing underscores the widespread desire for a more dynamic and worker-centric labor market.
It's yet another win for the candidate in this already “candidate-driven” market.
The FTC and proponents of restrictive covenants acknowledge that employers have legitimate interests in protecting confidential information. However, the Commission emphasizes that noncompete clauses are not the only solution. Nor are they the best solution. They’re just another way for employers to protect their own asses.
*assets
Existing trade secret laws and non-disclosure agreements (NDAs) already provide robust safeguards for proprietary information. Researchers estimate that over 95% of workers with a noncompete already have an NDA. Additionally, the FTC suggests employers focus on creating a positive work environment with competitive wages and benefits to retain their talent.
PREACH ON, COMMISH!
The FTC's new rule marks a significant turning point for American workers, including engineering and manufacturing professionals in Utah. By dismantling the restrictions of noncompete clauses, they have paved the way for greater worker mobility, enhanced economic growth, and a more vibrant and innovative business landscape. With this change, the workforce is poised to enter a new age of freedom and opportunity.
As Khan emphasizes, "The freedom to change jobs is core to economic liberty and to a competitive, thriving economy." The FTC's bold action promises to unlock the full potential of the American people and propel the nation toward a brighter economic future.
If you have questions about noncompetes or concerns about how your company can adapt to the world without them, get in touch.
We can help you quickly find and retain top talent without holding anyone hostage. 

 

Get in touch today and find out how we can help!

 

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SOURCE:

https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

 

 

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