More American workers will soon be free to leave their employers to work for competitors, thanks to a new federal rule aimed at cracking down on the long-standing practice of binding workers with non-compete agreement.
The US Federal Trade Commission on Tuesday issued one final rule prohibits most non-competitive practices nationwide. The agency estimates that by allowing people more freedom, this change will lead to the creation of 8,500 new businesses annually, an average annual wage increase of $524 for workers, reduce healthcare costs and add up to 29,000 patents each year for the next year. decade.
The FTC said about one in five American workers are bound by contract terms that prevent them from taking new jobs from competitors or starting their own competing businesses for a period of time. These agreements can trap workers and slow down career advancement and salary increases – two things workers often gain when changing jobs.
The agreements also disproportionately affect workers in the tech sector and some other roles: 36% of engineers and architects work in noncompetitive environments, as do 35% of noncompetitive workers. in the field of computing and mathematics, according to study from the Universities of Maryland and Michigan.
Under the new FTC rule, “tech workers will likely have more outside opportunities that they encounter,” said Evan Starr, an associate professor of business at the University of Maryland who participated in the study. “They will have more freedom to work where they want; they will be more likely to be paid higher salaries.”
Opponents of noncompetes say they harm workers by keeping them in lower-wage jobs and also stifle innovation, preventing people from starting their own businesses or Putting innovative ideas into practice. Proponents of noncompete argue that the agreements encourage investment in employees and protect trade secrets. But recently study from Starr shows that prohibiting non-competes has not led to an increase in trade secret litigation.
The FTC's new rule contains a fix that leaves in place existing non-compete provisions for senior executives. But it prevents companies from creating new non-competes for these senior workers. The regulation will take effect in about four months but is expected to face many challenges. Two commissioners voted against the rule considers it to be beyond the FTC's authority. US Chamber of Commerce quickly announced Once the rule passes, it sues to try to block it.
Several states, including tech hub California, have banned enforcement of non-compete practices. But a recent turning tide has exposed the problem resonated in dozens of states. During the 2023 legislative session, 38 states introduced 81 bills seeking to prohibit or limit the enforcement of non-compete practices. California's long-standing law is considered part of the reason why Silicon Valley has become a center of innovationwhile Massachusetts' once-analog tech corridor hasn't skyrocketed in the same way.
Technology CEO Daniel Powers has battled non-competitive opponents twice in his career. In 2010, IBM tried to delay its move from New York to Seattle to work for Amazon Web Services, the online retailer's cloud division, by another year. The parties settled on Powers' six-month leave. Luckily for Powers, Amazon agreed to pay him even if he couldn't work.
