FTC votes to ban most noncompete agreements nationwide, a common practice among big tech corporations

[Daniel Sims]

The big picture: Many companies, including those in the tech sector, often use noncompete agreements to prevent employee poaching. However, the US Federal Trade Commission now deems this practice unfair, asserting that companies have alternative methods to safeguard their intellectual property. The commission anticipates that banning nearly all noncompete agreements will enhance working conditions and foster innovation.

The FTC has decided to ban all new noncompete agreements and most existing ones in the US after receiving thousands of comments overwhelmingly in favor of the measure. The new regulation will take effect 120 days after its publication in the federal registry, but the commission has not yet indicated when it will update the registry. The change is expected to take effect later this year.

Only existing noncompete agreements with senior executives can remain valid. This exception applies to those earning over $151,164 annually or holding "policy-making positions," which account for approximately 0.75 percent of employees.

Employers must inform all other workers that any previously signed noncompete agreements are no longer enforceable, and they cannot compel senior or non-senior employees to enter into new contracts. Employees can report suspected abuses by emailing the commission at noncompete@ftc.gov.

When the FTC proposed the rule in January 2023, it initiated a 90-day public comment period during which it received over 26,000 comments. Of those, over 25,000 supported a ban on noncompete agreements, which prevent employees from joining competitors for a certain period after leaving their companies. The commission estimates that around 18 percent of Americans, or about 30 million people, are subject to noncompete agreements.

In a press release, the FTC attributed the practice to lower wages, reduced innovation, and the forced displacement of workers from their preferred industries, or keeping them in undesirable situations. The commission cited cases where workers felt compelled to relocate, accept lower-paying jobs, or mount expensive legal defenses.

Although companies ostensibly use noncompete agreements to protect intellectual property and other critical knowledge, policymakers have determined that the practice is not the only effective method. Nondisclosure agreements and trade secret laws should suffice without restricting where individuals can work, and companies can incentivize workers to stay by increasing salaries.

The FTC anticipates that banning noncompetes could have a positive impact on competition, innovation, wages, and healthcare costs. It projects that thousands more patents and startups could emerge each year, workers could earn over $500 more annually, and healthcare expenses could fall by $74-194 billion over the ensuing decade.

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FTC votes to ban most noncompete agreements nationwide, a common practice among big tech corporations

 

[The Talking Tech]

That's actually a very good thing to ban.
If companies can't hold on to their employees then it's unfair for those employees not being able to work at the competition.

 

[RudyBob]

It's called Free Agency. They have had in in Baseball for a long time. It's fair

 

[daffy duck]

That's actually a very good thing to ban.
If companies can't hold on to their employees then it's unfair for those employees not being able to work at the competition.

Overall for most businesses I agree, but in the case of say a researcher working on some new tech and then going to a competitor and taking IP with him I can see why there needs to be a non-compete clause. This scenario has played out a lot and why we had the clause in the first place. But for most companies this doesn't pop up. I presume the ban is still in force for those doing research or having access to highly sensitive data that any competitor would love to have. Imagine John Ives way back leaving Apple for Scamsung and giving them the entire road map for the next 5 years and all the cool stuff they were working on and of course vice versa.

 

[The Talking Tech]

Overall for most businesses I agree, but in the case of say a researcher working on some new tech and then going to a competitor and taking IP with him I can see why there needs to be a non-compete clause. This scenario has played out a lot and why we had the clause in the first place. But for most companies this doesn't pop up. I presume the ban is still in force for those doing research or having access to highly sensitive data that any competitor would love to have. Imagine John Ives way back leaving Apple for Scamsung and giving them the entire road map for the next 5 years and all the cool stuff they were working on and of course vice versa.

In 99% of the time, companies have the right to retain the rights of whatever the employees get to come up with throughout their time at those employments....and that's ok....but it's not ok to ban them from working for the competition if they choose.

 

[brucek]

This exception applies to those earning over $151,164 annually

That would appear to exclude most of the software engineers working for the big tech firms then, as well as lots of other professional positions. And if it doesn't automatically adjust for inflation that proportion will keep growing over time.

Oh well, the non-competes were already unenforceable in California where many of those engineers work anyway.

I certainly understand how IP itself should be protectable. Trying to restrict anyone for performing the basic functions of their trade should never be legal though, unless the previous employer is continuing to pay them their usual salary. People need to work. And our country needs those functions performed. Think for example if every hospital could slam a non-compete on the contract of every doctor who ever worked there.

 

[toooooot]

Would it not only help fattest corps since they will now freely poach employees from much smaller companies, stealing not only the skills but the knowledge thus ruining those smaller companies?
I feel like this has a possibility to do the thing that usually happens after these attempts to fix it; rich will become richer, small will be phased out.

 

[Uncle Al]

Looooong over due, but they can do a lot more.

 

[Kotters]

Funnily enough, even Voice Actors are made to sign noncompetes. It's not just used on tech workers.

 

[gamerk2]

Overall for most businesses I agree, but in the case of say a researcher working on some new tech and then going to a competitor and taking IP with him I can see why there needs to be a non-compete clause. This scenario has played out a lot and why we had the clause in the first place. But for most companies this doesn't pop up. I presume the ban is still in force for those doing research or having access to highly sensitive data that any competitor would love to have. Imagine John Ives way back leaving Apple for Scamsung and giving them the entire road map for the next 5 years and all the cool stuff they were working on and of course vice versa.

Except said IP would already be protected by non-disclosure agreements, which would still be valid.

 

[VariableSpike]

Except said IP would already be protected by non-disclosure agreements, which would still be valid.

Exactly, and if there is any worry about recent developments being leaked (if the person is supposedly important enough to be privileged to such info) then put them on gardening leave

 

[Endymio]

That's actually a very good thing to ban.

Maybe. I'll go so far as to even say probably so. But it's far from clear that the FTC has such authority. Major policy changes like this should be enacted by Congress -- not a few unelected career bureaucrats.

The second problem with delegating so much authority to these three-letter federal agencies is what can so easily be enacted by one bureaucrat can be just as easily reversed by the next person. The Founders created a system of government with strong checks and balances, requiring agreement by multiple branches of government. These bureaucratic fiats short-circuit those protections.

 

[human7]

In 99% of the time, companies have the right to retain the rights of whatever the employees get to come up with throughout their time at those employments....and that's ok....but it's not ok to ban them from working for the competition if they choose.

I agree with you, and am in favor of the FTC's new rule, but in practice I do see why businesses would be upset by this. Simply put, they can't scrub an employee's experience when they leave the company (thank goodness!), which means that even though that employee doesn't own the IP, it is still fairly easy for them to legally recreate it somewhere else.

Which I'm okay with, actually. The lack of good unions in recent years means jumping ship is the fastest way to improve one's working conditions. If companies want to retain their employees, they should compete on their pay and benefits, and this rule change will help with that.

Maybe. I'll go so far as to even say probably so. But it's far from clear that the FTC has such authority. Major policy changes like this should be enacted by Congress -- not a few unelected career bureaucrats.

The second problem with delegating so much authority to these three-letter federal agencies is what can so easily be enacted by one bureaucrat can be just as easily reversed by the next person. The Founders created a system of government with strong checks and balances, requiring agreement by multiple branches of government. These bureaucratic fiats short-circuit those protections.

Well, Congress does have the ability to revoke these regulations through the Congressional Review Act, which requires the signature of a President or a veto override, so checks and balances are still in place. And it was Congress itself who delegated their rulemaking authority to these agencies; they retain the power to amend the rulemaking authority that these agencies have. However, as recent cases have shown, the Supreme Court may be revisiting how much Congress can delegate and what the relationship of that delegation is (with respect to the President's authority over the personnel in those agencies).

Another question of late has to do with, for lack of a better phrase, non-judicial courts, such as administrative law courts/judges and immigration courts/judges, both of which are under the executive branch and under the Supreme Court. Article III doesn't enforce a strong separation between the judicial and executive branches - only that Congress may create such inferior courts and, as long as they are also inferior to the Supreme Court, they are valid. Article 1 also grants Congress the ability to make tribunals which are inferior to the Supreme court, but those are categorically different than full fledged courts. Remains to be seen if recent cases that the Supreme Court is reviewing changes that.

What is clear in both of these cases is that the Constitution is fairly vague and it ultimately depends on the Supreme Court's interpretation as to what is legal.

The FTC thinks it has the authority to regulate this, and a plain reading of the text they cite seems to make it so. But whether or not the courts will consider that delegation to be too broad, well, get out a bucket of popcorn in a few months (since that's how long it takes for them to get around to making decisions, but at least they are decisive), and we'll find out.

 

[Fimbulvetr]

The US Chamber of Commerce has already announced they are suing the FTC over this. Of course they are - why did anyone think that the US government would actually do anything to help it's people when it might go against the wishes of their corporate masters?