The Federal Trade Commission announced last week it is banning noncompete agreements across the country with a rule that applies to almost all workers. You read that right: The FTC does not want your employer to be able to force a noncompete onto you.
Employers have long believed a noncompete allows them to protect trade secrets. They believed noncompetes allowed them to protect their financial investment into workers. Employees often had no choice. If you wanted to take a job, a noncompete was just part of the arrangement.
In reality, noncompete agreements often tie the hands of employees. When an employee has spent the bulk of their career in one industry, it prevents them from going to other companies in the same industry. Often, a noncompete will remain in effect for multiple years and can sometimes prevent employees from working in entire industries.
It’s also worth mentioning that many companies invest less of their resources into workers today than they have in the past.
Noncompete agreements discourage employees from switching jobs and prevent those same employees from pursuing more money or a better workplace. They can lock someone into a company where they are underpaid and/or have an unhealthy work situation.
I’ve often heard people say how hard it is to enforce noncompetes. Some people felt they didn’t really matter. But this isn’t true. Even if an agreement is not very enforceable, the employee must go through a lengthy and expensive legal process to prove it. And, many employers don’t want to risk being involved in such a process with a new employee. Companies would rather play it safe than hire someone with an active noncompete.
The FTC estimates one in five workers today are bound by a noncompete agreement, meaning this change will impact 30 million people. The FTC also estimates this ban will grow startup activity by 2.7% and increase average worker pay by $524 per year due to increased competition for employees.
Companies will be forced to focus on protecting their actual intellectual property in more specific ways. Protecting intellectual property is fair. Blindly restricting someone’s right to work is not.
Unfortunately, this fight is likely not over. It is expected that the FTC will get a significant amount of pushback from companies who wish to keep their noncompete agreements in place. But for now, this change is a big win for workers.
Angela Copeland, a leadership and career expert, can be reached at www.angelacopeland.com.