More U.S. workers will soon be free to leave their employers and work for rivals, thanks to new federal rules that halt the long-standing practice of locking workers in with noncompete agreements.
The Federal Trade Commission on Tuesday announced a final rule banning most anti-competitive practices across the United States. The agency says that by giving people more freedom, the changes will create 8,500 new businesses a year, increase average annual wages for employees by $524, reduce health care costs and save $29,000 a year for the next fiscal year. It is estimated that the number of patents will increase. Ten years.
According to the FTC, about one in five U.S. workers is bound by contract provisions that prevent them from taking a new job from a competitor or starting their own competing business for a certain period of time. . These arrangements can trap workers and delay career advancement and wage increases, both of which are often achieved by workers hopping from job to job.
The deal also disproportionately affects workers in technology and certain other roles. A study by the University of Maryland and the University of Michigan found that 36 percent of engineers and architects work in noncompetitive environments, as do 35 percent of workers in computer and math fields.
Under the FTC's new rules, “the outside opportunities facing high-tech workers will likely increase,” says Evan Starr, an associate professor of business at the University of Maryland who worked on the study. “They will have more freedom to work wherever they want. They are more likely to be paid higher wages.”
Opponents of non-competition laws say they harm workers by keeping them in low-paying jobs and stifle innovation, allowing people to start their own businesses and develop innovative ideas. They claim that it prevents them from practicing. Non-compete advocates say the arrangement encourages investment in staff and protects trade secrets. However, Starr's recent research shows that non-compete bans have not led to an increase in trade secret lawsuits.
The new FTC rules include carve-outs to preserve existing non-compete provisions for senior executives. But it prevents companies from creating new competitors for these high-level workers. The rules are expected to take effect in about four months, but are expected to face challenges. The two commissioners who voted against the rule deemed it a step outside the FTC's authority. The U.S. Chamber of Commerce announced shortly after the rule was passed that it would file a lawsuit to block it.
Several states, including tech hub California, already prohibit enforcement of non-competes. But a recent shift in the tide has made the issue reverberate in dozens of states. In the 2023 legislative session, 38 states introduced 81 bills that would prohibit or limit non-compete enforcement. California's long-established laws are seen as part of the reason Silicon Valley has become an innovation hub, but Massachusetts' once-similar tech corridor hasn't developed in the same way.
Technology executive Daniel Powers has fought against competitors twice in his career. In 2010, IBM tried to delay his move from New York to Seattle by a year to work for Amazon Web Services, the online retailer's cloud division. The parties agreed that Mr. Powers would take a six-month leave of absence. Fortunately for Powers, Amazon agreed to pay him while he was unable to work.
