FTC ban on non-competes would put employees in the driver’s seat

A variety of emerging work trends could combine to help employees gain an edge in the corporate world. The latest puzzle piece is a recent decision by the Federal Trade Commission (FTC) to ban non-compete agreements.

Disagreements among workers and employers over return-to-office mandates, remote and hybrid work, higher pay, resignations, and layoffs are likely to become supercharged again. That is, if the FTC’s April 23 move to strike down most existing and future non-compete agreements takes effect in August or early September.

Once freed from their post-employment non-compete shackles, millions of workers could launch their own businesses or interview with competing companies – negotiating higher salaries and winning new perks and freedoms along the way. Non-competes effectively prevent salaries at fair-market value because an employee’s ability to opt for another job is hampered. 

The FTC estimates that about 30 million US workers (20% of the workforce) are subject to non-compete clauses.

In addition to raising salaries, the new rule is expected to support development of newly launched companies, boost business innovation, and increase patent filings.

Requiring employees to sign non-competition clauses is especially prevalent in the tech industry. It’s worth noting, however, that California is among the few states that has never supported non-compete agreements. Recently the state strengthened its non-compete stance with new, broad-ranging legislation.

There are other legal instruments in the US — such as non-disclosure agreements — that can protect companies from the theft of intellectual property without limiting employee careers and artificially depressing salaries. So, it’s not as if companies are without recourse.

Opposing the ban

At least three lawsuits have been filed against the proposed  ban. The most significant was brought by the US Chamber of Commerce, the Business Roundtable, and other business interests. They filed a lawsuit seeking a court order to vacate the FTC action. (The lawsuit was filed one day after the FTC issued the new rule.) The FTC faces challenges about whether it has the power to unilaterally invoke the decision to ban non-compete clauses. Here’s more detail on the opposing viewpoint.

Many of the largest US corporations are represented in the lawsuit by the Business Roundtable, which is an association of more than 200 CEOs of leading US companies from every sector of the economy. Business Roundtable members include many tech companies, such as Alphabet (Google), Amazon, AMD, Apple, Cisco, Dell, Hewlett-Packard Enterprise, HP, IBM, Intel, Microsoft, Palo Alto Networks, Qualcomm, Salesforce, and SAP.

The judge in the lawsuit brought by the US Chamber of Commerce could grant a temporary injunction to delay the FTC ban pending the trial’s outcome. Plus, the case could be hung up in appeals for years to come, with the possibility that it would play out in the Supreme Court. So, over the short haul, nothing may change. But companies and employees should be thinking about how the ban might affect them.

In 2023, research firm Gartner polled HR leaders about the then-proposed ban: 72% said their organization would likely benefit from the ban, increasing the availability of talent by giving them access to a larger pool of skilled workers. Gartner recently polled attendees of a Benchmark with Gartner live webinar about the new FTC rule; 60% strongly or somewhat agreed that their organizations would benefit from better access to talent. But the ban creates a double-edged sword for employers: 51% also either strongly or somewhat agreed that their organizations would be at risk of losing top talent.

Companies that use non-competes should get their lawyers working on alternatives right away, regardless of the legal fight over the FTC rule. For one thing, there can be no doubt that the generally positive reception to banning non-compete agreements will have an effect on prospective employees. (The Philadelphia Inquirer offers useful advice for companies on actions they should take now.)

It’s all upside for employees that companies want to hire or retain. They could be in line for pay increases, promotions, and perks like more days of remote work or even a four-day work week. The rise of generative AI has run up the competition for talent already and getting rid of non-competes would only broaden and intensify the talent wars. Instead of AI driving talent searches, competition would increase across the board for a variety of job skills. It would be a profound change, and one that would support many of the trends and advances in modern work that were ushered in by the pandemic. 

It’s long since time that the US ended the abusive practice of using non-compete agreements to hobble the job mobility of American workers.