Federal Trade Commission has voted to adopt a new rule what would ban noncompete agreements and would allow employees nationwide to switch jobs freely. The interesting thing about this move is that it is not a law, but a rule set by a government agency. This rule will probably face legal challenges in courts and may be stopped and/or reversed. US Chamber of Commerce is already threatening to sue the FTC with intention to block the rule. The rule doesn't come to effect until later this year, once all the details are figured out and exceptions are put in place for the current noncompetes. I am not sure wether the FTC has the power to make such a rule. It is yet to be found out, as it seems things may go to court. Of course, much better solution would be passing a law through Congress, if there is a problem to solve. However, Congress never has a time to engage in anything that may resemble a solution. In the meantime agencies can experiment and see what may come out of it. Read the announcement here.
I don't hold a strong position for and against this rule. I do find this topic interesting, and I am curious to see where this move will lead. On one hand I believe everybody who is employed should have freedom to work wherever they choose, including starting their own companies. On the other hand I can benefits of noncompete agreements for success of businesses, companies, startups with ability to protect their know-how, trade secrets and innovation. Copying products, services and businesses by competing entities have always been one of the challenges for companies that put in a lot of effort and money to create and build something. Innovating, researching, creating, and building is not easy. Copying is easier and may give unfair advantage to the new competitors. One of the easiest ways of copying would be poaching experts with knowledge, skills, and expertise from existing successful companies to replicate what have already been proven to be successful in the markets. Such strategy can be a lot cheaper than investing in research and development.
I personally never had experience with noncompete agreements, but I would assumed they would come with a decent salary and severance package. According to this article from NPR - The FTC estimates about 30 million people, or one in five American workers, from minimum wage earners to CEOs, are bound by noncompetes. That is interesting, but I am not sure if it is accurate. I don't question the number, but I don't understand why would minimum wage earners would be bound by noncompetes. How is it even possible and why would anybody agree? Most importantly if companies require noncompete why would they pay minimum wage or near minimum wage? That is strange. Perhaps there are isolated cases of such situations and they found it necessary to mention it to convince the public. I don't know. If you do please let me know in the comments.
I can understand CEO or other executives having contracts with noncompete clause, since they would have access to company secrets and business strategies. As any competition would result in less profits, companies would be ok to pay extra to make sure their secrets and strategies are not utilized to compete with them. At the same time these executives and CEO have more connections and power to get away from following the noncompete agreements. Let me give you some extreme examples, Jack Dorsey while is a founder of Twitter was companies CEO for a long time and when still holding the position had plans to create a competition to Twitter. It became more obvious and kinda reality when he left the company. The competition was the BlueSky project which I believe is available to people to use. That doesn't mean competing products or services would become successful. Still BlueSky is a competition to Twitter (or X). It actually worked out better for Dorsey, because Musk ended up buying and privatizing Twitter. I know this is an extreme example, but that was just to show CEOs, founders, or other executives wouldn't follow noncompetes anyway.
Another extreme example is Eric Schmidt being part of Apple's board while he was also a CEO of Google. I am know sure how true to the story is, but what I have heard or read was Steve Jobs blamed Schmidt in stealing the idea for Android from Apple when he was the member of the board at Apple. Why was he in Apple board in the first place? Regardless the story is true or not, or maybe there is another story that can explain better whether Google stole the idea of Android from Apple, the fact is creating Android has been one the most smart moves by Google. If it wasn't Android, there probably would be something else that would emerge as competition to Apple's iOS. It couldn't have taken longer though and Apple could have enjoyed monopoly for a little bit longer. I know this different kind of monopoly, but the fact is for influential executives conflicts of interest do not apply.
Perhaps the common situations with noncompetes would apply to engineers, scientists, experts who work closely with companies core products, or important products, especially if they are new to the market. Not only would companies would like to lose the talents to competition, they wouldn't want the experiences these team members gain create competition for them. Good example would probably be field of Artificial Intelligence. As the competition for AI is heating up, I wouldn't be surprised if teams working on these projects have strong noncompete agreements. I wouldn't be against such agreements if there is a premium compensation involved, some sort of incentives in place instead of punishments. I would rather see employees having decent competition and severance packages. Let's say I have a noncompete in place, and if the employer doesn't want me to work for anyone else for certain period of time, I would like to have compensation for the same amount time regardless the reasons for departure from companies.
Sometimes not everything is about money. For some people, especially experts who dedicate their time studying, working, and researching in a specific area, it might be more important to be active in the field rather than being compensated. The time lost would be punishments for this types of people. Let's take the same field again, AI. If I dedicated my life to AI and I am really good at it, that is probably of great interest to me with or without compensation, and I would probably would choose to continue working in the field compared to having monetary compensation. In such situation, some people may just be stuck in one place because of noncompetes.
Most of the noncompetes may not make much sense. Because what corporate lawyers are good at is creating confusion, putting employer in higher advantage and employees with less options. I wouldn't be surprised if companies put noncompetes in place due to their policies and some dumb thinking, instead of any useful valid reasons. This kinds of noncompetes would remove freedom from employees to switch jobs when they find necessary. For many employees job security, stable income, medical and retirement benefits are the important things to consider. If noncompetes puts all of these at risk, employees wouldn't be able to make decisions that are more beneficial for them. This probably is the case for most noncompetes and the FTC might have done something good here.
I think I may end up leaning towards this rule. Banning noncompete does seem inline with general freedoms for people and in support of open source. If technology, products, and services are open source then there is no need for noncompete agreements, is there?
Noncompete is a bigger topic. There are much bigger problems with noncompetes in markets in general. Just like the name suggest it would go against competition. While this may not exactly be a noncompete agreement, there are laws in place that give companies unfair advantage and let them behave like monopolies. This doesn't help anybody, except the greed of corporations. Take medical and pharmaceutical companies who enjoy monopolies where laws don't allow generic or foreign drugs to compete in the market. There are bigger problems that need solving, but that is a topic for another time.
Let me know your thoughts about FTC's rule on banning noncompetes and liberating millions from such contracts and providing more freedom to choose their employment or self-employment.