Get Ready To Say Goodbye to Noncompete Agreements

G.Tbov /
G.Tbov /

Noncompete agreements are one of those ideas that had good intentions when they started becoming a thing four decades ago. With many people taking training and certifications and then leaving for their dream company, many employers saw it as a way to protect their investment. They thought that since they invested in the worker, the worker needed to be invested in the company.

A thought process like this isn’t misplaced, and it was an accurate idea. Now, in 2023, employers are expecting even entry-level new hires to come at least somewhat well-trained. They want a good bit of education and only offer minimal pay.

With the innovation in computer resume scanning, job titles are more important than actual duties performed for getting that interview. Many are finding that they need to take whatever low-end job will give them the title, then, in a year or so, they can move on to better pay with proper responsibilities.

Now, the Federal Trade Commission (FTC) has seen enough of this. On Jan 5th, they announced their proposed rules for putting an end to these rules. With an estimated 30 million people being impacted by these clauses, the implications for American and even international business are significant. Lina Khan serves as the FTC chair and explained the impact this could have.

“Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

Khan’s statement here absolutely nails it. In the US, we believe in the spirit of competition and ensuring people have a fair shake. The best person should always have an opportunity for the job. Given how the economy and the job market have evolved over the last four decades, the noncompete agreements have served their purpose, but are inhibiting the best from getting opportunities.

Meanwhile, people like the U.S. Chamber of Commerce’s senior vice president for International Regulatory Affairs and Antitrust, Sean Heather think this would be the worst idea ever.

“Since the agency’s creation over 100 years ago, Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule. The Chamber is confident that this unlawful action will not stand… We believe that both things are true, that noncompetes can be inappropriate and abusive, but can also, in other circumstances, be appropriate and necessary. It makes little sense to have a blanket ban. In the past the states have drawn these lines, we question the need for a federal rule.”

As Heather pointed out, a few states have already done away with noncompete agreements. California, North Dakota, and Oklahoma all have blocked their use. 11 other states as well as Washington DC all state that these agreements are only valid for employees above a specific pay threshold. These rules protect workers, but many are blissfully unaware of the status in their state, and the FTC has been intervening in cases more recently as a byproduct of this confusion. The workers in these cases are security guards, manufacturing workers, and engineers across three different cases.

Getting the FTC involved in these cases reinvigorated their interest in the noncompete agreements and is likely the catalyst behind this recent motion. Many who are already coming out against this move have been citing trade secrets, confidential information for commercial facilities, and the threat of poaching customers are the biggest arguments against making noncompetes a thing of the past.

These points are incredibly valid; too many companies are hiding behind these “reasons” to keep those who are the most impacted by the agreements under their thumb. Those who have real access to that information on a potentially hazardous level are typically being paid far more than fairly. Those who aren’t paid well should have more than enough push to get them the raises they deserve. Especially if noncompetes go away.

Noncompetes were great when moving for a job was rare but given how easily people will relocate and the innovations behind remote work, they need to come to an end.