Key Takeaways
- The FTC has passed a rule eliminating most non-compete clauses, affecting roughly 30 million workers.
- Removal of non-compete restrictions is predicted to facilitate job mobility and boost annual wages.
- The ruling is expected to spur economic dynamism and may increase business creation and growth.
Last week marked a significant turn for the American workforce with the Federal Trade Commission’s decision to abolish the wide-ranging use of non-compete clauses in employment contracts.
These clauses, which once restricted employees from joining competitors or starting similar businesses within a certain geographical area for a designated time, had affected an estimated 30 million workers across various industries.
Prior to this rule, individuals in professions ranging from fast food work to engineering found their job mobility and wage potential stifled. The elimination of these non-compete agreements is anticipated to not only enhance freedom of job movement but also inject vitality into the economy by increasing overall wages.
The stories of those impacted by non-compete clauses vary greatly, with experiences of frustration and financial challenge despite better opportunities being available. The new ruling is expected to have a substantial effect on earnings, with projections indicating a potential annual wage increase averaging $529 per worker.
This translates to an uplift in the broader economy as more people would have the ability to pursue higher-paying positions, leading to increased competition and business growth. Despite impending legal challenges from corporate entities, the FTC’s stance is supported by its authority to prevent unfair competitive practices under the FTC Act.
Challenging Experiences with Non-Compete Agreements
Non-compete clauses have long been a staple in various employment contracts across the United States. An estimated 1 in 5 workers have been legally restricted by such provisions, which limit an individual’s ability to work in their industry or start a new competing business within a specific geographical area for a designated time frame.
They have been employed extensively across different sectors and income groups, including professions traditionally not associated with trade secrets or high-level corporate strategies.
- Diverse Professions Affected:
- Medical professionals such as nurses and doctors have expressed difficulty in servicing their patients due to these restrictions.
- Individuals in hospitality, including casino workers, faced barriers to accepting better-paying roles due to non-compete terms.
- Technical fields are not exempt, with engineers likewise constrained when exploring lucrative opportunities.
- Economic Consequences:
- Workers encounter stagnated wages because the ability to transition to better compensation and benefits is hindered.
- The overall dynamism in the economy suffers, as does the wage growth that could be stimulated by open competition for labor.
- It is projected that without these clauses, an average worker could see annual earnings increase by about $529, collectively infusing billions into workers’ pay.
- Inhibiting Entrepreneurship:
- Non-competes have also thwarted entrepreneurial spirits, with professionals from sectors like construction witnessing market opportunities but unable to capitalize on them due to contractual limitations.
- High-income professionals, including those in the legal and banking sectors, have shared ordeals of missed opportunities and professional stagnation.
- Legal Perspective:
- The enforcement of non-competes has been regarded by some legal experts as unfair methods of competition.
- By curtailing these clauses, it’s anticipated that not only worker mobility but also business innovation and competition will be bolstered.
The eradication of these non-compete clauses is expected to foster a more dynamic and competitive economic environment, empowering workers with freedom of movement and the potential to enhance their earnings. Despite counterarguments from corporate entities and anticipated legal challenges, proponents maintain that such changes align with legal authority and the pursuit of fair competition.
The final rule will become effective 120 days after publication in the Federal Register.
