The end of non-compete agreements is a tech job earthquake

Frankly, I didn’t think the Federal Trade Commission (FTC) had the guts to ban non-compete agreements that prevent many workers from joining rival companies. I was wrong. On Tuesday, by a 3-2 party-line vote, the agency’s Democratic majority decided to do just that.

Though they’ve long been called “agreements,” anyone who’s ever had to sign one knows that would-be employees seldom have any choice in the matter. You agree and get the job, or you don’t and stay on the unemployment line. And, oh, by the way, 30% to 40% of workers are required to sign non-competes after they’ve already accepted a job. 

That’s why labor unions, liberal think tanks, and millions of employees hate them. 

You might think non-competes are only an issue for top tech engineers, software developers, and executives. Wrong — so, so wrong. 

Sure, historically, companies used these agreements to lock down highly skilled workers and executives with access to trade secrets or proprietary information. But that hasn’t been the case for decades. According to the Economic Policy Institute, a third of companies now require all their workers to sign non-competes. That includes “valued” employees such as hourly workers in minimum wage jobs doing janitorial duties or food service. 

Couldn’t this be fought in the courts? Technically, sure it can. But as the Trembly law firm put it, “Non-compete litigation is typically fast-paced and expensive.” The key word in that sentence is “expensive.” If you’re an employee seeking to get free of a non-compete, unless the company you’re moving to will fight for you, you won’t be able to afford the lawsuit. 

The FTC argues that while requiring workers in low-end jobs to sign non-competes is an overstretch, valuable employees shouldn’t be restricted either. After all, the agency claims, “Trade secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Researchers estimate that over 95% of workers with a non-compete already have an NDA.”

In addition, as FTC Chair Lina M. Khan said: “Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned.”

I don’t know if the end of non-competes would do all that. But I do know that in the decades I’ve been writing about technology, I’ve seen non-competes become iron collars around the necks of tech’s best and brightest workers, help desk staffers and even the people who keep the offices clean. 

I understand businesses want to reduce competition and prevent their workers from easily jumping ship, but I’ve never thought non-compete agreements were the right way to do so. Want to keep your best staffers? Pay them, let them work from home, and give them a pathway to promotion. This isn’t rocket science. 

Nevertheless, my attorney friends tell me that their corporate employers or clients had fits when word of the FTC ruling came out. You would have thought a lightning bolt had fried their stock prices out of the blue sky. 

Really? While I was surprised by the FTC action, anyone who’s been paying attention knew that non-compete agreements were getting walloped left, right, and sideways. 

True, as Republican Commissioner Andrew Ferguson said, the ruling “nullifies more than 30 million existing contracts and forecloses tens of millions of future contracts.” That’s a big deal. But, again, the writing was on the wall. 

That’s why, while way too many CEOs are having conniptions at the moment, business and law-savvy groups such as the US Chamber of Commerce  immediately sued the FTC, seeking to overturn the decision. They were ready. 

Their lawyers are arguing that the ban applies to a host of contracts that could not harm competition in any way. Besides, the FTC didn’t have the power to issue such a ban. And, in any case, such a categorical ban wasn’t legal. Those are the arguments, at least.

Who’s right? Who’s wrong? Stick around and find out. I have every expectation that this will grind its way through the court system all the way to the Supreme Court sometime in the late 2020s. (I expect, by the way, that the issue that will decide the case won’t have anything directly to do with the FTC’s ruling; it’ll revolve around whether the FTC has the power to make such a fundamental legal policy change.)

In the meantime, you have about four months to decide what to do about your non-compete agreements before the FTC ruling goes into effect. Once it hits, all existing non-compete agreements will be nullified, except for those applying to executives in “policy-making positions” who make at least $151,164 a year. And the ruling won’t let your company impose any new non-competes, even on executives.

Personally, I’d dump any non-compete agreements immediately and rewrite my employment contracts to use NDAs and trade secrets in their place. No matter what the courts decide, employees hate non-compete agreements — that won’t change.

And what does all this mean for top tech talent that’s been feeling trapped? It’s time to talk to your bosses about whether they really want to keep you around and explain that the carrot of a better deal will be a whole lot sweeter than the threat of a non-compete clause. If they don’t hear you? Get ready to walk. The doors are opening.

More by Steven J. Vaughan-Nichols:

• What happens when genAI vendors kill off their best sources?
• Boeing and the perils of outsourcing mission-critical work
• Return-to-office initiatives or stealth layoffs? Why not both?