FTC bans all new (and most existing) non-compete clauses

[Occam's Banana]

FTC bans all new non-compete clauses and strikes down most existing agreements
https://www.geekwire.com/2024/ftc-ba...ng-agreements/
{Lisa Stiffler | 23 Apriil 2024}

Goodbye, non-competes.

The U.S. Federal Trade Commission today released its final rules addressing non-compete clauses by banning all future agreements.

Non-competes have traditionally restricted workers from taking jobs with a competitor or starting a competing business. The employment clauses — which are applied to wide-ranging businesses — have been particularly contentious and polarizing in the technology sector.

The FTC and others portray the clauses as stifling innovation and harming workers while some argue the agreements are necessary protections for intellectual property and trade secrets.

“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,” said FTC Chair Lina Khan, in a statement.

The FTC proposed the rule change in January 2023. The commission received 26,000 public comments on the plan, the vast majority in favor of a ban.

Business groups are expected to challenge the new policy in court, according to the Washington Post.

The rule also strikes down existing non-competes — except for senior executives, who comprise less than 1% of the workforce, according to the FTC.

In the case of top leadership, the clauses “remain in force because this subset of workers is less likely to be subject to the kind of acute, ongoing harms currently being suffered by other workers subject to existing non-competes and because commenters raised credible concerns about the practical impacts of extinguishing existing non-competes for senior executives,” states the rules.

But going forward, no new non-competes will be permitted for senior executives.

The FTC estimates non-compete clauses cover roughly one-in-five American employees, or about 30 million workers.

The commission predicts that employees on average will earn an additional $524 per year thanks to the new rules.

In 2019, Washington state approved its own limits on non-compete agreements, making them allowable only for employees earning more than $100,000 a year and independent contractors who made $250,000 annually. The state law also capped the clauses at 18 months.

The final rule from the FTC takes effect 120 days after it’s published in the Federal Register and supersedes the state law.

In June 2022, Microsoft announced that it would no longer include non-compete clauses in its U.S. employment agreements, and would remove the clauses from existing agreements. The change applied to all employees except senior leaders of the Redmond, Wash.-based tech giant.

“Microsoft believes that American innovation thrives when people have the freedom to pursue the career path they feel best aligns with their passion and skills,” Microsoft President Brad Smith said in a statement Tuesday.

Seattle-based Amazon has sued multiple former workers over the past decade for alleged non-compete violations. We’ve reached out to the company for comment, and will update if we hear back.

[CaptUSA]

Whoa - this will have wide-ranging implications.

[luctor-et-emergo]

Whoa - this will have wide-ranging implications.

I agree, quite a big change.

[CaptUSA]

I agree, quite a big change.

I'm not sure what this will do to employment in the US. I'm subject to a non-compete agreement and so are my peers. We may see tons of people leaving their jobs and poaching by competitors. I suppose that's a good thing?? Maybe companies will be incentivized to pay more to keep their good employees??

But, I'm sure the consequences will be ugly. It's going to be harder for businesses to retain talent. Plus, the onboarding and training expenses are going to rise dramatically. This could impact the already pressured economy even more.

Ironically, it's also going to be much harder to get a job because the new employer has to make a significant investment in you without a safeguard against you leaving for a competitor. And once you get the job, it's going to be harder to get access to key information in the company that can help you succeed. This is going to get weird.

[luctor-et-emergo]

I'm not sure what this will do to employment in the US. I'm subject to a non-compete agreement and so are my peers. We may see tons of people leaving their jobs and poaching by competitors. I suppose that's a good thing?? Maybe companies will be incentivized to pay more to keep their good employees??

But, I'm sure the consequences will be ugly. It's going to be harder for businesses to retain talent. Plus, the onboarding and training expenses are going to rise dramatically. This could impact the already pressured economy even more.

Ironically, it's also going to be much harder to get a job because the new employer has to make a significant investment in you without a safeguard against you leaving for a competitor. And once you get the job, it's going to be harder to get access to key information in the company that can help you succeed. This is going to get weird.

On average I think this will have a bigger impact on large businesses than small ones.

[CaptUSA]

On average I think this will have a bigger impact on large businesses than small ones.

I agree. Even if most small businesses have their employees sign non-competes, the enforcement of them is pretty low.

That being said, it is typical for salon workers, construction workers, plumbers, etc. to have non-competes. Their concern is training employees who end up starting their own competing business in the same geographic area after they gain a reputation. Usually, there's a time-limited period. But when the business start up costs are low, employers have to be wary of over-training their hires.

Here's the other thing which will have to be worked out - when NCA's first started gaining traction, those employees got compensated at a higher rate because they had to sign the contract. So, will companies start hiring at lower wages since they can't be sure the employee will stay?

This really feels like an unconstitutional step that will surely be challenged in court. The whole NCA process is often abused, but to say that a business isn't allowed to arrange contract terms like this with a potential employee seems like an overstep. I guess we'll see.

One thing is for sure, this is HUGE and isn't getting the attention it deserves.

[TheTexan]

This kinda boils down to the question of whether or not a person can enter an agreement that enslaves oneself. I personally believe that people can enter into such agreements, but without an exit clause (express or implied), such an agreement would not be enforceable.

Same logic would apply to non-competes. Unless there is a way to terminate the relationship/contract in full, then any non-compete clauses in that contract would not be enforceable.

At the end of the day, every relationship should be voluntary, and if someone is lording a non-compete clause over your head with no way to exit, then that relationship has ceased to be voluntary and is no longer ethical imo.

[oyarde]

I always worked under these in private sector and had no intention of being bothered by them at all. I wasnt actively looking for other work in same sector .If you fire me Im taking the best job I can get regardless of where it is and Im not going to be discussing w/ place I left where I am now. in my case this wouldnt make any difference. I was as concerned about honoring muh non compete agreement as US was in honoring Treaty of Greenville, lol

[susano]

Not that he'd want to but I suppose this would mean that Tucker would be free to accept any offer that came his way and Fox News could pound sand?

[CaptUSA]

At the end of the day, every relationship should be voluntary, and if someone is lording a non-compete clause over your head with no way to exit, then that relationship has ceased to be voluntary and is no longer ethical imo.

I mean, I get your point, but the contracts are voluntary. You don't have to take the job. Or you can take the job, but refuse to sign the NCA - they may just decide to not hire you. Like every contract, they don't "cease to be voluntary" just because you don't feel like abiding by it any more. And yes, they are almost always time-limited - 6 months, 12 months, sometimes even 18 months. It's a protection for the employer for their investment in you.

I signed a NCA when I took my current job. It doesn't bother me one bit. I just know that if/when I leave, I'll have to be sure that whatever company I go to next isn't covered in the agreement. With my past employer, they didn't have NCA's for employees, but they had non-competes written into the contracts of any company that did business with them. In other words, they restricted other consulting and contractor companies from poaching any of our employees and vice versa. I'm not clear if this new FTC rule prohibit those as well.

[TheTexan]

Like every contract, they don't "cease to be voluntary" just because you don't feel like abiding by it any more.

So then, do you believe that if you sign a piece of paper that permanently makes you slave, you should be compelled to abide by that contract if you change your mind later, because it was voluntary at the moment you signed it?

I disagree with that point of view completely. Every contract has an exit clause, express or implied. Otherwise you end up in situations where contracts are drafted where exit is designed to be impossible, additional parties are added to the contract and noone is allowed to leave, and the end result is Abraham Lincoln sending armies to slaughter your ass cus you had the audacity to try to exit the relationship.

[PAF]

So then, do you believe that if you sign a piece of paper that permanently makes you slave, you should be compelled to abide by that contract if you change your mind later, because it was voluntary at the moment you signed it?

I disagree with that point of view completely. Every contract has an exit clause, express or implied. Otherwise you end up in situations where contracts are drafted where exit is designed to be impossible, additional parties are added to the contract and noone is allowed to leave, and the end result is Abraham Lincoln sending armies to slaughter your ass cus you had the audacity to try to exit the relationship.

Not every contract has an exit clause, express or implied. It's on you if you don't read/author/modify the contract accordingly. Otherwise, I want my just compensation.

[Occam's Banana]

Not every contract has an exit clause, express or implied. It's on you if you don't read/author/modify the contract accordingly. Otherwise, I want my just compensation.

The "otherwise" is an exit clause.

[ClaytonB]

Under the status quo redcoat tyranny that has been occupying DC since 9/11, no contract with any commercial entity is consensual or voluntary in any meaningful sense. Does the inmate have a consensual relationship with the prison contractor who puts slop on his tray in the chow hall? If he has the choice between cornbread or wheat bread, is this a truly "voluntary" choice?

I am a high-tech engineer and, throughout my entire career, I have been subject to ironclad non-competes (usually 10 pages long, or more) forbidding any form of technical work outside of my day-job or any kind of work that the company might construe in any manner to be in competition with them, up to and including ideas that may form in my mind while employed in my position, an absurd and utterly unenforceable clause, unless you were to intentionally betray yourself under oath. I have never been in a position to "shop" between employers based on the looseness/strictness of their non-competes, nor have I known anybody that could, including colleagues with salary in the mid-six-figure range. In short, the idea that anybody working in tech who is not a household-name rockstar could negotiate the terms of a non-compete is downright silly. The company simply dictates the non-compete, and you sign it if you want to work there. In 2015, I had an offer in-hand from one of the FAANG companies but I mentioned that I had a patent idea that I wanted to protect before joining, and they dropped me like a hot-potato. I was an unperson after that.

While tyranny (banning certain kinds of private contracts) can't solve other tyranny (implicit monopoly privilege enjoyed by corporations in dictating practically all terms of employment except the salary), the idea that non-compete agreements are "voluntary" is naive to the point of being silly. It is my opinion that non-competes basically wouldn't exist in a free market in labor, but I can't prove that. In any case, I don't think this particular rule is going to do much harm, although I'm not sure it will do any good, either.

[PAF]

Not every contract has an exit clause, express or implied. It's on you if you don't read/author/modify the contract accordingly. Otherwise, I want my just compensation.

The "otherwise" is an exit clause.

Only if one skips the preceding sentence, reading left to right, not right to left ;-)

[ClaytonB]

So then, do you believe that if you sign a piece of paper that permanently makes you slave, you should be compelled to abide by that contract if you change your mind later, because it was voluntary at the moment you signed it?

I disagree with that point of view completely. Every contract has an exit clause, express or implied. Otherwise you end up in situations where contracts are drafted where exit is designed to be impossible, additional parties are added to the contract and noone is allowed to leave, and the end result is Abraham Lincoln sending armies to slaughter your ass cus you had the audacity to try to exit the relationship.

From Ethics of Liberty by Murray Rothbard, ch. 19, "Property Rights and the Theory of Contracts":

Let us pursue more deeply our argument that mere promises or expectations should not be enforceable. The basic reason is that the only valid transfer of title of ownership in the free society is the case where the property is, in fact and in the nature of man, alienable by man. All physical property owned by a person is alienable, i.e., in natural fact it can be given or transferred to the ownership and control of another party. I can give away or sell to another person my shoes, my house, my car, my money, etc. But there are certain vital things which, in natural fact and in the nature of man, are inalienable, i.e., they cannot in fact be alienated, even voluntarily. Specifically, a person cannot alienate his will,more particularly his control over his own mind and body. Each man has control over his own mind and body. Each man has control over his own will and person, and he is, if you wish, "stuck" with that inherent and inalienable ownership. Since his will and control over his own person are inalienable, then so also are his rights to control that person and will. That is the ground for the famous position of the Declaration of Independence that man's natural rights are inalienable; that is, they cannot be surrendered, even if the person wishes to do so.

...

Hence, the unenforceability, in libertarian theory, of voluntary slave contracts. Suppose that Smith makes the following agreement with the Jones Corporation: Smith, for the rest of his life, will obey all orders, under whatever conditions, that the Jones Corporation wishes to lay down. Now, in libertarian theory there is nothing to prevent Smith from making this agreement, and from serving the Jones Corporation and from obeying the latter's orders indefinitely. The problem comes when, at some later date, Smith changes his mind and decides to leave. Shall he be held to his former voluntary promise? Our contention-and one that is fortunately upheld under present law-is that Smith's promise was not a valid (i-e.,not an enforceable) contract. There is no transfer of title in Smith's agreement, because Smith's control over his own body and will are inalienable. Since that control cannot be alienated, the agreement was not a valid contract, and therefore should not be enforceable. Smith's agreement was a mere promise, which it might be held he is morally obligated to keep, but which should not be legally obligatory.

[dannno]

I'm not sure what this will do to employment in the US. I'm subject to a non-compete agreement and so are my peers. We may see tons of people leaving their jobs and poaching by competitors. I suppose that's a good thing?? Maybe companies will be incentivized to pay more to keep their good employees??

But, I'm sure the consequences will be ugly. It's going to be harder for businesses to retain talent. Plus, the onboarding and training expenses are going to rise dramatically. This could impact the already pressured economy even more.

Ironically, it's also going to be much harder to get a job because the new employer has to make a significant investment in you without a safeguard against you leaving for a competitor. And once you get the job, it's going to be harder to get access to key information in the company that can help you succeed. This is going to get weird.

Yep.. I'm all for non-competes, it's a free market, voluntary agreement.

The exception might be for companies that receive government subsidies.

[Occam's Banana]

Not every contract has an exit clause, express or implied. It's on you if you don't read/author/modify the contract accordingly. Otherwise, I want my just compensation.

The "otherwise" is an exit clause.

Only if one skips the preceding sentence, reading left to right, not right to left ;-)

No.

If there is any mechanism for adjudicating and enforcing "just compensation" for contract-breaking, then ipso facto, that mechanism is an (at least) implied "exit clause".

[PAF]

No.

If there is any mechanism for adjudicating and enforcing "just compensation" for contract-breaking, then ipso facto, that mechanism is an (at least) implied "exit clause".

Upon further analysis.... you got me there ;-)

[acptulsa]

So then, do you believe that if you sign a piece of paper that permanently...

I've never in my life even seen an NDA that didn't sunset automatically after a stated period of time.

Are the ones that don't more or less common than the chupacabra?

[TheTexan]

I've never in my life even seen an NDA that didn't sunset automatically after a stated period of time.

Are the ones that don't more or less common than the chupacabra?

Having an expiry at a specified time does not qualify as an exit clause, because at that point the contract is already fulfilled.

[acptulsa]

Having an expiry at a specified time does not qualify as an exit clause, because at that point the contract is already fulfilled.

So?

I can't talk about NDAs in a thread about NDAs while you're talking about clauses?

[TheTexan]

So?

I can't talk about NDAs in a thread about NDAs while you're talking about clauses?

So, if a contract is unenforceable if its permanent, its also unenforceable if it expires after 90 or 60 or 30 years or even 3 days.

The duration of a contract is not relevant to its enforceability.

[fisharmor]

I'm not sure what this will do to employment in the US. I'm subject to a non-compete agreement and so are my peers. We may see tons of people leaving their jobs and poaching by competitors. I suppose that's a good thing?? Maybe companies will be incentivized to pay more to keep their good employees??

But, I'm sure the consequences will be ugly. It's going to be harder for businesses to retain talent. Plus, the onboarding and training expenses are going to rise dramatically. This could impact the already pressured economy even more.

Ironically, it's also going to be much harder to get a job because the new employer has to make a significant investment in you without a safeguard against you leaving for a competitor. And once you get the job, it's going to be harder to get access to key information in the company that can help you succeed. This is going to get weird.

Five months ago I started my first new job since 2001.
After 23 years I finally got a clue and realized despite what they had said in the past, they absolutely did not give a $#@! about me or anyone else working for them.
The place where I am now is marginally better, but if there's one hard-learned lesson I'm taking into this new job, it's that it's a job, not a career. I'm working diligently on updating certs and getting to the point where I can go anywhere.

Because I know corporatism makes it impossible to keep up with inflation. At least this company is giving out 'bonuses' (which I found out were commonplace 7-8 years ago, then stopped, and now they're bringing them back) to help combat rising costs. But my last employer started doing this too: never giving raises, and using windfall money to keep everyone quiet about it.

But you know what is guaranteed to get me a raise? A different job. Employers have to offer competitive wages to get new people in. I got nearly $10k extra base pay just moving jobs. If that's the way I can provide for my family, well, the fact that I'll be spending 1/4 to 1/2 of my time at that new job training only to move on is someone else's problem.

Eventually the people whose problem that is will get to the point of realizing they're not giving out pay raises fast enough to accommodate inflation and that yearly bonuses do not suffice. And some INTJ in the company will send a message to management that sounds a little too much like "how come you ivy league $#@!s haven't figured this out yet and could you please stop giving us platitudes about market forces we really don't give a $#@! about and just figure out how to pay us", and get fired.

But the third or fourth time it happens someone in upper management will finally pull his thumb out of his ass and say "huh, maybe there's something making all these people say they can't live on what we pay them" and one of them will write a book that makes it to the NYT best seller list and he'll get all the credit and a few extra million dollars for "figuring out" the thing several people's lives were ruined over trying to talk about.

Then there will be a sea change in American business, where people will get paid what they need to be paid to stick around.

Or, more likely, most of them will just be replaced with Indian robots with master's degrees who never sleep and work for $5 an hour. They'll never figure out how much of that work time they spend working on stuff that doesn't advance any company goals, but that won't be part of the value calculation.

[oyarde]

I dont think these will matter much in my old fields of manufacturing because they never did , no idea about govt tech jobs etc

[CaptUSA]

Eventually the people whose problem that is will get to the point of realizing they're not giving out pay raises fast enough to accommodate inflation and that yearly bonuses do not suffice. And some INTJ in the company will send a message to management that sounds a little too much like "how come you ivy league $#@!s haven't figured this out yet and could you please stop giving us platitudes about market forces we really don't give a $#@! about and just figure out how to pay us", and get fired.

That was me at my last job, except for the "get fired" part. I quit. And then the CEO and VP's started calling me trying to get me to reconsider. Sorry - you had your chance to listen. (My problems ran deeper than the compensation - it was the woke board, the bureaucratic incentives, their covid response, and of course, the pay)

But I do recognize the value of NCA's... This decision is likely unconstitutional. I know an insurance salesman that is sweating this. That's an industry that requires relatively low skills or knowledge to start, but requires good geographic networking. He's got NCA's in place that prohibits his employees from opening a business within 5 miles of his location after a year of them leaving. 5 miles isn't much, but if they leave, they may take some of his clients with them. This new dictate will dramatically change how he hires new people.

The fallout is going to be huge if this is allowed to stand. I get the other side, too. NCA's are often abused by employers. But this is throwing the baby out with the bath water.

[fisharmor]

I know an insurance salesman that is sweating this. That's an industry that requires relatively low skills or knowledge to start, but requires good geographic networking. He's got NCA's in place that prohibits his employees from opening a business within 5 miles of his location after a year of them leaving. 5 miles isn't much, but if they leave, they may take some of his clients with them. This new dictate will dramatically change how he hires new people.

There's an interesting case study. Interesting because while I'm sure your acquaintance is a decent guy, I have also spent a couple decades periodically being the guy to help clean up the technological shipwreck created by an IT salesman. So I'm a bit biased about them getting paid the amount they do (plus the perks) for the job they do.

What about mortgage sales? The people who call up and get you to refinance? We haven't been getting those calls recently because their entire industry suffered an apocalypse a few years ago. But some of them were really decent people who did what they did very well. I actually refinanced twice with the same guy because he did such a great job of it. And he's probably out of work, or doing something else now, and that entire company is probably gone. I feel for him, but things are different, and things had to change.

The market is merciless. If people aren't getting the maximum value for their dollar, they're not going to part with it easily. Lots of people want to change that calculus and bring the state to bear on the situation that brings them an advantage and "creates mercy" in the market. And in this case study, we have three sides: one, the business owner, who wants to bring the power of the state to bear on his employees and make the market less merciless to him. The second is the employee, who likewise wants the state to side with him, and make the market less merciless to his interest. And the third is the other sales situations where there has never been a state action on either side, allowing the market to act with zero mercy.

Lots of contracts are unenforceable and there are arguments to be made to that effect here. If I was making the argument, I'd say that an employment arrangement requires pay to count as employment. If the pay isn't happening, it's not employment. If someone owes some action or inaction to someone else and isn't paid for it, then that's slavery. There has to be a way to put NCA's in place that compensate the employee for it.

I agree with you that there will be lots of fallout from this. But I'm looking beyond the individuals who will be harmed in the short term and toward the bright future where there are a lot less salesmen in the world. Getting locked into a business model is the worst thing for all of us. Businesses either pivot and do something that works once the old ways are dead, and we all benefit from it collectively, or they get to force everyone to keep doing things in a way that allows them not to change. I know which way the market would have us go.

[acptulsa]

I'm sure it'll be a boon to sales of AI programs. Gotta help corporations prepare for the coming massive workforce shortages as the depopulation continues.

[ClaytonB]

I've never in my life even seen an NDA that didn't sunset automatically after a stated period of time.

Are the ones that don't more or less common than the chupacabra?

Every NDA I've signed has been a lifetime NDA regarding all IP and trade secret information. No sunset.

[acptulsa]

Every NDA I've signed has been a lifetime NDA regarding all IP and trade secret information. No sunset.

Interesting. I wouldn't have expected that of your field. As fast as the product becomes obsolete, that seems silly.