US workers gain more freedom to change jobs as government bans noncompete agreements

The US Federal Trade Commission (FTC) has dealt a blow to restrictive employment practices by issuing a final rule that bans most noncompete agreements nationwideThe US Federal Trade Commission (FTC) has dealt a blow to restrictive employment practices by issuing a final rule that bans most noncompete agreements nationwide. This means millions of American workers will soon have more freedom to leave their current employers for jobs with competitors or even start their own businesses. The FTC estimates this change will have a significant positive impact on the economy. The agency predicts the creation of 8,500 new businesses every year, along with an average annual pay increase of $524 for workers. Additionally, the rule is expected to lead to lower healthcare costs and a surge in innovation, with estimates suggesting as many as 29,000 more patents filed each year in the coming decade.

Previously, an estimated one in five American workers were bound by noncompete agreements, which restrict them from taking jobs with competitors or starting their own competing businesses for a specific period after leaving their current employer. These agreements were seen as a barrier to career advancement and wage growth, as workers often achieve these by switching jobs.

The impact of noncompetes was particularly acute in tech and other specialized fields. Research shows that a staggering 36 percent of engineers and architects, and 35 percent of workers in computer and math fields, were subject to noncompete clauses.

“Tech workers will likely see a significant increase in their job opportunities,” says Evan Starr, a University of Maryland professor who studies noncompete agreements. “They will have more freedom to choose where they work and can expect to command higher salaries.”

Proponents of the ban argue that noncompete agreements stifle innovation and worker mobility, keeping them trapped in potentially lower-paying jobs. They also argue that such agreements don’t effectively protect trade secrets, as recent research suggests.

The FTC’s rule exempts existing noncompete agreements for senior executives but prevents companies from creating new ones for these high-level employees. The rule is expected to take effect in four months but faces potential legal challenges. Two FTC commissioners voted against the rule, arguing that it exceeds the agency’s authority. Additionally, the US Chamber of Commerce has already announced plans to sue to block the rule’s implementation.

The FTC’s decision comes amidst a growing movement against noncompete agreements. Several states, including California, have already banned their enforcement. In 2023 alone, 38 states introduced bills aimed at restricting or banning noncompetes entirely. California’s longstanding ban on noncompetes is often credited with fostering the innovation boom in Silicon Valley, while a similar tech hub in Massachusetts, with less restrictive rules, hasn’t seen the same level of success. The FTC’s decision is likely to accelerate this trend and empower American workers to pursue better opportunities.