COMP NEWS – The Federal Trade Commission has voted to ban non-compete agreements, a monumental decision that could shake up the U.S. labor market when the ruling goes into effect later this year.

The Federal Trade Commission (FTC) voted to ban non-compete agreements after more than a year of debate. Now that the ruling has been made, what’s next for employers — and the millions of employees who suddenly have a lot more professional freedom?

 

“[This is] something that many employees have been asking for,” says Christy Pruitt-Haynes, who serves on the leadership and performance faculty at NeuroLeadership Institute. “With a few minor exceptions, unless this is challenged, employees will be able to leave an organization and go work for anyone they want to. Non-competes have been challenged a number of times, and this ban solidifies the fact that they really restrict employees’ abilities to move and give organizations an unfair advantage.”

 

By signing a non-compete agreement, employees were restricted from working for a company’s rivals during or after their employment for a certain amount of time. These contracts are commonly used in multiple industries — such as sales and marketing, technology and healthcare — to cut down on competition and avoid the unwanted spread of trade secrets. 

 

Following the FTC’s ruling on April 23, employers will be prohibited from entering into new non-competes with employees, or enforcing existing non-competes with workers apart from senior executives — a classification Pruitt-Haynes says is surely a hot topic of conversation throughout C-suites this week. 

An estimated 30 million employees could be freed from their non-competes when the new rule goes into place in August, though potential legal challenges could push that date back.

While the rule does not take effect until August, organizations have a lot to think about over the next four months: According to the FTC, 30 million employees are currently under non-compete restrictions, and the new rule stipulates employers must communicate with workers that these clauses are no longer in place. This opens them up to the possibility of losing some very valuable talent should people decide to explore other employment options.

 

“Employers need to take this as a real wake up call,” says Pruitt-Haynes. “In the past, certain organizations used non-competes to hold on to key employees, because with certain jobs in certain industries there are skill sets that are very specific, so a non-compete really limits or prohibits people from being able to advance their career.”

To read more about the FTC’s ban on non-competes, click here.

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