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Corporate America just lost one of its most powerful tools to keep people from getting better jobs.
Non-compete contracts that ban workers from finding a better job have been used to keep wages low, and even if you have never personally signed one of these agreements, they will almost CERTAINLY still be hurting you. Late last month the FTC banned these deals from being put into the contracts for MOST employees, and most existing non-competes will be phased out over the next three [3] months…Unless you run a business that relies on keeping employees in bad conditions for poor pay, this ruling will be good for you.
But… that doesn’t mean that corporate America is going down without a fight.
A non-compete agreement is a condition in a contract which bans an employee from working for a competitor company for some amount of time after they quit or get fired from their current position. Companies claimed that these terms were very important because they didn’t want to spend time and money training staff, and giving them proprietary information, just for them to get a job with their competitor and take all that valuable information over to them.
They have also said that without non-compete agreements their competitors could “free-ride” off them by just poaching their staff after they have made the investment into hiring and training inexperienced workers. The Federal Trade Commission and its controversial new chair Lina Khan have basically called this out as complete bull. In their announcement non-compete agreements being put into employment contracts, the FTC also said that even if this does hurt some big businesses that’s actually a good thing. The free-rider argument doesn’t really work because, those businesses could also attract their own talent from their competitors TOO, all they need to do is give their employees a more attractive job offer and most people are happy to switch jobs… f people do take company information with them, the FTC argues that the only group this is bad for is a company that doesn’t want to compete. Most successful companies are started by people who were previously employees working for a company in the same industry.
Gary Tann the CEO of Y-Combinator an early stage startup incubator has said that the best companies he deals with are ones started by people who first gained experience in the industry they want to disrupt, by working in it… The Federal Trade Commission estimates in their report that this new will lead to the formation of at least eight thousand five hundred [8,500+] extra businesses every year, and between seventeen thousand, and TWENTY NINE THOUSAND [17,000 - 29,000] new patents every year.
According to the organizations research these are all currently being blocked because people aren’t legally allowed to innovate or start a business. The only people that lose in this situation are the companies that don’t want to compete, which is why it’s the FTC not the Department of Labor that made this ruling. The FTC is normally the organization in charge of making sure that businesses aren’t forming monopolies. It does this by blocking mergers or acquisitions that would give the new mega corporation too much power. In the last three years FTC has been trying their best to stop some large company mergers but they have so far lost all of their recent cases in court, allowing the mergers to go ahead. The FTC can also break up companies that have too much market power but it hasn’t done that in over FOURTY YEARS…
So what the FTC really does most of the time is make rulings like, non-compete agreements being a form of anti-competitive practice, which is illegal. You wouldn’t think this would be a hard case for them to make since the words non-compete are right there in the name, but the FTC is already being sued over this ruling by an industry body representing companies.
But let’s be honest with one another, even though the companies and the FTC won’t admit it, non-compete agreements were never about competition between one company and another, it was about competition between a company and its employees.