In our previous article, we discussed what noncompete agreements were and why companies use them. With that knowledge in mind, it is time to address the recent Federal Trade Commission’s (FTC) ruling on noncompetes and how companies and employees are reacting in the face of it. Is this ruling providing a one-sided benefit or is this a redistribution of power that could change the job market as we know it today? Read below to find out.

FTC Noncompete Ruling

In late April of 2024, the FTC ruled that noncompete agreements would be banned nationwide. This was done for several reasons, but the FTC focuses on a core few: to help facilitate the generation of new businesses and competition, a rise in worker wages, and a return of fundamental freedoms for employees who are looking to change jobs.

With noncompete agreements in play, employees would often either settle to stay in a job they did not like to continue pursuing their career or would have to find a new job outside of the realm of work they have come to know. The FTC states “noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism…”. The current outlook shows that we could look forward to the growth of competitive businesses in sectors that were previously held back through noncompete agreements, which will generate a competitive and innovate atmosphere amongst companies.

The Company’s Perspective: Protecting Valuable Assets

Noncompete agreements have been a crutch for companies looking to protect their business interests and maintain a competitive edge. By restricting former employees from working for competitors or starting rival ventures, these agreements safeguard a company’s trade secrets, proprietary information, and intellectual property. Without this tool, companies will have to come up with new reasons to encourage employee loyalty or protect trade secrets.

Instead of relying on restrictive covenants that can be burdensome and often unenforceable, companies can turn to nondisclosure agreements (NDAs) to safeguard their valuable intellectual property. NDAs:

• Establish clear boundaries and obligations around the handling of confidential information, ensuring that departing employees or business partners are legally bound to maintain the secrecy of sensitive data and trade secrets

• Focus on the specific information that needs protection, rather than broadly limiting an individual’s right to work

• Generally more easily enforceable in court, providing businesses with a stronger legal recourse should a breach occur

• Allows for a more balanced approach, one that respects the rights of employees and partners while still preserving the company’s competitive edge.

Without noncompetes, employers will have to come up with new ways to encourage and maintain employee retention. Some of the top ways to show employee appreciation and care are:

• Improved and competitive pay

• Comprehensive benefits

• Improved working conditions, including hours, schedules, breaks, and flexibility

The Employee’s Perspective: Restricting Career Opportunities

Noncompete agreements can pose significant downsides for employees, severely limiting their job mobility and stifling their entrepreneurial aspirations. These restrictive covenants often prevent workers from seeking employment with competing firms or starting their own businesses, trapping them in their current roles and reducing their bargaining power. With the banning of noncompete agreements, employees are able to enjoy benefits that have felt out of reach for some time now.

• Increased Mobility: By removing these restrictive clauses, employees are able to explore new job opportunities while at the height of their career. They are able to display the skills they have learned so far to find new roles that are at their level, instead of far below, ensuring that they will not feel like their years in one job are wasted when moving to another.

• Economic and Personal Growth: The lack of noncompetes allows for competition and growth, both amongst employees and companies. Employees will be able to take skills from work and innovate from there, creating a market that grows with time, constantly competing and offering new opportunities for those interested.

• Long-Term Benefits: More flexibility for employees means the growth of internal and external competition. Companies are able to pursue highly qualified employees, making the internal competition soar, which will often raise the quality of work provided as employees grow together. Externally, employees can become employers, opening up new jobs and creating competitive markets, which will help lower costs of services and products that have been locked at high levels for several years now.

Current Takes on the Ruling

Of course, not everyone is a fan of the FTC’s ruling on this matter. Some parties immediately moved to talking about the good intentions but ‘misdirection’ of the ban, while others have begun to discuss how to get around the ban without making any major changes. Simply put, despite the FTC’s ruling, it is entirely possible to consider this fight to have just started. Knowing the mindset of the companies you are looking to work for and how they react to rulings like these can be a very important indicator to how you will get along with future employers and fellow employees.

By working with a recruiter, you can ensure that you have someone who is trying to find you the right match, not just the first one. Radius recruiters match our employees and employers not only in terms of needs and skills, but also in factors such as mindset and personality, ensuring that quality partnerships are made. If you are looking for someone who can help you pursue the right job for you, then apply to our open roles on our job board or send in an updated resume to connect with a recruiter about unlisted opportunities today!