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Non-competitive companies are dead and tech workers are free to roam

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Non-competitive companies are dead and tech workers are free to roam

More American workers will soon have the freedom to leave their employers to work for rivals, thanks to a new federal rule that will block the long-standing practice of locking up workers with noncompete agreements.

The US Federal Trade Commission on Tuesday issued a final rule which prohibits most non-competes nationwide. The agency estimated that by allowing people more freedom, the change would lead to the creation of 8,500 new businesses annually, an average annual wage increase of $524 for workers, lower health care costs and up to 29,000 more patents each year during the next decade. .

The FTC says that about one in five American workers is subject to contract clauses that prevent them from accepting new jobs from a competitor, or starting their own competing businesses, for any period of time. Agreements can trap workers and slow career advancement and salary increases, two things that workers often achieve by job-hopping.

The agreements also disproportionately affect workers in technology and other roles: 36 percent of engineers and architects work under non-compete conditions, as do 35 percent of workers in the computer science and mathematics fields, according to investigation from the Universities of Maryland and Michigan.

Under the FTC’s new rule, “tech workers will likely experience an increase in the external opportunities they face,” says Evan Starr, an associate business professor at the University of Maryland who worked on the research. “They will have more freedom to work where they want and will be more likely to receive higher salaries.”

Opponents of non-competitive practices say they harm workers by keeping them in lower-wage jobs and also stifle innovation, preventing people from starting their own businesses or implementing innovative ideas. Supporters of non-competes argue that the agreements encourage investment in personnel and protect trade secrets. but recent investigation de Starr indicates that prohibiting noncompetes has not led to an increase in trade secret litigation.

The new FTC rule has an exception to keep existing non-compete rules in place for top executives. But it prevents companies from creating new non-competes for these high-level workers. The rule is scheduled to take effect in about four months, but is expected to face challenges. Two dissident commissioners who nay the rule was deemed to exceed the power of the FTC. The US Chamber of Commerce quickly Announced after the rule was passed that he will sue to try to block it.

Several states, including tech hub California, have already banned non-compete rules. But a recent reversal has made the issue resonate in dozens of states. In the 2023 legislative session, 38 states introduced 81 bills seeking to prohibit or restrict the application of noncompete laws. California’s long-standing law is seen as part of the reason Silicon Valley became a center of innovationwhile the once-similar Massachusetts tech corridor did not skyrocket in the same way.

Technology executive Daniel Powers has fought non-competitives twice in his career. In 2010, IBM tried to delay a year moving from New York to Seattle to work for Amazon Web Services, the online retailer’s cloud division. The parties agreed that Powers would take six months off. Fortunately for Powers, Amazon agreed to pay him even when he couldn’t work.

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