It’s officially time to sunset the noncompete clause that’s become a standard fixture of tech employment contracts. On Tuesday, the Federal Trade Commission (FTC) put out a new rule that bans noncompetes nationwide. This rule, which could go into effect in four months, gives workers more freedom to switch jobs, encourages the pursuit of new ideas, and supports the creation of new businesses.
An estimated one in five U.S. workers are bound by noncompete restrictions, and they tend to be common in the tech industry, specifically in engineering, computer, and math roles. For tech companies, noncompete agreements are a way that organizations protect their intellectual property, like proprietary technology, software, designs, algorithms, or patents. Noncompete agreements specify that employees won’t leave their job to work for a competitor or start a competing business.
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But, as this new rule outlines, noncompete agreements only stifle innovation and hurt workers’ career growth and earning potential. “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said in a statement.
So, what’s all this mean for someone who’s working in a tech role with a noncompete clause? Or folks who are upskilling in hopes that they can get a better position? Ahead, we’ll break down the news and what it means for the tech industry at large.
What are noncompete agreements?
There’s typically a noncompete clause in the employment contract that you sign when you start a job. The exact language in the clause can vary, but a noncompete essentially prohibits you from “competing” with your employer while you’re employed and even a year after you leave a company (whether you quit, left involuntarily, or got laid off). Competing in this case means working for a company that’s considered a competitor because they develop and offer the same type of services as your employer. In some cases, noncompete clauses are broad enough that they prevent you from working in the same industry altogether.
For example, say you’re working for a fintech app and come across an open role at another fintech org that seems like a perfect fit for your skillset and expertise. It’s exactly what you’re looking for in a new role, and better yet, the salary is higher than your current one. If you signed a noncompete when you got your current job, that clause could technically disqualify you from moving to the new fintech job.
Whether noncompete agreements are legally binding or enforced depends on where you are. Some states like California, Minnesota, North Dakota, and Oklahoma had already done away with noncompete agreements. And in states like Washington, Oregon, and Illinois, they’re prohibited specifically for lower-paid workers. The new FTC rule doesn’t apply to Senior Executives, workers earning more than $151,164 who are in a “policy-making position.”
What does banning noncompetes mean for tech workers?
This ban gives people leverage to change jobs on their own accord, which might not sound like much at first glance, but is an upshot. Being able to freely change jobs means you can accept a higher-paying position, leave a toxic work environment, or finally make your startup idea a reality. Ultimately, it gives workers more options to seek out work that aligns with their goals, skills, and beliefs, rather than being tied down to a specific company or organization.
If workers are more empowered to change jobs, it could also mean that companies will have to work harder to retain the employees they already have, according to Andy Wu, Assistant Professor at Harvard Business School who researches how tech companies build competitive advantage. For example, employers might have to compromise on perks they know matter to employees, like hybrid work models, he said in an interview with Harvard Business School.
If you agreed to a noncompete at your current job, your employer is required to notify you that the noncompete is no longer in effect or enforceable, according to the FTC. Can’t remember if you signed a noncompete? You might want to dig up your employment contract or ask your People Ops team for a copy.
How does this affect the technical job market?
For job seekers, this ban means you have more options. You can go after a job at a competitor without being asked to enter a noncompete agreement. With a wider range of opportunities, you stand to earn more money: The FTC predicts that workers’ earnings will rise an estimated $524 a year on average.
You might start seeing more startups launching, because people who were previously hindered by a noncompete have the green light to start their own business. With this rule, new business formation will grow by 2.7%, creating over 8,500 new businesses each year, according to the FTC. We could also see measurable increases in innovation, with an average estimated increase of 17,000 to 29,000 more patents each year over the next decade.
There’s enough to stress about when you’re looking for a job, especially in the competitive labor market right now. Hopefully this cultural shift helps job seekers like you get hired and do impactful work. If you’re looking for more tips for finding a job, check out these blogs about how to look for a job when you already have one and how to change careers without changing companies. Or reflect on what to do when you feel stagnant at work and want to make a change. And as you’re going through the application process, don’t forget to try our AI-driven career prep resources like the Interview Simulator and job-readiness checker.
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