The Hunt

The Federal Trade Commission’s recent ban on noncompete agreements has a profound effect on business, especially in the areas of hiring and recruiting.  Employees can now more easily move between jobs which will lead to an increased number of candidates and higher wages. The new regulation will also challenge employers (especially small businesses) to find new ways to retain their talent. Here is how the FTC’s noncompete ban affects hiring.

Understanding the Noncompete Ban

On April 23, 2024, The Federal Trade Commission (FTC) approved a regulation to ban new noncompete agreements for all workers, including senior executives.  Existing noncompete agreements could still remain in effect for some senior executives, but for the vast majority of workers they will now be unenforceable following this regulation’s adoption (Fox News).

Most non-compete agreements are set up to ban employees, including fired executives, from seeking employment with specific competing firms within a geographic region for a length of time (such as two years). They are most commonly used in senior-level positions.  Several states already do not recognize noncompetes, including California.

Those in favor of the noncompete ban say that noncompete agreements unfairly limit competition, workers’ mobility, and lead to lower pay. Federal Trade Commission Chair Lina M. Khan states: “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism.”  She believes the ban will ensure Americans more freedoms and better working conditions.  President Biden agrees. “Workers ought to have the right to choose who they want to work for,” Biden states.

Those opposed to the ban say that noncompete agreements are necessary to protect employers’ proprietary trade secrets and relationships. Businesses (who are taking all the risk) are now more vulnerable as their trained employees are free to move to competitors and take intellectual capital and clients (revenue) with them.

Noncompete Ban Will Expand the Pool of Job Candidates

Without a noncompete agreement in place, employees will have greater freedom to move between employers.  This will enhance and increase the talent pool.  Federal Trade Commission Chair Lina Khan estimates that more than 8,500 new startups could be created within a year of the ban, and the FTC estimates the ban will boost new business formation by 2.7% per year, leading to the creation of 8,500 additional new businesses each year.

Noncompete Ban Will Lead to an Increase in Wages

With increased employee freedom to make job changes, it will get more expensive for businesses to retain workers. Skilled workers may be better able to negotiate their salaries up higher.  Businesses may need to work harder to retain talent by building a stronger company culture.  

Noncompete Ban Affects Businesses as they Hire and Retain Talent

With the new regulation, employers will be challenged to save their intellectual property.  When talent leaves for competitors, customer relationships are also at risk at the employer’s expense. Employers may need to find other ways such as non-disclosure agreements (NDAs) to protect trade secrets when employees move. 

With this new regulation, there is a potential for larger employers to poach talent from smaller employers due to their ability to pay more.  House Small Business Committee Chairman Roger Williams of Texas believes that the FTC is not properly considering small businesses with the new ruling.

What are your feelings about the FTC’s ban on noncompete agreements?  Do you agree or disagree with the new ruling and ban?

The recruiters at Artemis Consultants are committed to delivering extraordinary talent that helps companies advance and grow.  We provide candidates career opportunities which positively impact their lives. 

–Written exclusively for Artemis Consultants by Business Content Writer Mellody Melville