Why Non-Compete Agreements Can No Longer Derail Your Career
Episode 459 | Author: Emilie Aries
New legislation could make your non-compete obsolete in the near future.
Some exciting news for workers made headlines recently: there’s a really good chance that non-compete agreements are on their way out the door. In April 2024, the U.S. Federal Trade Commission voted to approve a set of regulations that will render this often problematic part of employment contracts largely unenforceable.
To this, I say good riddance! If you’ve ever been boxed in by an employer’s non-compete agreement, you are absolutely not alone. In fact, you’re in the company of around 30 million other Americans. In this episode and blog post, I break down where non-competes came from, the problems they cause
for workers, and explore what a future without them might look like.
What’s the goal of a non-compete agreement?
Non-compete agreements prevent employees from taking a job with competing businesses, usually within a specific time period or region around the company location, in the interest (at least originally) of protecting trade secrets. At first, it was mostly knowledge workers in consulting and professional service industries who had to agree to this rule when they signed a new contract. Over time, their popularity spread to encompass more working-class industries, including—as a 2023 New York Times opinion documentary revealed—service workers like hair stylists.
The big problem with this restriction is that it leaves a lot of workers handcuffed to their current jobs. In my opinion, when the rule is expanded to a wide range of industries, it ends up going far beyond protecting trade secrets to curtailing healthy labor market competition and the underlying principle of supply and demand.
When non-competes show up in non-unionized workplaces, in particular, they essentially eradicate the only bargaining power that an employee has when fighting for higher wages or better working conditions: their ability to leave for a better job elsewhere.
What do the new rules say?
Assuming legal challenges to the new ruling don’t win out (it’s looking promising), 120 days after the ruling passes (which would be August 21, 2024), existing non-competes across the nation will no longer be enforceable.
The one exception is for executives, who are defined as employees making more than $151,000 per year and “serving in a policy-making position” in their companies. These individuals will still be held to their existing non-competes, but should they begin a new executive-level job in the future, their employer will not be allowed to enforce a new one.
Employer’s intellectual property is still protected
If you’re wondering how any employer will be able to protect their intellectual property (their “IP”) once these changes kick in, worry not. It’s fair for entrepreneurs and other business leaders to be concerned about employees leaving and taking all the company’s hard work with them. I certainly would be upset if my employee brought all the excellent systems we’ve developed to one of my competitors.
But non-competes are far from the only way to protect intellectual property. NDAs or “non-disclosure agreements” prevent employees from sharing company creations, as do patent and specific trade secret laws. Rather than saying that IP isn’t worth protecting, this new legislation supports the belief that it’s not okay to protect your IP at the expense of employees’ options for freedom of movement within the free market.
What do you think of all this? Have you been impacted by a non-compete in the past? If you’re an employer or employee, how might this news affect you? Let’s keep this conversation going in the Courage Community on Facebook or in our group on LinkedIn.
Related Links From Today’s Episode:
Statistics from the Federal Reserve Bank of Minneapolis
New York Times “The Great American Labor Trap”
Jon Stewart’s interview with Lina Khan
HIRED: my Job Search Accelerator
Make your next best move with HIRED:
-
[INTRO MUSIC IN]
EMILIE: Hey, and welcome to Bossed Up podcast, episode 459. I'm your host, Emilie Aries, the founder and CEO of Bossed Up. And today I want to cover some recent news, hot off the presses, that relates to all of us as employees.
[INTRO MUSIC ENDS]
Particularly if you have felt boxed in by your employer's non-compete agreements, which may be embedded in your overall employment contract. It might be a separate agreement that you've had to sign over the years. The good news here is that non-compete agreements in America are going away. This is a long overdue ruling, in my opinion, and I am just so excited at this new rule passed by the Federal Trade Commission to make non-competes unenforceable nationwide starting after August 21 of this year. The ruling is currently being challenged, so it's not a done deal yet, but it's looking very good.
So, first, let me back up and just explain what is a non-compete agreement and who does it really impact? The non-compete agreement originated to protect trade secrets. So this was particularly relevant for white collar workers who were operating in, like, consulting environments or service industry environments, professional services, as they call it, who were, let's say, developing a methodology for consulting, for training, for, I don't know, developing a leadership paradigm or framework.
And it was geared towards preventing those employees who have that institutional knowledge, those trade secrets, from going away to their competitor, let's say, particularly in getting a job in a competitor who's nearby, to prevent them from taking those trade secrets with them. And they've become more widespread, particularly among the working class. I remember seeing an incredible New York Times Op-Doc, a really short video produced by the New York Times back in April of 2023 about people like hairstylists, whose entire careers and lives were ruined by non-compete agreements that felt like they handcuffed employees. Because one of the many people that was profiled for this particular mini doc had to, like, move states entirely to get a hairstylist job that wouldn't violate her non-compete agreement.
So these non-competes have gone, in my opinion, way beyond their intended use of protecting trade secrets to prevent healthy competition in our labor market, to prevent the whole concept of supply and demand from actually playing out, in favor of employers who want to have employees who feel trapped, who feel like they cannot switch jobs, who cannot work for their competitors, who cannot work in their industry, even in the geographic region.
So they've been, frankly, used in an exploitative manner, and they've expanded to impact nearly one in five US workers. So 18% of US workers are estimated to be covered by a non-compete agreement. That's 30 million people whose lives are about to get a lot freer, quite frankly, it doesn't mean they get to go work for their competitors, but at least they have a fighting chance of exploring their very options.
This is particularly relevant, by the way, in a non-unionized workplace, where the only real bargaining power you have, if your employer's exploiting you and you don't have a union to bargain collectively on your behalf, your only real power is to leave for another job. And non-compete agreements have historically prevented workers from doing so.
There's also some interesting demographic data that just became available through the survey of household economics and decision making. The shed study, that was a key study done by the Federal Reserve each year. And they've started conducting them only, like, a decade ago in 2013. But they added recently a question on non-compete agreements starting in their 2022 survey, there's some interesting demographic differences.
They found that men are somewhat more likely to have non-competes, not tremendously so, but slightly more likely to be under a non-compete agreement. Workers with four year college degrees are more likely to be in a non-compete agreement as well, although they're not exclusively the workers who are covered by them. And then industries vary widely in their use of non-competes.
Workers in professional services industries, the ones I mentioned at the top, constitute about 19%, Finance 18% of all workers with non-competes. And those are more likely to be impacted by non-compete agreements than workers in Construction, which can constitute 7%, Education, 7.8%, or Public Administration, which constitute 4.7% of workers with non-competes.
Non-compete agreements also tend to impact employees with higher family incomes. And so this has been sort of like a restriction historically placed on knowledge workers, on higher income workers. But what's particularly exploitative about how non-competes have expanded over the years in their use is that they've been used well beyond their intended purposes to lock in plenty of hairstylists and working class folks, too. Now, that's not to say that any of us should feel completely locked into an employment situation and unable to move on from your workplace situation.
But, you know, it's funny. One of my girlfriends here in Colorado is a doctor, a fertility doctor, who has a non-compete agreement that literally means that she's thinking about if she had to leave her employer, because, frankly, she feels very overworked and exploited and doesn't know how to draw the boundaries that she wants, because the workplace has really been designed around her martyring herself for her patients. And it's a really hard situation to just turn around overnight. She would literally have to uproot her family, sell her house, and move to another state, which is something she's strongly been considering in order to not violate her non-compete agreement. Does she like living in Colorado? Yes. Does she want to move? No. But given how her employment contract is set up, that is the kind of situation that keeps her in her place. Feeling without a voice, feeling without the ability to strongly negotiate, and feeling without the ability to really advocate for herself. Which, again, isn't what supply and demand was ever intended to be about.
So what does this actually mean for you if you have ever been or currently are under a non-compete agreement that will no longer be enforceable, 120 days after the passing of this rule. So the ruling already passed. The 120 day countdown is on. And technically, I did the math. It should be live, that rule should be enforceable by August 21 of this year. So let's say by September of 2024 your non-compete agreement is not enforceable.
There is, however, one small caveat. If you are currently an executive, which the FTC defines as someone who is making over about $151,000 a year and, quote, serving in a policy making position, then the non-compete you've already signed continues to be enforceable. If you go and get a new position, even at that level of seniority, $151K plus in a policymaking position of authority, they cannot create new non-compete agreements for those executives, moving forward.
Interestingly, if you are currently under a non-compete agreement, your employer is required to inform you that they do not plan to enforce that non-compete agreement within 120 days of the rule passing. I'd be very curious to see how few employers actually they're going to come through and be in compliance on that. So please let me know if you get that email from your employer. I'm sure HR folks just love keeping up with the constantly shifting nature of labor employment laws, [LAUGHTER] but here's another update for y'all.
So my last point I want to make here is in defense of employers. I'm an employer myself, after all. I feel like Irene and I, as an example, have developed quite a few methodologies at Bossed Up in terms of how we go about creating custom leadership development curriculum, our approach, our outlines. I really love, frankly, the systems and structures we've developed to be consistently excellent in my opinion and my humble opinion, in everything that we do. So it would be a bummer if Irene were to go off and get another job and take all those trade secrets with her.
And so, just to be clear. I'm not saying that your intellectual property is now a free for all because there are plenty of other legal mechanisms for protecting your employer's property without boxing in your employees and making them feel like they don't have choices, and they have to stay as an employee for you because they are coerced into doing so. And the simple answers boil down to a NDA agreement, a non-disclosure agreement that prohibits you from spilling the beans, from just downloading your hard drive from your work computer before you go off to work for a competitor.
Non-disclosure agreements cover a lot of those bases, and similarly, trade secrets laws that prohibit trade secrets from walking out the door when an employee does also protect employers who want to protect their trade secrets. So things like patents, NDAs, trade secrets laws, there are already many mechanisms in place in the law to protect employers intellectual property, that does not require exploiting your workers and making them feel like they have no options on the free market, because that is not what supply and demand is all about or has ever been all about.
If you want to retain your top talent as an employer, maybe start with better wages and better working conditions. I don't know, compete for them on the open labor market. Why don't you try that instead?
Now, I want to keep this podcast brief, but I just have to give one last shout out to Lina Khan, who is the chairwoman of the FTC right now, who has taken a huge role in activating, from my vantage point, the FTC and all that it was ever intended and designed to do as an agency for our Federal Government. So if you really believe, like I do, in the impact of innovative leadership, if you're the kind of person like me who believes one innovative, inspiring leader can change an entire organization, look no further than Lina Khan, okay?
She is breaking up monopolies, suing giant companies like tech companies that are the Metas and the Amazons of the world to actually enforce the antitrust laws that have been on the books in our country since the Great Depression, or following, I should say, the Great Depression. She's enforcing antitrust laws, strengthening the enforcement of consumer protections. And you can look no further than this really incredible interview she did very recently with Jon Stewart, who came back to host the Daily show once a week, and he ended her interview by saying, would you just stay forever? It's definitely worth a watch to get a sense of what an inspiring leader she is.
So this is, we have her to thank. We have Lina to thank in many ways. Now, to be clear, it wasn't just her there was a vote taken. The majority ruled that non-compete agreements should become non-enforceable. But I'm a big believer in Lina Khan's leadership as being a part of this. Maybe I should ask her to be on the pod to talk more about this.
Anywho, if you're now ready to break free from formerly feeling boxed in into your employment situation, I recommend you getting your job search assets together now so that you are ready to make your next best move come August and September, when these non-competes will no longer be enforceable.
So head to bossedup.org/gethired for my on demand job search course to help you navigate the modern job search and really set yourself up to get the next best job offer you can. As always, I want to hear what you have to say about today's episode, so keep the conversation going in the Bossed Up Courage Community on Facebook or in the Bossed Up group on LinkedIn. I can't wait to hear what you think of all this. Do non-compete agreements impact you or the people you love? Tell me all about it. What does this ruling mean to you? Are you an employer? Do you think this is going to make hiring more difficult?
[OUTRO MUSIC IN]
Tell me that too. I'm interested in, you know, I'm always interested in seeing the many sides to every issue. So let's keep a conversation going and until next time, let's keep bossin’ in pursuit of our purpose and together let's lift as we climb.
[OUTRO MUSIC ENDS]
