FTC: Where do we stand with noncompetes?

Recently, the FTC announced a rule banning noncompetes. 

The Federal Trade Commission issued a final rule to promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.

“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,” said FTC Chair Lina M. Khan. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The FTC estimates that the final rule banning noncompetes will lead to new business formation growing by 2.7% per year, resulting in more than 8,500 additional new businesses created each year. The final rule is expected to result in higher earnings for workers, with estimated earnings increasing for the average worker by an additional $524 per year, and it is expected to lower health care costs by up to $194 billion over the next decade. In addition, the final rule is expected to help drive innovation, leading to an estimated average increase of 17,000 to 29,000 more patents each year for the next 10 years under the final rule.

What does this mean for workers, particularly in healthcare?

“I applaud the FTC for making this decision against a wall of corporate opposition. This ban on noncompetes is going to benefit many American workers, especially in regards to physicians and their patients. Most people outside of healthcare don’t realize that for profit insurance companies and hospital systems have been forcing physicians to sign noncompetes – making it impossible for these physicians to find work in their communities if they should leave employment. This prevents physicians from quitting toxic workplaces or really pushing back against anything at their hospitals in fear of being unable to find work without moving to another city or state,” shares Sarah M. Worthy, CEO of DoorSpace.

The ban will ultimately help healthcare workers and give them autonomy that has long been needed in the US.

“This ban will enable physicians to walk away from those toxic workplaces and take their patients somewhere they can better care for them. It will most likely lead to reduced costs of care for patients as well. Unfortunately, this ban is still at risk of being overturned – and everyone of us needs to make sure our politicians know we support the elimination of noncompete agreements and make this ban a permanent federal law.”

With the new FTC rule, workers across various sectors, including healthcare, will experience significant shifts in their professional landscapes. For many, the elimination of noncompete clauses means an opportunity to pursue advancements or transitions without the fear of legal repercussions or enforced idleness. This freedom not only empowers individual career growth but also enhances the labor market’s overall flexibility and responsiveness to economic changes. Employees can now negotiate better terms, seek out employers who offer more competitive benefits, and contribute more effectively to their fields, thereby optimizing the quality of services and innovation.

The rule’s impact extends beyond individual workers to the broader economy. By facilitating easier movement of skilled workers, industries that were once stifled by restrictive noncompete agreements could see a surge in innovation and efficiency. This is particularly crucial in sectors like technology and healthcare, where rapid advancements are essential. The increased competition for talent is likely to drive up wages and improve job conditions, creating a more dynamic and competitive market environment. Furthermore, this shift may encourage a greater emphasis on employee retention strategies, including investment in training and development, which benefits the workforce at large.

Critics of the rule argue that it might lead to increased litigation as companies may seek other ways to protect their trade secrets and intellectual property. However, supporters contend that the long-term benefits of a more competitive and mobile workforce far outweigh these potential challenges. As the market adapts to these new regulations, it will be crucial for businesses to find a balance between protecting their interests and fostering an open, innovative working environment that can attract and retain top talent. This balance will be key to maintaining the competitive edge of American businesses in the global economy.