In late April 2024, the Federal Trade Commission (FTC) released a ruling essentially banning both existing and new non-competes. The FTC predicts this ruling will lead to new business formation growing by 2.7% per year; equal to 8,500 new businesses. According to the FTC, 1 in 5 Americans work under a non-compete, under a variety of industries that goes beyond tech - from restaurants to security.
Now there are a few caveats - existing non-competes for senior executives can still be enforced, and there’s been no restrictions on NDAs. But for the most part, non-competes are now large unenforceable.
As recruiters, we’ve seen both sides of the non-compete debate. Many of our clients produce highly-technical, specialized products at the forefront of AI and Machine Learning. Losing even one employee to a competitor can pose a threat.
But we’ve also ran worked with clients trying to hire candidates with extensive non-competes. Clients will ask us: can I hire this candidate if they worked at XYZ company, or will I run the risk of being sued? Is that too close to our niche? And on occasion, we’ve even had offers fall through for clients - where either the candidate or the company were too nervous to sign the offer because of a non-compete.
Our thoughts? We agree with the FTC that we’ll see an uptick in employee movement and potential entrepreneurship. Over 26,000 public comments were submitted to the ruling, many from workers describing their non-competes as exploitative and unfair. So the greater public is definitely in favor of the ban.
But we also think employers may try to retain their existing workforce more than before, offering salary increases, title changes, or other perks. Employers may also group more of their roles under the “senior executive” category (defined as individuals with complex compensation, earning over $151K, and in “policy-making positions”) to in order enforce current non-competes.
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