Why the US FTC Ban on Non-Competes is a Step in the Right Direction

 

As a HR professional, If you’re anything like me, you’re always keeping an eye on global trends, you probably saw the SHRM newsletter email about the FTC banning non-competes in the US.

The FTC voted 3-2 to ban most non-competes for U.S. workers. The final rule and discussion is over 500 pages long, but it is intentionally broad and captures most non-competes for both employees and independent contractors –

Now, let me share why this caught my attention. Just last week, I was reviewing a contract agreement that had a non-compete clause.

The employer’s stance?

The hired contractor couldn’t provide similar services to anyone else—individual or corporate—for a whole 10 years after working with them. Basically, it said the contractor couldn’t work for anyone even remotely similar to their company for TEN whole years after the contract ended!

That’s like saying a plumber can never fix a leaky tap, sink or faucet again after working in your house. Totally unreasonable, right?

So, I advised against signing the contract. Instead, I recommended pushing for a renegotiation with more reasonable terms. And of course, I emphasized the importance of seeking legal advice.

I can understand if you’re wondering what qualifies me, as an HR professional, to give advice about legal matters like this.

Let me break it down for you.

First off, being in HR means I have to know and apply employment laws like the back of my hand – both locally and internationally. It’s a huge part of my job. On top of that, my business management and MBA studies really drilled things like contract law, torts, and the legal side of operating a business into me.

I’m still learning about global labor laws all the time though, because it’s a constantly evolving field.

So while I may not be a lawyer, the legal side of HR and managing employees is deeply ingrained from my education and career experience. I hope that helps explain where I’m coming from on this.

Before I go on,

For those wondering what even is non-compete clause or agreement?

Here’s a basic definition: A non-compete agreement is a contract clause that says an employee can’t go work for a competitor or share company secrets after they leave. It basically bars them from direct competition for a set period of time after their employment ends. Employers use these to protect their market position and intellectual property.

Let’s get into the new FTC non-compete ban rule and my thoughts on it.

The US Federal Trade Commission (FTC) has taken a significant step by voting to ban non-compete clauses in contracts for American workers. This move is expected to have a considerable impact on the labor market, promoting competition and increasing the freedom of workers to change jobs. The FTC’s final rule is projected to foster innovation, boost new business formation by 2.7% per year, and result in higher earnings for workers.

The ban would apply to all workers, including employees, independent contractors, interns, and even some franchises. Essentially, it aims to eliminate practices that the FTC believes constitute an “unfair method of competition” and limit workers’ economic mobility.

“The Final Rule prohibits an employer from entering into, or attempting to enter into, a non-compete clause with a “worker” (including, e.g., employees and independent contractors) or representing that a worker is subject to a non-compete clause.[2] The Final Rule allows employers to maintain existing non-compete agreements with “senior executives,”[3] (those with over $151,164 annual compensation and in a policy making position for the business) but bars an employer from entering into, or attempting to enter into, a non-compete clause with a senior executive after the Effective Date of the Final Rule.[4]”

– Seyfarth Shaw

This move could have far-reaching implications, not just for the American workforce but also developing countries like Nigeria that have been grappling with the issue of non-compete agreements.

So Why a Ban on Non-Competes?

The way the FTC sees it, non-compete agreements have become super common these days, and they’re really holding workers back in some major ways.

For one, these agreements can totally suppress wage growth by limiting how easily people can jump between jobs and negotiate better pay. It keeps workers from having much leverage.

But it’s not just about the money.

The FTC argues that non-competes can straight up stifle innovation and competition too. Think about it – if employees can’t freely move between companies or start their own gigs, it makes it harder for new ideas and skills to spread.

The incumbents get to just dig their heels in without any disruption.

And at the end of the day, a lot of workers don’t really have a meaningful choice when signing these non-competes. The FTC believes it impairs their basic economic freedoms when they’re forced into it without real negotiating power.

So by banning non-competes altogether, the FTC wants to flip the script. They’re hoping it’ll promote healthy competition by letting the labor market flow freely. Workers could leverage their skills and experience however they want without archaic restrictions. And ideally, that spurs entrepreneurship and innovation rather than protecting stagnant monopolies.

From an anti-capitalist perspective, this non-compete ban is a solid step towards loosening the grip that corporations have held over workers for way too long. These non-compete clauses have been called out time and again for stripping away employees’ autonomy and agency.

At the end of the day, they’re just another way the system keeps the little guy chained to serving the interests of big capital over actual human beings.

By restricting where people can take their talents and skills, non-competes are like the poster child for capitalism’s mindset of putting profits before people’s wellbeing. It’s the embodiment of mega-corporations asserting: ‘You work for us on our terms, and screw your personal or financial aspirations if they don’t align with fattening our bottom line.’

That’s why I’m 100% on board with nuking these non-compete rackets.

It’s a meaningful attempt to rebalance some of the power disparities between companies and their workforce. If we really want to start dismantling the inherently exploitative structures that capitalism is built on, policies like this are a positive move in that direction. It helps re-empower workers to have more autonomy and bargaining leverage.

Let’s talk about Nigeria here:

For a developing nation like Nigeria, what could this mean for us if we adopting measures similar to the FTC’s proposed ban on non-compete agreements could be transformative in empowering workers and promoting more equitable economic policies.

Here’s my thoughts on what it could mean:

The reality is, in the current environment, many companies likely don’t strictly uphold non-compete agreements anyway due to tedious legal procedures and opaque laws. And employees frequently sign these without full understanding of what they’re agreeing to.

So on a practical level, instituting an outright ban may not radically upend corporate practices overnight compared to stricter regulatory environments. But symbolically and directionally, it represents a crucial step in signaling an emphasis on safeguarding worker’s rights and economic freedoms.

In a society where power dynamics have traditionally favored companies over individual workers, officially prohibiting these restricting contracts helps reset the balance. It establishes a policy stance of valuing labor mobility and autonomy over the consolidation of corporate control.

While enforcing such a ban would likely face challenges, it lays a philosophical foundation for further strengthening worker protections. It makes a statement about the government’s priorities when it comes to preventing exploitation of labor through legally dubious practices like non-competes.

Ultimately, while the practical impacts may be more incremental compared to stricter regulatory environments, taking a stand against non-compete clauses marks vital progress. It signals a commitment to empowering Nigerian workers and aligning policies with their interests over unbridled corporate power.

For a developing nation, adopting such a measure represents meaningful steps in the right direction – even if immediate sweeping changes don’t manifest overnight. It plants seeds for a shift towards more robust worker’s rights and protections over time.

So here’s my nuanced conclusion:

Okay, so the FTC’s proposed non-compete ban has been celebrated as a major win for workers’ rights. And I totally welcome it. But when you really start digging into how it could play out, especially in developing countries like Nigeria, things get a bit more nuanced.

On the one hand, abolishing these non-compete clauses could help even the playing field that has historically tipped way too far in corporations’ favor over labor.

By removing those restrictions, workers suddenly have way more mobility and freedom to seek out better gigs and really leverage their skills how they want – without those archaic legal handcuffs. That aligns with efforts to promote equity, entrepreneurship, and innovation instead of entrapping people.

But critics argue that outright banning non-competes throws the baby out with the bathwater. They say these agreements do serve some legitimate purposes for companies – like protecting trade secrets or recoups investments in employee training and development. An across-the-board prohibition could just disincentivize businesses from making those investments to begin with.

There are also just pragmatic concerns around enforcement in countries with legal systems already stretched too thin. Implementing a full non-compete ban may prove super challenging without robust regulatory structures and clear guidance on reasonable alternative protections like non-disclosure agreements.

At the end of the day, the non-compete debate really encapsulates the never-ending tug-of-war between the interests of capital versus labor. An ideal balanced approach would empower workers while still letting companies safeguard legitimately privileged information. But finding that nuanced middle ground is often way easier said than done when drafting actual policy.

For developing economies like Nigeria, banning non-competes marks a step towards more equitable economic policies – but it’s just one of many needed to genuinely fortify workers’ rights. Putting that ban into law signals progress, absolutely. But maximizing its positive impacts likely requires much broader reforms and strong enforcement mechanisms too.

As America and other nations, particularly developing ones consider actions like this, they have to carefully assess their unique situations. Non-compete bans could represent a transformative statement about prioritizing labor freedoms. But they also have to be coupled with robust efforts to cultivate competitive, innovative economies that create opportunity while still incentivizing corporate investment.

There’s no perfect one-size-fits-all solution here.

But taking on non-competes exemplifies the increasingly tough task developing countries face – nurturing economic growth while empowering workers in a way that aligns with modern realities. It’s a delicate balancing act for sure.