The Federal Trade Commission announced a new rule to ban non-compete agreements, an element of employee contracts that prevent workers from leaving to work for competitors, with a new rule that would radically change the U.S. labor market. Despite the rule facing challenges from business groups –– the U.S. Chamber of Commerce sued the FTC over its authority to ban non-competes –– experts say the impact of the FTC’s decision would be seismic for workers, companies and the economy.
“For me, this is something that is a long time coming and should have happened sooner,” says Samina Karim, professor of entrepreneurship and innovation at Northeastern University. “It doesn’t seem that non-competes are necessarily good for firms’ own profitability, it seems that it’s not necessarily good for innovation, it’s certainly not good for employee choice,” Karim adds. “Denying choice usually always leads to bad outcomes.”
The FTC projects that eliminating non-competes will lead to the formation of more than 8,500 new businesses per year, a $524 wage increase per year for the average worker and a $194 billion decrease in health care costs over the next decade. The FTC also says the ban will result in an average increase of 17,000 to 29,000 more patents each year for the next decade.
