The Federal Trade Commission voted 3-2 this week to ban non-compete agreements. Although the FTC estimates that nearly one in five American workers is subject to a non-compete clause, these agreements are not a major problem in Silicon Valley because they are not enforceable in California.
This is arguably one of the region’s competitive advantages, as it allows employees to start something new without fear (in most cases) of having to spend the next few years fighting against their former employer before the courts.
With this ban, the FTC could give the same freedom to employees across the United States. In fact, the commission says this will lead to the creation of 8,500 new startups per year, as well as an additional 17,000 to 29,000 patents in an average year.
A few caveats: This rule only applies to non-compete agreements, not non-disclosure agreements, so former employees may still find themselves in a sticky situation if their former company accuses them of disclosing secrets commercial. And even though the FTC says most existing non-competes will no longer be enforceable, existing executive non-competes will remain valid.
More importantly, the U.S. Chamber of Commerce said it would sue the FTC over the rule, arguing that the commission does not have the legal authority to issue this type of regulation.
Press play, then let me know what you think! (And if you’re craving your Alex Wilhelm, fear not: he’ll be back to host the TechCrunch Minute next week.)
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