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Today was supposed to mark a significant shift in employment law in the US: the Federal Trade Commission’s (FTC) ban on non-compete clauses was set to go into effect. However, this anticipated change was blocked by a US District Court in Texas, leaving many wondering about the implications for small and medium-sized enterprises (SMEs) and the IT professionals they employ. This blog will explore non-compete clauses, how the ban may have affected the market, and what its block means for SMEs and IT professionals.
What Are Non-Compete Clauses?
Generally, non-compete clauses are contractual agreements that prevent employees from leaving a company to work for a competitor or start their own competing business within a specific geographic area and timeframe. These clauses are intended to protect a company’s trade secrets, client information, and other proprietary details. An estimated 18% of workers in the US are bound to a non-compete clause.
The specifics of non-compete agreements can vary widely. Some may restrict employees from working with any competitor, while others might limit their activities to specific industries or geographic regions.
About the FTC’s Proposed Ban
The US Federal Trade Commission (FTC) proposed a ban on all non-compete clauses except those that apply to senior executives. The ban aimed to address concerns that non-compete clauses are an “unfair method of competition.” The FTC argues that non-competes restrict career opportunities, suppress wage growth, and limit market innovation. It projects that doing away with non-competes would:
- Increase wages.
- Encourage more startups.
- Boost innovation.
The FTC argues that banning non-compete clauses would increase wages, new businesses, and innovation. (Image courtesy of the FTC: Source)
Enforceability and Challenges: Navigating Non-Compete Clauses in IT
The enforceability of non-compete clauses has been a point of contention for years. Courts generally evaluate these agreements based on their reasonableness in terms of duration, geographic scope, and necessity for protecting legitimate business interests. However, the rise of remote work has brought the practicality of geographic clauses into question.
In addition, non-compete clauses can penalize the development of niche skills or market specialization. This can be particularly challenging for IT professionals who specialize in certain industries or skill sets — a common growth path for IT professionals. Those working at MSPs looking for a job change, for example, may struggle to find an alternative without leaving the MSP space altogether, given that MSPs are usually strongly tied to geographical region.
What Does This Ruling Mean for SMEs and IT Professionals?
For SMEs, the ruling means that their trade secrets and competitive advantages will continue to be protected by existing non-compete agreements. This is an important protection for SMEs facing stiff competition. Safeguarding intellectual property is critical to small businesses as they establish themselves and grow. Further, this action may help prevent employee churn, which is particularly beneficial in the SME IT realm, where talent is expensive (both to hire and train for) and hard to come by.
For employees, the ruling means they remain bound by any non-compete agreements they’ve signed. While this may pose a challenge, IT professionals should remember that every sector needs IT expertise. Opportunities still abound, and navigating non-compete clauses thoughtfully can help in finding the right role in a dynamic job market. IT professionals who are considering a job change but are bound by a non-compete clause may consider picking up new skills and exploring alternative markets.
What’s Next?
Despite the block on this proposed ban, the FTC is exploring its options for appeal. The FTC notes that it can also continue to evaluate non-compete clauses on a case-by-case basis. View the FTC’s page on non-competes to learn more about their stance on the issue and what’s coming next.
Learn More about the SME IT Market
Understanding the job market as a whole, as well as specifics to the SME TI realm, is critical to planning and growing your career. For more insights into the current state of IT work and how IT professionals are navigating current challenges, download JumpCloud’s free 2024 SME IT Trends ebook.
