Having worked in the tech industry for as long as I have, I’m super familiar with noncompete agreements. You know, the idea that because you learned something at a place you worked, you’re not allowed to go somewhere else that will take advantage of that learning. Or that you can’t go out and start a company based on an opportunity you uncovered through that learning. Well, now those agreements may no longer have any teeth.
I’ve been following the arguments against noncompetes for more than a decade, especially in regards to the criticism that they stifle startup activity and innovation.
“So the next time someone asks you what the public sector can do to foster innovation, don’t let them walk away thinking tax policy is what matters — remind them that talent, not capital, is the key ingredient in innovation, and ask them to help strike down the enforceability of non-compete agreements in Washington State,” GeekWire quoted investor Chris DeVore nearly a decade ago.
Now, it looks like that might be happening on a national level.
The FTC estimates about 30 million people, or one in five American workers, from minimum wage earners to CEOs, are bound by noncompetes. It says the policy change could lead to increased wages totaling nearly $300 billion per year by encouraging people to swap jobs freely.
Will this encourage more startup activity…? Or will this result in talented folks remaining in more established organizations that have the potential to be the highest bidder…? It remains to be seen. But it’s worth watching.
As always, I’ll be hopeful that it results in more startup activity.
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The elimination of non-competes is a good thing and I’m in favor. I do wonder if a negative outcome will be longer earn-out periods and other more challenging acquisition terms for founders. Acquiring companies are going to do something in lieu of non-competes to prevent the acquired company’s founders from quickly starting another company that does roughly the same thing, right?