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The Federal Trade Commission voted 3-2 this week to ban noncompete agreements. While the FTC estimates that nearly one in five American workers is subject to a noncompete, these agreements haven’t been a huge issue in Silicon Valley, because they’re not enforceable in California.
This has arguably been one of the region’s competitive advantages, as it allows employees to start something new without worrying (in most cases) that they’ll have to spend the next few years battling their old employer in court.
With this ban, the FTC could give employees across the United States that same freedom. In fact, the commission claims this will lead to the creation of 8,500 new startups annually, as well as 17,000 to 29,000 additional patents in an average year.
Some caveats: This rule only applies to noncompetes, not non-disclosure agreements, so former employees can still get into legal hot water if their old company accuses them of spilling trade secrets. And while the FTC says most existing noncompetes will no longer be enforceable, existing noncompetes for senior executives will still hold.
Most significantly, the U.S. Chamber of Commerce says it will sue the FTC over the rule, arguing that the commission doesn’t have the legal authority to issue this kind of regulation.
Hit play, then let me know what you think! (And if you’re pining for your Alex Wilhelm, fear not: He’ll be back hosting the TechCrunch Minute next week.)
