The US Federal Trade Commission (FTC) has implemented a final rule to prohibit noncompete agreements, safeguarding workers from what is often viewed as an exploitative provision. Noncompete clauses are commonly used by many companies across various industries in their employment contracts, particularly for senior staff. The ban on noncompetes is expected to have significant implications for a wide range of businesses.
This change also affects the gaming industry.
In the tech and gaming sectors, noncompete clauses have been a standard practice, aiming to prevent employees from accepting similar positions at rival companies. While these clauses benefit companies by safeguarding their trade secrets and expertise from competitors, they restrict employees’ career opportunities, hindering them from pursuing higher-paying and more rewarding roles elsewhere.
The FTC has justified the prohibition of noncompetes as a measure to enhance competition and foster the creation of new businesses. It estimates that approximately 8,500 new businesses (a 2.7% increase) will emerge annually in the US due to this rule. For employers in the gaming industry, this could lead to a broader pool of applicants, potentially alleviating the recent “skills shortage” observed in the industry.
Although this change may make it easier for companies to attract talented and experienced staff, there is also a risk of losing key employees who may choose to leave for better opportunities elsewhere.
Encouraging Competition
The FTC’s final rule is anticipated to result in higher earnings for employees by incentivizing them to stay with their current employer rather than seeking opportunities elsewhere. The average worker in the US is projected to earn an additional $524 per year, while healthcare costs could decrease by as much as $194 billion over the next decade.
It is also predicted that there will be an increase in the number of patents filed in the next ten years, as new ideas flourish without the constraints of noncompete agreements, including innovations within the realm of video games.
While employers may face challenges in retaining top talent and competing for replacements with higher salaries, the FTC suggests that businesses can still safeguard sensitive information through Non-Disclosure Agreements (NDAs), which the vast majority of American workers have already signed.
The Commission also recommends enhancing working conditions to ensure employee satisfaction and retention.
Empowering Choice
The FTC describes noncompetes as a widespread and often exploitative practice that limits workers’ ability to seek new employment or start their own businesses. Noncompete agreements can force employees to remain in undesirable jobs or incur significant costs and consequences, such as transitioning to lower-paying roles, relocating, exiting the workforce, or dealing with costly legal challenges.
Approximately 30 million workers, nearly one in five Americans, are currently bound by noncompete agreements.
Existing noncompetes for senior executives (representing less than 0.75% of the workforce) can remain valid after the ban is implemented. However, new noncompete agreements will not be enforceable, and existing agreements for “the vast majority of workers” will be voided.
The final rule, approved by a three-to-two vote, will take effect 120 days after its publication in the Federal Register.
FTC Chair Lina Khan stated, “Noncompete clauses suppress wages, stifle innovation, and hinder the dynamism of the American economy. The FTC’s ban on noncompetes will provide Americans with the freedom to pursue new opportunities, launch businesses, and bring fresh ideas to market.”
Earlier this month, the International Game Developers Association called for sustainable measures to prevent mass layoffs and retain talent in the industry.
