On Tuesday, April 23, 2024, the Federal Trade Commission (FTC) voted to ban noncompete clauses—language in employment contracts that prevents departed employees from working for competitors after a set period of time.
The ruling not only bans new noncompete clauses from being signed, but would void existing ones—however, there is an exception to noncompete clauses covering senior executives. According to the FTC, banning noncompete clauses could raise worker pay by as much as $300 billion annually.
As of now, the ruling is scheduled to go into effect around August 2024—120 days after the initial 3-2 vote by the FTC. Reporting suggests that lawsuits against the ruling could delay this timeline (the Chamber of Commerce has expressed that it is seeking to block the ban).
President Biden commented on the ruling via X (formerly Twitter), describing the clauses as, “contracts that employers use to prevent their workers from changing jobs even if that job will pay a few dollars more, or provide better working conditions,” and saying, “Workers ought to have the right to choose who they want to work for.”
The President’s comments echo criticisms of noncompete agreements as an anti-labor and anti-competitive practice that deprive workers of their last recourse: to go elsewhere.
In some states, including Texas, the non-compete clause remains enforceable even if the employee is laid off (i.e., left the company not of their own choosing). Even prospective interns are sometimes faced with signing noncompete clauses, despite the transient nature of their work.
In turn, noncompete clause opponents such as U.S. Secretary of Labor Robert Reich claim other companies in the field (either existing ones or one that may exist should the noncompete clause-covered worker choose to become an entrepreneur) are deprived of the assets these workers can bring.
Businesses that use noncompete clauses claim they are necessary to protect trade secrets and intellectual property. The estimated 18% of American workers covered under these agreements include high-level and leadership employees.
This is where the ruling is most relevant to real estate professionals. Since real estate agents are generally independent contractors, noncompete clauses aren’t a factor for them. Brokerage support staff and C-suite leadership, though, are considered employees.
If this ruling goes into effect, support staff could feel more freedom to hop between brokerages.
Ken Baris, president of Berkshire Hathaway HomeServices Jordan Baris Realty, told RISMedia he is in favor of the ruling, saying his own brokerage long ago phased out noncompete agreements as they are “unenforceable.”
“We firmly believe if we’re not the right home for somebody and they want to go work somewhere else, they should be able to work anywhere they want. So if you’re with us and you choose to leave, you can go and work anywhere you want. But we have language that protects us from people doing business with the leads and clients they generated while working with us,” Baris explained. “In our industry, your best approach is to have the best possible organization.”
Jillian Young, president of Premiere Plus Realty, also spoke favorably of the ruling.
“We believe that this is going to take the fear away from employees from looking for more opportunities that could serve their needs better. If we’re going to be pro-employee and create healthy environments, we need to level up our culture, our offerings, our compensation and our HR processes so that we would be brokerages that employees don’t want to leave. If you’re operating a brokerage out of fear that employees will leave or start a competing brokerage or whatnot, then I think it behooves brokers to look internally and say, ‘What’s broken here? Is it our culture?’”
The carve-out for executive-level employees’ contracts means they could still face a barrier to changing companies in a quick period.
If you’re a brokerage employee, now is a good time to discuss your contract with your broker.
