FTC banning 'restrictive and exclusionary' noncompetes in the U.S.

The Federal Trade Commission (FTC) has issued a nationwide ban on noncompete agreements in the United States in a move that could have a notable impact on the video game industry.

Noncompete agreements have been used to prevent workers from changing roles within their industry, prohibiting them from leaving one company to immediately join another.

Last year, Game Developer spoke with a number of developers who suggested noncompetes were being used to dictate where and how they ply their trade.

During those conversations, we were told noncompetes can be used to intimidate or exert control (often before lawyers are brought into play), and that despite being banned in California—which plays home to a number of major studios—many workers in the region still found language in their contracts that seemed designed to stoke litigation fears.

Multiple devs who spoke out anonymously said that noncompete clauses are often baked into executive contracts to "lock" key figures into their roles. But at the other end of the spectrum, they might also prevent developers from making and releasing their own games as part of a side-hustle or personal project—especially if their employer considers those works to be "competing business."

On the whole, those who spoke out felt that noncompetes should be kicked to the curb, with one person branding them "shit" and another explaining their usage is akin to "leaving a big looming sword hanging above someone's head."

FTC claims noncompetes negatively affect competition

The FTC seems to agree. It claims the use of noncompetes is "restrictive and exclusionary conduct" that has a negative impact on competition within labor markets, and has now voted 3-to-2 to approve a new rule that will ban noncompetes for all workers in America when the regulation comes into effect in 120 days.

As highlighted by CBS News, companies will be able to enforce existing noncompetes within their senior executive teams when the rules comes into effect. All other noncompetes, however, will no longer be enforceable. New noncompetes will be completely prohibited across the board.

In a press release, the FTC estimates that banning noncompetes will result in reduced healthcare costs of between $74 billion to $194 billion over the next decade and a 2.7 percent increase in the rate of new firm formation—resulting in over 8,500 new businesses being established each year.

It also expects the move to support innovation and claims we could see "an average of 17,000-29,000 more patents each year for the next ten years." It adds that workers could even benefit from rising wages. "The average worker’s earnings will rise an estimated extra $524 per year," it states, noting that would mean "$400 billion to $488 billion in increased wages for workers over the next decade.

Although the vote passed, the U.S. Chamber of Commerce says it will attempt to block "this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked." The group, which advocates for U.S. corporations and businesses, says the ban will "undermine" businesses' ability to remain competitive.