5 mins

A major intervention by the Federal Trade Commission in the employment market could mean big changes for software developers, especially at the senior end of the market.

One of the biggest shake-ups in US employment law has the potential to materially change the talent market for software engineers. In April, the Federal Trade Commission (FTC) announced it was banning non-compete clauses in many contracts nationwide to kickstart competition in the market. These contract clauses are designed to prevent staff who depart a company from working for a competitor for a defined period of time, often the best part of a year.

“Non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned,” said FTC chair Lina Khan in a statement accompanying the rule change. “The FTC’s final rule to ban non-competes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”

The change, when it was announced in late April, shocked many – in part because of the ramifications it could have on the wider employment market. The Wall Street Journal cites research that one in five American workers are currently subject to non-competes. “The FTC’s final rule banning non-competes and similar contracts will both make it easier to move between jobs and raise wages across the board,” says Jonathan Harris, associate professor at Loyola Marymount University Law School in Los Angeles.

The impact on software developers

Banning non-competes could have a significant impact on the tech sector. “The FTC’s final rule banning non-competes and similar contracts applies to not only formal employees but also independent contractors, which many tech workers are classified as,” Harris says. 

As software engineers have become more valuable, so has the prevalence of non-compete clauses to try and keep them out of the grasp of competitors. While non-competes are relatively common for senior employees across the industry, they have cropped up lower down the career ladder for engineers over the years. This is especially prevalent in highly competitive markets where proprietary technology is a competitive difference. 

The potential for these situations to get ugly can be seen in the protracted legal battle between Uber and Waymo over the departure of one of the Google-owned division’s key engineers – Anthony Levandowski – who Google alleged also took confidential files with him. Due to California’s long-standing non-compete laws, Google couldn’t sue Levandowski directly, so it filed a lawsuit against Uber for trade secret theft instead. Amazon employees have also found themselves in difficult positions due to their non-compete agreements, as the Everything Store competes with virtually every other company.

The impact on engineering teams

“The new non-complete rules will mean more sophisticated engineering teams, increased career momentum for developers, and an overall more competitive landscape for senior engineering talent,” says Rachel Cohen, chief operating officer at Silicon Society.

Take California as a test case. The Golden State has had a de facto ban on non-compete clauses for 150 years that infamously allowed workers to hop between jobs during its golden era. More recently, however, big tech firms figured out ways to bind top employees, encouraging lawmakers to give the rules more teeth. Having only come into effect in January 2024, it’s difficult to assess if these changes will have the desired impact just yet.

Allowing talent to freely move from one firm to another breeds innovation and cross-pollination of ideas, the theory goes. “Without limits on what companies they can join, engineers can focus on career growth and skill development in a way that reflects their personal interests and goals,” Cohen says.

But it also raises the retention bar for businesses when it comes to valuable engineering talent. “Employers will need to work harder to retain and level-up their engineering teams and, if an engineer is not satisfied with the workflow or tech stack, they now have greater career mobility to work elsewhere,” Cohen says.

Things to look out for as an engineer

There are a few hitches, however, says Harris. Just because the FTC says that it’s going ahead, it doesn’t mean that businesses will accept such a material change to their past practices. He outlined all the ways that the change could improve businesses, before quickly adding: “This is, of course, if it’s upheld in the face of current court challenges.”

Beyond that, Harris worries that businesses will try and find new ways to get around the rule changes – which could leave devs and engineers in the same position they were beforehand. “Software engineers and developers should be wary of companies trying to lock them into their jobs using workarounds to non-competes, which would violate the spirit of the FTC’s final rule,” he says. 

The FTC, in drawing up their change to non-compete rules, tried to anticipate and head off companies finding ways around the system, by banning clauses like Training Repayment Agreement Provisions (TRAPs) that could keep workers from looking for new work. But where one door closes, others can open. 

“There are other ways companies are trying to get around bans on traditional non-competes,” says Harris, “including ‘liquidated damages’ clauses that make the worker pay a fixed sum to leave or even ‘unliquidated damages’ clauses that just say ‘you owe us our lost profits if you leave, plus attorneys’ fees and collection costs.’”

Another clause for concern – or at least attention if you’re a developer – is what Harris suggests could simply be a non-compete by another name: Income Share Agreements (ISAs). ISAs are common in coding boot camps, though he points out that they’ve already received greater scrutiny from regulators. 

And of course, just because companies can’t compel staff to stay through non-compete, it doesn’t mean they can’t in theory try to gag staff from spilling the secrets they learned through overzealous use of non-disclosure agreements (NDAs).

While businesses will always try to claw back control, even in the face of legislation designed to empower workers, the FTC’s move hints towards a country-wide tonal shift in how staff ought to be treated and could usher in a new wave of technical innovation.