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NEWS | FTC Moves to Ban Noncompete Clauses

Comments to this working proposal are due in 60 days.

UPDATE: At the urgency of the small-business community, the FTC extended the comment period through April 19. NSBA encourages all affected parties to consider and comment.

The Federal Trade Commission (FTC) last week proposed rules, which would ban noncompete agreements across the board.

Citing concerns with how nearly one in five college grads are subject to strict noncompete agreements, as well as how noncompete agreements impose restraint on trade, the FTC is collecting comments on its proposed regulations over the next two months.

Until recently, governance of non-compete agreements has remained in the purview of the states. However, the FTC recently issued a ruling against three companies for their use of noncompetes.

Those rulings, plus this new, unilateral move into an area that typically is dealt with at the state level adds a layer of confusion as to whether or not FTC even has the authority to promulgate such rules.

According to a March 2022 FTC report, lack of competition for labor and restrictive covenant agreements “likely reduces” wages by as much as 20 percent.

The issue of noncompete and nondisclosure agreements is one that impacts various small businesses differently.

For many small, innovative businesses, noncompete and nondisclosure agreements ensure fair competition against larger companies that have greater ability to lure employees—and their working knowledge of the company—away from a smaller competitor. Faced with an already uneven playing field against larger, more powerful companies, noncompete agreements can help these companies better protect their intellectual property and processes from larger competitors.

On the other hand, noncompete agreements can be a barrier to new business formation for employees looking to start their own business in a similar industry, particularly when there aren’t major intellectual property issues at stake. Furthermore, enforcement of noncompete and nondisclosure agreements is far more difficult for a resource-strapped small business than it is a large corporation.

For more information on this proposal, including comment submissions regarding how this proposal affects small business employees and owners, follow NSBA and read more here.


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