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The Federal Trade Commission (FTC) recently proposed a rule that would effectively ban companies from using non-compete clauses to retain workers. The change would impact roughly 30 million Americans, ranging from sandwich shop employees and hairstylists to security guards and doctors.
In its ruling, the FTC maintains that these clauses prevent workers from pursuing better opportunities, would-be entrepreneurs from starting new companies, and employers from hiring top talent. The FTC estimates the new rule could boost employees’ earnings by almost $300 billion per year and make it easier to businesses to recruit new employees. However, not everyone is pleased with the potential ban. Some employers argue that non-compete clauses are essential to protect their trade secrets and investment in training employees.
When the rule takes effect, it could have far-reaching implications for business owners and employees. As a small business owner, here’s what you should know.
What the FTC’s proposed rule on non-compete clauses could mean for small businesses
- The current proposed rule is still being determined. The public has 60 days from the date of the proposal to offer comments. If the FTC goes ahead with the rule, it will go into effect 180 days after the final version is published.
- Under the current proposed rule, non-compete clauses will become illegal. The proposed rule would make it illegal for a business to enter into a non-compete with a worker or suggest that a non-compete clause binds the worker. This rule applies to independent contractors too.
- Business owners will need to withdraw existing non-competes. Not only would you have to formally withdraw any existing non-competes made with employees, vendors, interns, volunteers, and/or subcontractors, you would need to inform all workers that they no longer apply.
- Your business will need to find other legal means to protect trade secrets. If you are worried about protecting sensitive company information, now’s the time to make a plan. Non-disclosure agreements will likely be an excellent place to start.
- You can expect more skilled workers to be available. With non-compete clauses out of the way, you’ll have a bigger pool of potentially qualified employees to choose. Remember, you’ll want to offer competitive pay and benefits to score the most talented workers.
- Check out BBB’s ideas for recruiting and retaining employees. Please read about the latest 2023 workplace trends for hiring skilled employees and keeping them engaged.
For more information
Stay up to date on the latest news in small business by visiting the BBB business news feed. Learn more about training and retaining your new employees. Get more helpful advice at BBB’s Business HQ and business resources page.