Non-Compete Ban FAQs: Small Business Answers to Your Top Questions

The Federal Trade Commission (FTC) ban on non-compete agreements marks a major shift in the employer-employee landscape. Historically, non-compete restricted employees from moving to competitors or starting competing businesses, often within a specific geographic area and non-compete ruling aims to promote fair competition, boost talent mobility and spark innovation. The FTC’s bold action aims to unleash a wave of economic benefits, including a projected surge in entrepreneurship. Research suggests the ban could lead to the creation of around 8,500 new businesses annually. 

Why did the FTC take such a significant step as banning non-compete agreements?

The FTC acted because non-compete agreements hindered fair competition and harmed the economy. These agreements limited workers' ability to move freely between jobs, which suppressed wages and reduced bargaining power. Additionally, the restriction on the movement of knowledge and experience stifled innovation and discouraged potential entrepreneurs from launching their own ventures. 

When will the non-compete ban go into effect?

The FTC’s non-compete ban has a proposed effective date of May 11, 2024. However, the ban does face legal challenges, so it’s important to stay informed on any developments that alter the timeline.

Does the non-compete ban apply to my small business?

Yes, the FTC ban applies to virtually all businesses in the U.S., regardless of size and industry. The only narrow exceptions involve situations like the sale of business or some franchise agreements. If you’ve used non-compete clauses in the past, those restrictions very likely have been nullified by this new ruling. 

Can I still protect my company’s trade secrets?

Absolutely! Non-disclosure agreements (NDAs), confidentiality clauses, and trade secret laws remain essential tools for protecting your business's intellectual property. It’s crucial to have these agreements crafted by a legal professional and ensure they comply with your state laws. 

How will the non-compete ban affect my existing contracts?

It’s critical to have all existing employee contracts reviewed by an attorney. Non-compete clauses are likely unenforceable under the new FTC rule. You’ll need to remove those provisions and potentially update contracts to reflect new protections. 

How will the non-compete ban change the way I hire employees?

The ban opens a wider talent pool for your small business. You may now be able to attract skilled individuals who were previously restricted by non-compete agreements from competing companies. To compete in this new landscape, focus on building a strong employer brand, offering attractive compensation and benefits, and creating a positive work environment that will appeal to top talent. 

What are the exceptions to the non-compete ban? 

The FTC ban features extremely limited exceptions: These include: 

What are the consequences of violating a non-compete ban?

Since the FTC’s non-compete band renders the most of these agreements unenforceable, the consequences now largely shift to businesses that attempt to impose them: 

How can small businesses adjust to the new compete ban? 

The FTC’s dismantling of non-compete marks a shift towards a more dynamic competitive business landscape. By fostering a freer flow of talent and ideas, this decision could bolster innovation and lead to exciting opportunities within your industry and local community. While navigating this change may require some adjustments, the removal of non-compete creates a more fertile environment for current and aspiring entrepreneurs, ultimately benefiting the overall health of the US economy.