It’s funny to me what regulations catch the attention of the small- and mid-sized business owners who are my clients.
Some know that new rules from the Department of Labor (DOL) may require them to make their independent contractors employees. Others are familiar with another rule from the Department of Labor that will require them to pay more overtime wages later this year. But few are aware of new harassment regulations from the Equal Employment Opportunity Commission that make them responsible for their employees’ behavior both in and out of the office. And even fewer know about the Corporate Transparency Act, which will require millions of entities to disclose their “beneficial owners” to the government by year end or face stiff penalties.
All of these Biden administration rules place more burdens on businesses, whether they realize it or not. But there’s one new ruling from the administration everyone seems to know about: last month’s announcement about the pending ban on non-compete agreements.
The Federal Trade Commission (FTC) has officially stated that — effective sometime in the next four months — companies will no longer be able to use non-compete clauses or agreements with their employees. In other words, employees can leave their employer and work for a competitor down the street or start a competing business next door if they so choose. This is an unprecedented move and has motivated large business associations like the U.S. Chamber of Commerce to litigate. Other business groups are following their lead.
These lawsuits may succeed, and most definitely will delay the non-compete ban. Another roadblock will be the pending decision from the Supreme Court this summer (the “Chevron Doctrine”), which may dilute the power of government departments and agencies like the FTC and DOL to implement laws passed by Congress and create even more lawsuits. And, of course, a change in presidential administrations next January would likely suspend this rule altogether, along with many other rules issued by departments and agencies of the Biden administration — because these are rules, not laws.
It’s all uncertain and no one knows the outcome. But that’s of little comfort to someone running a business. When it comes to the non-compete rule, what do they do?
I say relax and don’t worry: regardless of the lawsuits and the upcoming elections, it’s not hard for companies to get around this rule. How? By re-visiting and stepping up confidentiality agreements.
Do business owners really care if an employee leaves their company to work for a competitor down the street or start their own competing business? Of course we hate to lose good talent, and every loss of a good worker is a failure. But we can’t control what people do. What we really care about is that the employee does not takes our trade secrets with them for the benefit of their new employer. That’s the main reason why we make them sign non-competes.
The good news for employers is that the non-compete ban doesn’t impact confidentiality or non-disclosure (NDA) agreements. So in the next four months, before the ban takes effect, my advice to all employers is to re-visit these agreements and make them as iron-clad as possible, with draconian repercussions to any ex-employee (and their new employer) if there’s a whiff that customer lists, processes, supplier prices or any other proprietary information has been taken.
I suggest using AI — ChatGPT, Gemini, CoPilot or Anthropic — to take a first crack at this new agreement. After that you should take that first draft to a smart attorney who can give it even more teeth. Then you should have all of your key current and future employees sign this updated agreement as a condition of employment. You can combine this exercise with the FTC’s requirement that you disclose the non-compete ban to your workforce because hey, why not kill two birds with one stone?
If the FTC wants to stop employers from limiting workers changing jobs because, according to chair Lina Khan, it “keeps wages low, suppresses new ideas and robs the American economy of dynamism,” then fair enough: let them switch jobs to that competitor down the street. Maybe the lawsuits will stop this. Or maybe Donald Trump will be toss her out come the beginning of 2025.
In the end, I’m not so sure that banning non-competes is such a big deal. That’s because it’s not just about the employee — it’s more about trade secrets that the employee has. Businesses can easily get around this ban by strengthening their confidentiality agreements. While there’s still time, I strongly suggest taking this action.
Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.