FTC's Noncompete Ban Leaves Most Small Businesses Unfazed

By Sarah Lynch, Inc. (TNS)

Noncompete agreements have a long history in the U.S.—the Federal Trade Commission’s final rule in April banning these clauses could shake up practices at numerous companies. But most small business leaders believe they are in the clear.

Just 21 percent of small businesses think they will be impacted by the noncompete ban, according to a new survey of almost 500 small business leaders from the Wall Street Journal and executive coaching organization Vistage. More than four in 10 believe they won’t be impacted, and 36 percent are neutral.

That could be because noncompetes aren’t standard practice for many small businesses: Just 20 percent require all employees to sign them, and 22 percent require only some team members to do so—and most often senior leaders. Only 15 percent of CEOs have signed a noncompete agreement themselves.

The businesses that do use noncompetes are primarily concerned that “larger competitors can more easily attract employees with knowledge of proprietary information, intellectual property and marketable skills developed through training,” says Anne Petrik, vice president of research at Vistage. “Another protection that is at risk with the ban is that when an employee leaves, they might take clients and other employees with them, compounding the negative impact of losing one team member.”

The final rule will go into effect on September 4, according to the FTC. On that date, existing noncompetes will not be enforceable, with one exception: Existing noncompete agreements for senior executives—or workers “earning more than $151,164 who are in a ‘policy-making position'”—can stay in place.

Thus, some small business leaders may need to make changes in the coming months to stay compliant. But the FTC points to alternatives for noncompete agreements, including non-disclosure agreements, which could “still enable firms to protect their investments without having to enforce a noncompete,” per the agency’s press release.

Petrik says businesses that “focus on building an owner-mindset among their employees and a culture that drives retention” can also help ease this concern.

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