Historically, noncompete agreements have restricted employees from working in the same industry after leaving their former employer. Though the intention is to protect businesses’ intellectual property, noncompetes have often negatively affected competition in product and service markets, especially with Black workers.
In what has since created shockwaves across the nation, the Federal Trade Commission (FTC) voted 3-2 to ban noncompete agreements. The rule goes into effect 120 days after it is officially published in the Federal Register. This decision will undoubtedly have a significant impact on employers and employees alike.
But what about Black entrepreneurs?
The FTC defines a noncompete clause as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”
If written properly, most noncompetes have outlined specific restrictions of a current or former worker — who can be their employer, where they can work for said employer, and for how long they aren’t allowed to work — which can be unduly burdensome.
Imagine being told who to work for and who not to work for. That is a noncompete. Those who have signed noncompetes and wish to increase their salaries must either accept where they are or change industries and locations. These unnecessary hassles restrict a competitive market and perpetuate wage suppression.
About 18% of the workforce, about 30 million people, is covered by noncompete agreements. In the Black community, there’s a saying that goes, “If a white person has a cold, then a Black person has pneumonia.” What this essentially means is that if the majority of Americans are suffering from a particular thing, that thing already has, currently is, or will be suffered much more by Black people.
Here, if many Americans are experiencing the effects of wage suppression and restrictions in the market, then the Black community feels it worse. Add in Black workers who want to start their journey to entrepreneurship, and it becomes an almost impossible task.
FTC estimates that banning noncompetes could increase worker pay by $300 billion and lead to 8,500 more new businesses each year. For Black entrepreneurs, eliminating noncompetes can now open the door to new innovations, creativity, and fairer competition in the marketplace.
This ban can help business owners attract top talent, as there would be no restrictions on the mobility of skilled workers, thus strengthening their businesses and enhancing their competitiveness.
Several legal challenges will arise as the FTC implements its noncompete ban. Within 24 hours of the vote being published, the U.S. Chamber of Commerce, the world’s largest business organization, and the Business Roundtable, an association of chief executive officers of America’s leading companies, filed suit against the federal agency.
In a statement announcing the lawsuit, the U.S. Chamber of Commerce declared: “The FTC contends that by using regulation they can simply declare common business practices to be ‘unfair methods of competition’ and thus illegal. This is even though noncompete agreements have been around longer than the 110-year-old FTC, and until now, no one has suggested that they are illegal.”
It goes on to state, “If the FTC can regulate noncompete agreements, then they can decide to regulate or even ban any other business practice. All without a vote from Congress.”
If any of the federal courts that hear the cases decide to grant a stay or a preliminary injunction on the ruling, the effective date could be postponed. Then, if the cases are appealed thereafter, the ruling would be delayed for many more months.
Taalib Saber is an activist and attorney whose law practice areas include: education law, personal injury and civil and human rights law.