By Talib Saber Afro
Historically, non-compete clauses have been used to restrict employees from working in the same industry after leaving their previous employer. While intended to protect a company’s intellectual property, non-compete clauses often have a negative impact on competition in the product and service market, especially with Black workers.
Since then, in a move that has sent shockwaves across the nation, the Federal Trade Commission (FTC) voted 3-2 to ban non-compete agreements. The ban will go into effect 120 days after the rule is officially published in the Federal Register. This decision will undoubtedly have a major impact on both employers and employees, but what about Black entrepreneurs?
The FTC defines a “non-compete clause” as: “A term or condition of employment that prohibits, penalizes, or prevents a worker from 1) seeking or accepting work in the United States with another person after termination of employment containing that term or condition, or 2) conducting business in the United States after termination of employment containing that term or condition.”
If properly drafted, most non-compete clauses outline specific restrictions on who can be the employer of a current or former employee, where they can work for that employer, and how long they are not allowed to work for that employer, which can be an undue burden. Imagine being told who you should and shouldn’t work for? That’s basically what a “non-compete clause” is. Anyone who signs a non-compete and wants a higher salary must either accept the status quo or change industry or even location. All of this is unnecessary hassle that limits a competitive market and perpetuates wage suppression.
I reviewed contracts for several Black clients who I’ve worked with in a variety of sectors, from technology to entertainment, and many of my clients were hoping to develop their businesses or put up what they call “signatures” as a way to kickstart their business, but were deterred by these non-compete clauses.
About 18% of the workforce, or about 30 million people, are subject to non-compete agreements. There is a saying in the black community that “if white people get colds, black people get pneumonia.” This basically means that if a majority of Americans suffer from a certain disease, that disease is already, is, or will be suffered by black people to a much greater extent. Now, if many Americans are affected by wage suppression and market limitations, the black community feels it more acutely. Add in black workers who want to start on their path to entrepreneurship, and it becomes a nearly impossible task to accomplish.
The FTC estimates that the impact of banning non-competes could increase worker wages by $300 billion and generate 8,500 new businesses each year. For Black entrepreneurs, the repeal of non-competes would open the door to new innovation, creativity, and fairer competition in the marketplace. By unrestricting the mobility of skilled labor, the ban would enable business owners to attract top talent, strengthening their businesses and making them more competitive.
That said, there will likely be several legal challenges to the FTC’s enforcement of the non-compete measures: Within 24 hours of the vote results being released, both the U.S. Chamber of Commerce, the world’s largest business organization, and the Business Roundtable, a group of chief executive officers of America’s largest companies, filed lawsuits against the federal agency.
In a statement announcing the lawsuit, the U.S. Chamber of Commerce declared: “The FTC argues that by using regulation it can easily declare common business practices to be ‘unfair competitive methods’ and therefore illegal. This is despite the fact that non-compete agreements have existed for over 110 years since the FTC was founded and to date no one has ever suggested that non-compete agreements are illegal.” It further states: “If the FTC can regulate non-compete agreements, it can decide to regulate or even prohibit other business practices without a vote of Congress.”
I believe we will see many more companies, organizations, associations, and groups sue and lobby against the FTC for overstepping its authority to regulate business transactions. Furthermore, if any of the federal courts hearing these cases issue stays or preliminary injunctions, the effective date could be delayed. If the cases are then appealed, the ruling could be delayed for several more months.
So while it may be some time before this non-compete law goes into effect, Black entrepreneurs should start preparing to take advantage of it.
