A market without competition is without growth, innovation, or economic moderators. A non-compete clause is a tool that, when enforced, can create stagnation. Not a great way to grow a vibrant economy, Colorado small business owner Tracy duCharme recently testified at a listening session with Federal Trade Commission (FTC) Chair Lina Khan hosted by Small Business Majority. Tracy once used non-competes but later realized that these agreements prevented natural competition, which is valuable to innovation and small business growth.
As a former small business owner, I know firsthand that these agreements are unnecessary to protect proprietary assets. Before starting Small Business Majority, I founded and ran my business for 12 years in California. California is one of three statesthe other two being Oklahoma and North Dakotathat prohibit the enforcement of non-compete agreements. It was exciting to be part of the new and growing interactive communications field and be free to hire whomever I wanted. I still have close ties to many small businesses in California, and their entrepreneurial spirit has never suffered from Californias ban on non-competes. This is one reason why I believe President Joe Biden was right to encourage the FTC to ban non-compete agreements during his second State of the Union addressand why the FTC should enact its proposed rule to ban non-competes.
Most non-compete clauses are antithetical to the free, fair, and open competition essential to a thriving, inclusive, and equitable economy. Not only do non-compete clauses hinder workers ability to maximize their value in our economy, but they are also a significant impediment to entrepreneurship, particularly for people in our most under-resourced communities.
I am not alone in calling for a ban on most non-compete agreements. Small Business Majoritys nationwide recent survey of more than 300 small businesses found that nearly six in 10 small businesses support the FTCs proposed ban. Almost half of the respondents had been subjected to a non-compete agreement that prevented them from starting or expanding their businessand more than a third had been prevented from hiring an employee due to a non-compete agreement.
Entrepreneurs in our small business network have shared that from their personal experiences, they see non-competes only benefiting large companies with the resources to hamstring their competition. Michigan small business owner and Small Business Majority National Council member Leo Carr noted that he could start and grow his agency because he was not restricted by a non-compete clause. He freely pursued work elsewhere and used this opportunity to cultivate strong relationships in his field and build a reputation for having diverse experiences.
Others have shared that while they feel forced to add a non-compete clause to contracts to compete with larger companies for talent, they prefer not to limit their employees. They find it unfair to enforce an agreement that prevents an employee from pursuing other opportunities that may be better suited for their evolving occupational needs.
Getting rid of this restrictive clause is not only good for the small business community, but its also good for our national economy. More than 30 million people are affected by non-compete agreements, significantly limiting hiring and wage negotiation power for people seeking growth and new opportunities.
The ideal American dream is built on anyone being able to attain their own version of success. Entrepreneurship provides a pathway toward success based on the idea that everyone in the business community will have the ability to operate in an open and fair competitive market. However, non-compete agreements contribute to corporate concentration and thus higher prices by limiting new entrants into the economy. Non-compete agreements often favor larger, well-heeled companies with the resources to promote and adjust their goods and services based on the market. With less competition, prices increase, creating an environment unsuitable for innovators, consumers, or small business employees who rely on productivity for job growth.
The FTC comment period on the proposed rule to ban non-competes closed on Apr. 19. Before the comment period ended, more than 400 small businesses and small business organizations urged the FTC to enact this rule. We hope the FTC listens to the true voices of small business owners and removes restrictions that unfairly trap this community in a state of immobility.
John Arensmeyer is the founder and CEO of Small Business Majority.
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