Should Non-Compete Agreements Be Banned by the FTC?

One of the most talked about issues with people changing jobs or selling their companies is the necessity and validity of non-compete agreements. This employment law varies by state with California being the strictest against people signing them. Are they and should they be legal is something that the FTC is discussing and their decision could affect 30 million people.

On the Small Business Radio Show this week, I talked with Frank Cullen who is executive director of the Council for Innovation Promotion. This organization is a bipartisan coalition dedicated to promoting strong and effective intellectual property rights that drive innovation, boost economic competitiveness, and improve lives everywhere.

Frank Cullen

This is what Frank and I discussed:

The history of non-compete agreements goes back 500 years in America and is ingrained in American business.

The question of whether these agreements are good or bad for business? Frank states that noncompete agreements are signed by approximately 80% of high-level executives so to outright ban them would impact these companies tremendously.

Are there any advantages to these agreements for the people that sign them? How do you balance a non-compete with people’s right to work? Can a company prevent a former employee working for a competitor if they are not using their former employer’s intellectual property? Frank states that some employees can negotiate higher compensation or severance when signing these agreements.

Frank discusses how non-competes do not need to be banned since there are current legal precedents that protect against over-reaching agreements already. For example, agreements that extend over a few years or are too broad can be invalidated by the courts.

Frank emphasizes that noncompete agreements prevent trade secret theft and thereby protect American innovation in vital sectors like technology and engineering. He gives examples of how noncompete agreements have prevented trade secret theft in the past.

Listen to the entire interview with Frank Cullen on non-compete agreements on The Small Business Radio Show.

Image: Frank Cullen

Small Business Radio Show As a small business expert, Barry Moltz gets owners growing again by unlocking their long forgotten potential. With decades of entrepreneurial experience in his own business ventures as well as consulting countless other entrepreneurs, Barry has discovered the formula to get stuck business owners unstuck and marching forward. As a small business expert, Barry applies simple, strategic steps to facilitate change.