FTC's ban on noncompete agreements could impact Long Island businesses

A new federal ruling that would ban the use of noncompete agreements could have a significant impact on the way local employers operate.

The Federal Trade Commission, a government agency that enforces antitrust and consumer protection laws, has announced a final ruling that would ban the use of new noncompete clauses and agreements and make most existing ones unenforceable. 

“It makes an exception for senior executives,” said Jessica M. Baquet, a labor and employment lawyer and partner at Ruskin Moscou Faltischek in Uniondale. “By senior executives, they are talking about a very small fraction of employees.”

Senior executives making $151,000 or more a year in policymaking positions under current agreements could still have existing noncompete clauses enforced, but new agreements would be banned.

The ruling, which has already received legal challenges, would go into effect 120 days after being entered into the Federal Register.

Proponents of noncompetes say they help protect business trade secrets, giving employers a tool to remain competitive.

“While the goals of the noncompete ban are laudable, the real-world impact would be disastrous, stifling innovation and hurting our business community at a time when it already faces so many challenges,” Matt Cohen, president and chief executive of the Long Island Association, said in a statement.

The U.S. Chamber of Commerce, along with the Business Roundtable, a nonprofit lobby group for CEOs, has filed suit against the FTC in the Eastern District of Texas. Ryan LLC, a business tax services firm, filed suit in federal court in the Northern District of Texas.

“The Federal Trade Commission’s decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” Suzanne P. Clark, president and chief executive of the U.S. Chamber, said in a statement.

“Noncompete agreements are either upheld or dismissed under well-established state laws governing their use,” she said. “This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy.”

The FTC said noncompetes hamper the economy by restricting experienced employees from working at other businesses in the same industry or regions for up to two years, thereby lowering employee wages.

Additionally, the agency said banning noncompetes will lead to the creation of more startups and employment opportunities.

For some business owners, noncompetes are a stumbling block to hiring, particularly in a tight labor market.

Scott Passeser, senior vice president of Executive Alliance, a Commack firm that recruits management level employees for businesses, said noncompetes have been "a thorn in the side of business executives for years.”

Passeser said he’s had many potential hires hit a roadblock when a noncompete was discovered. Some have left industries — often losing potential earnings — because of them, he said.

Employers can use other protections such as nondisclosure and non-solicitation agreements, he said.

“If I can already protect my IP [intellectual property] and already protect you from stealing my employees, then why do I need to prevent you from working in the business?” he said.