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FTC’s Noncompete Ban: What You Need to Know

The Federal Trade Commission (FTC) recently announced a ban on noncompete agreements for all nonprofit businesses. FTC Chair Lina M. Khan stated, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.” However, the ban has been met with criticism from some businesses, who argue that it will make it more difficult to protect their intellectual property and trade secrets. 

Many clients have reached out to me wondering what this means for them, and the answer - like every answer from an attorney - is “it depends.”

It's important to note that this ban does not go into effect immediately. It is set to go live August 2024, but the current challenges being brought against the ban by several states could influence when (or if) the ban becomes effective. The ban is meant to protect employees and independent contractors. The ban does not apply to nonprofit organizations, existing senior executive agreements (but employers will not be able to enter into new noncompetes for senior executives), or to the sale of a business. 

For business owners who hire employees or independent contractors, this ban on noncompetes could make it more difficult to recruit and retain top talent. If employees know they can leave their jobs without being bound by a noncompete clause, they may be less likely to accept positions with businesses that have restrictive noncompete agreements. They may more easily negotiate higher salaries and terminate employment with your company. 

For dentists purchasing or selling a dental practice, the FTC's ban on noncompetes has an important implication. For buyers, it may mean that associates or staff currently working at the practice could leave after the purchase and sale and work at a competitor nearby, potentially drawing patients to them. It would be important to ensure there is at least a well-drafted nonsolicitation agreement in place restricting an associate or staff member from soliciting patients of the practice. 

Sellers of businesses and dental practices can still be bound by noncompete provisions. It seems the FTC agrees that it is important to protect the buyer’s investment in a new business or practice.

Despite this ban, there are still contract provisions business and practice owners can include in their employment contracts to protect their businesses. Nonsoliciation clauses, as long as they are carefully drafted, can often be used in lieu of noncompete clauses. If drafted carefully, nonsolicitation clauses will prevent workers from poaching your clients, customers, patients, employees, and contractors when they leave. Additionally, every employment agreement should have Confidentiality and Non-Disclosure (NDA) provisions, which protect any proprietary and other sensitive information.

In light of the FTC's new rule, our approach to handling small business and dental practice purchases and sales remains unchanged. We will continue to include noncompete clauses in the purchase agreements for sellers of dental practices. These clauses are essential for ensuring that the new owners can operate without competition from the previous owner, thereby securing the value of their newly acquired business.

As we monitor the developments around this new FTC rule, we remain committed to providing our clients with the most current and relevant legal advice. Our priority continues to be safeguarding and protecting your interests.


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