MBT | McKay, Burton & Thurman, P.C. | Attorneys At Law

The noncompete ban could open the door for aspiring entrepreneurs

On Behalf of | Apr 29, 2024 | Business Law

Starting a new job can broaden someone’s horizons in unexpected ways. They gain greater insight into an industry, develop important connections and deepen their knowledge of a specific commercial niche. Professionals may soon come up with ideas that could fill a gap in their industry or improve on how existing companies operate.

Those who succeed in their professions or who believe they know why their employers struggle might aspire to start their own companies and to become their own bosses. However, the threat of employer litigation might prevent them from following their entrepreneurial dreams.

Workers in a variety of different professions have long faced requirements to sign noncompete agreements as part of their onboarding process when accepting a new job. The company essentially forbids them from starting a competing business even after they terminate their employment with the organization. The recent federal ban on non-compete agreements could allow more prospective entrepreneurs to follow their dreams and start their own businesses.

Thousands of new businesses might soon form

According to the Federal Trade Commission (FTC), noncompete agreements deter thousands of would-be entrepreneurs from lawfully starting businesses every year. Therefore, the FTC estimates that the decision to ban non-compete agreements could lead to 8,500 more new businesses forming each year.

Many skilled, hard-working employees frustrated by the inappropriate demands or inefficiencies of their current employers do not feel confident about starting their own businesses because their former employers forced them to sign an agreement that they would not do so. They were previously at risk of litigation if they attempted to start a business and their former employer decided to enforce the noncompete agreement.

The courts could force people to dissolve or sell their companies or could impose financial penalties for violating the terms of the agreement. That has all changed with the new final rule implemented by the FTC. The ban on noncompete agreements prevents new hires from being subject to such terms and could also impact the enforcement of existing noncompete agreements.

Those who have just left a job or are about to leave an employment arrangement might benefit from learning more about the new noncompete ban before they take the first steps to start their own businesses. Complying with the law and pre-existing contracts are both important for entrepreneurs who hope to start a successful business.