Engine is a non-profit technology policy, research, and advocacy organization that bridges the gap between policymakers and startups. Engine works with government and a community of thousands of high-technology, growth-oriented startups across the nation to support the development of technology entrepreneurship through economic research, policy analysis, and advocacy on local and national issues. Engine appreciates the opportunity to submit this response to the Federal Trade Commission’s request for comment on the Commission’s notice of proposed rulemaking banning most non-compete clauses in employment contracts.
The Commission’s Proposed action on non-competes is an opportunity to make our markets more competitive and our workforce more dynamic. It is also an opportunity to bring clarity and freedom to American startups and entrepreneurs to maximize innovation.
First, as a legal instrument governed by a patchwork of state laws, non-competes create geographic distortions in an increasingly national startup ecosystem. Talent is everywhere, and the advent of practices like remote work should create an era of unprecedented talent mobility. And yet, non- competes distort the playing field by creating “unfavorable” geographic regions. What’s more, navigating the legal uncertainty created by the patchwork of state law especially harms resource- strapped firms like startups.
Second, non-competes interfere with two critical stages in a startup’s lifecycle: formation and team assembly. Any time that a would-be founder is kept from starting a potential competitor is time wasted. Competition and innovation are sacrificed at the altar of protectionism. And, in some cases, competition and innovation are estopped altogether when would-be founders never return to the fold after being sidelined by a non-compete. Even once a startup has overcome the barrier of formation, non-competes still meddle by impeding—or altogether preventing—the founder from assembling the right team. And without the right team, a startup is destined for failure.
Finally, non-competes insulate today’s winners from competition, denying startups the meritocratic marketplaces in which they can compete with bigger players. However, a ban on non-competes will free up more than just our competition markets: It will free groups of underrepresented would-be founders—particularly women—from the restrictive impacts of non-competes that they disproportionately bear. More diversity means more and better innovation, but non-competes only get in the way.
Although startups would benefit most from Congressional legislation, the FTC’s proposed ban is a good first step in creating a freer and more diverse startup ecosystem to do what it does best: drive American innovation.
Read our comments here.
