The number of Black-owned businesses will be among small businesses likely to surge with the fresh Federal Trade Commission (FTC) ruling that prohibits noncompete agreements.
This is the take from John Arensmeyer, founder and CEO of the Small Business Majority (SBM) advocacy group. He provided BLACK ENTERPRISE with email commentary on the new ruling.
Basically, the FTC voted on April 23, 2024, to block most noncompete agreements. The arrangements now block employees from working for rivals or starting a competing business once they depart from a job.
At the same time, the FTC ruling is already getting some pushback. The U.S. Chamber of Commerce and the national tax firm Ryan LLC filed lawsuits in federal court on April 23, 2024, to protest the mandate, The Wall Street Journal reported. As such, legal battles could delay the ban’s implementation.
Arensmeyer pointed out that about 30 million American workers are bound by noncompete clauses, according to the FTC.
Arensmeyer said that banning non-compete agreements is a win for the U.S. economy as it will help fuel small business growth. He said SMB research shows that 33% of small business owners were prevented from hiring an employee due to a noncompete agreement.
The ante is potentially high. Some two-thirds of SBM’s 85,000-plus business owners are BIPOC, including many that are Black-owned. Further, Black business ownership can be a wealth-builder. Black entrepreneurs purportedly create more than ten times higher median net worth than Blacks not owning businesses.
He said it’s unknown exactly how that number breaks down along demographic lines, but SBM is aware Black entrepreneurship has grown rapidly in recent years. He shared that the FTC estimates that upon implementation of the rule, the U.S. economy will add over 8,500 new businesses each year. The federal agency also declared the ruling could help increase worker wages, reduce health care costs, and boost innovation
“Given the growth of entrepreneurship in the Black community, it’s likely that even more Black people would start businesses if not held back by factors including noncompete clauses,” Arensmeyer says.
He added that the SBM doesn’t know exactly how many aspiring Black entrepreneurs have been unable to start small businesses. However, SBM’s own scientific opinion polling reveals that nearly 50% of small business owners reported that a noncompete agreement had stopped them from starting or growing their own business.
“We’ve also heard anecdotally and through our research from a significant number of people of color whose entrepreneurial dreams have gone unrealized or been delayed because of noncompete contracts.”
He says the FTC found that “strict noncompete clause enforceability has very different effects for different demographic groups. He pointed out that includes “little to no effect on men, and much larger effects on women and Black men and women.”
He explained that Black workers are often more limited in job opportunities because of systemic racism. That means they may be more likely to accept a job with a restrictive noncompete clause than other workers who may have more options for employment.
He says the FTC’s decision will level the playing field for small businesses in a way that contributes to their growth without endangering the health of existing businesses.
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