By Janelle M. Lewis, Attorney, Business & Legal Strategic Consultant
What effect do non-competes have on market competition? Are non-competes a restraint on trade by restricting employee mobility? Or are they a tool that prevent unfair competition by protecting a business’ trade secrets, or other confidential information that provides a competitive advantage for the business within a market segment or industry?
On January 9th, 2020, the Federal Trade Commission (FTC) hosted a public workshop to answer that question and decide whether it should enact a Commission Rule that would restrict the use of non-compete clauses in employer-employee employment contracts. The workshop itself considered whether there was a legal and economic basis to restrict non-competes. In its analysis, the FTC centered its questions to the public on employer justifications vs. employee harm.
Regulatory Effects on Business Strategy
After the analysis of the legal and economic basis for the proposed restriction has been completed, and a decision is made as to whether federal involvement in non-competes is warranted, the effect of the FTC’s decision on business strategy will follow. Business strategy looks to the valuable competitive position of a company that is the intersection of its values, opportunities, and capabilities. From the business strategic standpoint, the FTC’s decision will have a regulatory effect on companies’ valuable competitive position by specifically impacting the following:
- Political-legal trends of the broader competitive environment that many industries operate;
- Market barriers to imitability among competitors, specifically, legal barriers to protection;
- The long term potential for profitability within various industries/market segments as it relates specifically to threat of substitutes and intensity of rivals; and
- Employer’s internal capabilities.
What the actual effects will be and how companies will respond accordingly in drafting their business strategies remain to be seen. What is clear is that this is another example of the direct role the law plays in business strategy.
Business strategy looks to the valuable competitive position of a company that is the intersection of its values, opportunities, and capabilities. From the business strategic standpoint, the FTC’s decision will have a regulatory effect on companies’ valuable competitive position…