FTC Noncompete Ban Could Further the Channel's Evolution

The Federal Trade Commission this week sent ripples through the business world with its prohibition of noncompete agreements.

The ruling, which passed on a 3-2 vote on Tuesday, will immediately make most noncompete agreements unenforceable, and it will ban future noncompetes.

The FTC estimates that the ruling affects some 30 million U.S. workers, and the channel contains many of them. Suppliers, distributors and partners alike all historically have leveraged noncompete agreements to some extent, and the FTC's ruling could require them to rethink their talent retention practices.

Eric Brooker

"This is good news for the industry and the business world at large," said Eric Brooker, chief experience officer at The Channel Advisors. "This will force the channel community (suppliers, TSDs and trusted advisors) to focus on building strong cultures with good leaders and a focus on their products and well-being of their employees. Employee retention will be based on the employees' experience and not the fear of leaving tied to a legal document."

According to the FTC, about 18% of U.S. workers have a noncompete.

Why the Noncompete Ban?

The FTC in a 570-page document outlined the research and feedback it gathered since proposing the rule change in January 2023. The regulatory body amassed more than 26,000 public comments, with the overwhelming majority urging for a ban.

The FTC cites the work of researchers who have demonstrated that noncompete agreements "harm competitive conditions in labor, product, and service markets."

Moreover, the FTC pointed to anecdotes of workers who suffered harm to their careers from noncompete agreements. Many resided in low-income brackets.

"Workers came forward to recount how − by blocking them from taking a better job or starting their own business, and subjecting them to threats and litigation from their employers − noncompetes derailed their careers, destroyed their finances and upended their lives," the document reads.

The FTC said it expects the ban to lead to 8,500 new businesses and up to 29,000 new patents each year.

The rule will go into effect four months from when it officially publishes in the Federal Register. But first the FTC can fend off an onslaught of legal resistance from different corporate interests. The U.S. Chamber of Commerce plans to file a lawsuit against the FTC noncompete ban.

Different people in the channel expressed mixed feelings about how the ruling could impact smaller partners and vendors, who already struggle to keep talent.

In the slideshow above, different members of the channel discuss how the noncompete ban will impact suppliers, distributors and partners, as well as how it will impact people who have sold their businesses.