The FTC’s ban on noncompete clauses could be good for startups. But it also might be struck down.

The Federal Trade Commission voted 3-2 Tuesday to ban the use of most noncompete agreements. The ruling means that companies cannot require employees, other than senior executives, to wait a certain period of time before joining a competitor or starting their own business in the same category. Although the FTC’s decision will have the most impact on industries such as financial services and hedge funds, due to the prevalence of such agreements in these sectors, it could also impact startups.

The ban could actually be positive news for startup founders and hiring managers in several ways. On one hand, it could open up the hiring pool, says Nick Cromydas, co-founder and CEO of hiring and recruiting startup Hunt Club.

“There will now be more potential cross-pollination of companies that really understand business models and spaces,” Cromydas said. “I expect you’ll see more hires with direct domain experience than you’ve seen in some time.”

Ryan Vann, an employment law partner at Cooley, agrees. He said he has clients who are too eager to hire potential game-changing talent from big companies for fear that those companies won’t honor the non-compete agreement.

Banning non-compete agreements could also encourage startups to foster a strong company culture that makes people stronger. to want to stay, rather than resorting to threats to keep them, Cromydas said.

Some members of the startup community also seem happy with the decision — which is rare these days when it comes to FTC decisions. Sarah Guo, founder of AI-focused venture capital firm Conviction, tweeted that banning non-competition agreements is a victory for innovation. Cole Harrington, co-founder and CEO of ThoughtWave AI agreed with her.

Understandably, some startup CEOs are concerned about the impact ending non-competes could have on intellectual property security, but Cromydas said there are other ways for companies to protect themselves. Startups can ask their employees to sign nondisclosure agreements regarding intellectual property or spend more time filing patents. Instead of blocking an employee’s future employment, such alternatives prevent them from using the previous employer’s intellectual property knowledge in their new employment.

Startup employees may not see much change for two other reasons: Noncompete agreements are already very difficult to enforce, Vann said, and they’ve gone out of fashion among startups anyway. Some states, including startup-rich California, have laws that restrict them. However, he added that all of his customers who can use them generally do so despite the low entry rate.

“Even without this ban, it is really very difficult in virtually all US courts to enforce a non-compete unless you add something that constitutes bad acts like stealing confidential information, soliciting customers before to leave, the attempt to create a competing company before you go for it,” Vann said “I would almost never engage in litigation unless I was armed with that kind of evidence or misappropriation of secrets. commercial.”

Given all of this, non-competes are becoming less common, according to data from the company Hunt Club. Whereas five years ago, 90% of offers submitted via the Hunt Club platform included a non-competition agreement, today this figure is around 40%. However, Cromydas said he would have no doubt they would be on the rise again in hot sectors like AI, where intellectual property is crucial and the war for talent is intense.

So what should startup CEOs do if they are currently using non-compete agreements with their employees? Absolutely nothing, according to Vann, who wonders if the ban will really be maintained. Several lawsuits against the decision have already been filed, including one with the American Chamber of Commerce and another with the tax services firm Ryan LLC.

Vann believes this possible ban could be overturned by many courts. If these legal hurdles are resolved, startups wanting to hire someone who may have signed one can terminate existing non-compete agreements incredibly easily.

“The worst case scenario, if you are a startup and you hire someone with a non-compete, is that all you have to do is issue a notice that your non-compete is not enforceable ” Vann said. “I would maintain the status quo for now and monitor what happens.”