NACS Opposes FTC’s Proposed Rule on Non-Compete Agreements

Letter argues banning non-compete agreements would harm small businesses.

April 24, 2023

ALEXANDRIA, Va.—NACS; NATSO, Representing America’s Travel Plazas and Truckstops; and SIGMA: America’s Leading Fuel Marketers, released a letter the associations sent to the FTC opposing the FTC’s proposed rule banning non-compete agreements.

The letter stated that the groups are concerned that the proposed rule is too broad, and that it should either be withdrawn or substantially revised. The letter can be read in full here.

A key passage in the letter explains why non-compete agreements are so important:

The convenience, travel center, and fuel retailing industry operates in one of the most transparent, competitive markets in the world. Small operators remain competitive with much larger businesses in the industry and utilizing non-compete agreements enable that. Due to the price transparency and fungibility of the commodities they sell, the Associations’ members are forced to compete on quality of service, cleanliness, security, amenities, food, loyalty programs, and speed as well as through a variety of process innovations. Every aspect of the way these businesses operate can be a way to get ahead.

In particular, the industry employs and innovates around ways to purchase and supply their locations with motor fuels. Strategies around hedging prices, for example, differ from business to business and many of these strategies and the contractual arrangements that underlie them are considered valuable and confidential business information. A non-compete agreement can be particularly important for senior executives and those with access to trade secrets and those that oversee mergers and acquisitions, which need to be protected for businesses to be able to realize the value of their innovations.

Prohibiting all non-compete agreements therefore goes too far. Doing so would put small businesses at particular risk. Larger businesses have financial resources to bring in senior executives or those with inside knowledge or trade secrets of a small competitor’s operations. Small businesses are not in a position to protect themselves against such moves, which are essentially designed to purchase competitors’ confidential business information.

The associations state that they view the proposed rule as undermining rather than protecting competition, and that non-compete agreements are particularly important for small businesses that may be at risk of having key executives, employees or partners lured away by larger firms to gain proprietary information and undermine competition.

The associations also reject the FTC’s alternative of using non-disclosure agreements because such agreements are so difficult to enforce that they are impractical. And, the FTC proposal itself puts the legality of even non-disclosure agreements at risk leaving businesses with no good way to protect their own proprietary information and innovations.

The letter filed by the associations was one of a large number of comments filed by business groups opposing the FTC’s proposal. The FTC now must consider the comments it has received and decide whether and how to move forward with a rule.