Noncompete clauses. Depending on your situation in the wastewater industry, you either love them or hate them. So you may have a visceral reaction one way or the other to hearing that the federal government wants to ban contract language that prevents workers or business sellers from moving on immediately to another pumping enterprise.

The Federal Trade Commission — which cites its mission as “protecting the public from deceptive or unfair business practices and from unfair methods of competition” — recently determined that noncompete clauses are an exploitive practice that “suppresses wages, hampers innovation and blocks entrepreneurs from starting new businesses.”

Calling noncompetes a violation of Section 5 of the Federal Trade Commission Act, the agency proposes a ban that could go into effect later this year. But it won’t be before opponents likely try to squash the efforts in the courts. These contract clauses have been banned in several states already, but remain a popular among many employers and as part of business sales.

“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC chair Lina Khan said in a release. “Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand.”

The noncompete ban would raise wages by up to $300 billion per year for 30 million Americans, according to the FTC.

PUMPER EXAMPLES

The wastewater industry is like many others and would be impacted by new rules. Consider two scenarios I’ve heard from Pumper readers many times over the past decade as noncompete clauses have become more routine:

A small mom-and-pop pumping business sells out to an expanding regional or national service provider. The seller turns over the customer list and equipment and the buyer requires the seller to stay out of the industry for a period of time, say five years.

An employee new to the industry joins a pumping company. The employer spends time and money to train the employee, and to protect that investment, requires the employee to sign a paper promising not to jump ship for different company or to start a competing service. The restriction might be for one year or more.

In the case of the sale of a pumping business, it’s easy to understand why the buyer wants a noncompete agreement. It prevents the pumper, who presumably was doing a great job to build up the business, from turning around and competing for the same customers. The seller may understand the noncompete is part of the value of the sale just like the trucks, customer lists and workers are.

However, the selling pumper’s attitude may change. Many times I have heard a similar story from pumpers who sold a longstanding, successful family business. They took pride in their work, but then shortly after the sale, their former customers started approaching them with complaints about the new company’s customer service. The selling pumper grows frustrated because he is prevented from jumping back in with a new truck and company name to serve these customers.

In the case of the service technicians, you can understand why their employers would like to guarantee some time on the job after investing in significant training. In some cases, employers are also footing the bill for drivers to acquire their CDL to drive bigger trucks.

The technicians could have a different point of view about the noncompete clause. While many drivers are happy staying with their new employer for years, what if they grow dissatisfied with the wages and benefits? Or what about the industrious pumpers who want to leave their employer to start a business of their own? They may feel powerless to advance in the wastewater industry.

A BATTLE IS BREWING

Like it or hate it, the Federal Trade Commission sides with the pumpers who sell their businesses and the employees who work for a pumping company. And, if implemented by the FTC, the rule change would be retroactive, meaning existing noncompetes would be rescinded.

“There is at least a reasonable likelihood that the FTC will adopt this rule in some shape or form in 2023,” New York attorney Mark Goldstein said in a report by SHRM, the Society for Human Resource Management. “It would effectively change how many, if not most, U.S. companies operate from the perspective of retaining key talent and safeguarding against employees taking the company’s ‘secret sauce’ and duplicating it right across the street.”

A SHRM official has said the proposal is overly broad and could hurt businesses that rely on noncompete clauses. Among other things, opponents argue such a ban should fall under the Department of Labor, not the FTC. While the proposal could be enacted by the agency by this summer, it would likely face litigation.

The states that have already banned or restricted noncompetes are California, Colorado, Illinois, Maine, Maryland, New Hampshire, North Dakota, Oklahoma, Oregon. Rhode Island, Virginia and Washington, according to SHRM.

If lawsuits come, it seems like the U.S. Chamber of Commerce might become involved. The group strongly opposed the noncompete ban in a release.

“The Chamber is confident that this unlawful action will not stand,” said Sean Heather, a Chamber senior vice president. “Attempting to ban noncompete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition.”

CHALLENGES AHEAD

Raising wages in today’s inflationary economy would be alarming to many owners of pumping companies I’ve talked to. During and post-pandemic, pay for drivers has already risen dramatically. But employees will note that everything else has gotten more expensive over the years, so shouldn’t wages rise with the cost of living?

I also understand the challenges company owners have today dealing with chronic worker shortages and employee retention. No matter how tough these issues have been in the past, we seem to be in uncharted territory. The trades workforce is just not adequate right now and owners aren’t sure how they are going to afford the workers they have on payroll.

However, consider the guys and gals on the business end of the hose, too. They would welcome more freedom to maximize the value of their skills and the ability to strike out on their own. I know many entrepreneurial pumpers have to understand their workers wanting to get ahead and live the same American Dream they have realized.

So what do you think? Would the noncompete ban hamper small business owners or spur new business and better customer service in the long run?