The FTC’s final rule banning most new noncompetes should go into effect later this year, although it faces opposition from the U.S. Chamber of Commerce.
Biopharma professionals who’ve worried about how noncompete clauses affect their ability to change employers can likely set that fear aside. On Tuesday, the Federal Trade Commission issued a final rule that bans nearly all new noncompetes once it becomes effective, which will be 120 days after publication in the Federal Register. However, there are some exceptions from the rule and opposition to its approval, with one business group already launching a challenge.
One notable exception in the final rule is for noncompetes entered into by people pursuant to selling a business entity. Another is for senior executives earning more than $151,164 annually who are in a policymaking position and have existing noncompetes. Their noncompetes will still be enforceable after the rule goes into effect.
The U.S. Chamber of Commerce is among those opposed to the ban. It reacted quickly to the FTC’s announcement, issuing a same-day statement from Suzanne Clark, the chamber’s president and CEO. In it, she characterized the decision as an unlawful power grab and said it could harm employers, workers and the economy. She also announced the chamber will sue the FTC to block the rule.
Removing Concern, Barriers for Job Candidates
Should the ban go into effect as planned, it will alleviate a significant concern for biopharma professionals looking to switch jobs, as only a few states, including California, ban noncompetes.
In the past, job candidates with noncompetes have felt limited in their ability to go to another company and stay within their area of expertise, according to Carina Clingman, Ph.D., founder and CEO of Recruitomics Consulting, which specializes in talent acquisition and talent strategy for startup biotechs. She noted that candidates worry their employers won’t want them taking their very specific expertise to another organization.
“Usually, we would interview a candidate, they’d really want to work with us and they would bring their noncompete to us, and we would have the hiring companies’ attorneys look at it, understand it fully and then, if needed, craft an argument that would say, ‘Well, we’re different enough because XYZ, so it doesn’t apply,’” she told BioSpace. “Now, that’s just gone away, which is fantastic.”
Eliminating that situation is part of why FTC commissioners voted 3-2 to approve the final rule. In its press release announcing the decision, the FTC stated the ban on noncompetes will protect the fundamental freedom of workers to change jobs as well as increase innovation and foster new business formation. It estimated that 30 million workers—nearly 1 in 5 Americans—are subject to a noncompete.
Biopharma Employees’ Thoughts on Banning Noncompetes
It’s worth nothing that when the FTC introduced its proposed rule in January 2023, it found favor among the BioSpace audience. A 2023 BioSpace article shared that in a poll the company ran one week following the commission’s proposal, 90% of respondents said they support a ban on noncompetes in biotech.
In addition, a biotech professional provided feedback to the FTC during the 90-day public comment period for the proposed rule. The commission included the comment in its final rule, although it did not identify the commenter by name.
“I am a geneticist at Stanford University, and I am co-founding a biotech startup that aims to discover new cancer immunotherapies,” the commenter shared with the FTC. “Many of the most talented geneticists, immunologists, cancer biologists, and other scientists with unique and valuable skillsets for drug development are bound by non-competes that prevent them from leaving jobs at big pharma companies to join biotech startups like mine. The result is artificial scarcity in the market for top scientific talent—a phenomenon that precludes healthy competition between industry incumbents and new entrants. Given that much of our country’s most cutting-edge translational research happens within biotech startups, and given that many of the most successful drugs on the market originate in biotech startups, non-competes in pharma and biotech prevent the most talented scientists from working on the most innovative science and obstruct the development of new treatments and cures for human disease—leaving our society worse off.”
Potential Drawbacks: Impact on Talent and Innovation
While Clingman said the noncompete ban’s pros outweigh the cons, she did note a potential drawback is it could dilute the knowledge base at companies that focus on a specific niche, which could affect innovation. For example, she said, if you have 100 experts in a certain type of technology, and one company specializes in it, theoretically, they’d all go work at that company, and it would make significant progress. But if some decided “I could do it better” and started their own businesses, there could be 10 companies with 10 experts each, and the organizations might make less progress toward their goal.
“That’s the perceived con for both the business side and the patient side because if you’re a patient waiting for that therapy, there’s a potential that of those 10, maybe one succeeds, and that’s great, but there’s also a potential that none of them make significant progress, and you never get that therapy,” Clingman said.
However, she doesn’t see that happening.
“For one thing,” Clingman noted, “the way we’re vetting companies now at the venture level, it’s very hard to get funding, so it’s not trivial to go start a biotech company right now.”
As she explained, “the bar to get funding is very high, and part of that vetting process is who else is in the neighborhood? Who else is doing the same thing? And what’s their progress? How have they derisked? And if you can’t show that you’re significantly different, you’re not going to get funding.”
We’re looking for an industry expert to write a contributed opinion piece about the noncompete ban. Your piece would present a strong and supported position, be nonpromotional and be fewer than 1,000 words. You’d need to introduce yourself and your expertise/perspective on the issue while disclosing all relevant conflicts of interest. If you’re interested, please email Angela Gabriel at angela.gabriel@biospace.com.
Angela Gabriel is content manager, life sciences careers, at BioSpace. You can reach her at angela.gabriel@biospace.com and follow her on LinkedIn.
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