Letter to The Honorable Lina M. Khan, Chair, Federal Trade Commission (March 14, 2024)

Summary

In a letter dated March 14, 2024, to Federal Trade Commission Chair Lina M. Khan, the House Committee on Small Business writes to inquire about the FTC's notice of proposed rulemaking on the Non-Compete Clause Rule. The letter says the Committee is concerned that the FTC underestimated the costs of the proposed rule on small businesses, citing an FTC estimate of 2.94 million small firms impacted and costs of $317.88 to $563.84 per entity. It requests information no later than March 28, 2024, including whether the FTC will update the cost assessment for the final rule and what alternatives were considered. The signature block names Roger Williams, Chairman, and Dan Meuser, Jake Ellzey and Aaron Bean.

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Full text

                                                March 14, 2024

The Honorable Lina M. Khan
Chair
Federal Trade Commission
600 Pennsylvania Ave. NW
Washington, DC 20580

Dear Chair Khan:

        The House Committee on Small Business (Committee) writes to inquire about the
Federal Trade Commission’s (FTC) notice of proposed rulemaking on the Non-Compete Clause
Rule.1 The proposed rule would ban the use of non-compete clauses in employment contracts.
This rule would impose significant costs on small businesses and pose a serious risk of loss and
potential closures. It appears that the FTC may not have properly considered small entities
during this rulemaking process.

        The Committee is concerned that the FTC underestimated the costs and impact of this
proposed rule on small businesses when certifying this rule will not have a significant economic
impact on a substantial number of small entities. The FTC estimates that 2.94 million small firms
will be impacted by the proposed rule, but maintains the costs are limited to updating contractual
practices—only costing small businesses between $317.88 to $563.84 per entity.2 As the Small
Business Administration’s Office of Advocacy noted, the FTC has ignored significant
implications for small businesses—failing to include the costs of hiring additional legal resources
or hiring and retaining additional workers.3

        Small businesses—producing 16.5 times more patents than large companies—drive
American innovation.4 Banning non-compete agreements, which drive ingenuity by safeguarding
competitive information such as client lists, training techniques, or intellectual property, could
make it more challenging for small businesses to prevent their workers from being poached by
large corporations with more resources.

       It is important for agencies to examine small businesses interests, which make up 99.9
percent of all businesses in the United States, when passing any new rule. America’s small

1
  88 Fed. Reg. 3482 (Jan. 19, 2023).
2
  88 Fed. Reg. at 3531-3532 (Jan. 19, 2023).
3
  See Letter from Major L. Clark, III, Deputy Chief Counsel, Off. of Advocacy, U.S. Small Bus. Admin., et al., to
April Tabor, Act Sec’y of the Comm’n, Fed. Trade Comm’n (Mar. 20, 2023).
4
  See U.S. DEP'T OF DEFENSE, STATE OF COMPETITION WITHIN THE DEFENSE INDUSTRIAL BASE, 13 (Feb. 2022).
The Honorable Lina M. Khan
March 14, 2024
Page 2 of 2

businesses deserve to have their voices heard and considered. We therefore request the following
information as soon as possible but no later than March 28, 2024:

      1. For the final rule, will the FTC update their assessment to include the full costs on
         directly impacted entities associated with the proposed rule such as additional costs for
         legal services or potential changes to hiring, training, and retaining workers?

      2. What impact will this proposed rule have on salaries small businesses pay their
         employees?

      3. How does this proposed rule safeguard the ingenuity, competitiveness, and intellectual
         property of small firms?

      4. When does the FTC expect to release an updated version of this rule?

      5. What alternatives have been considered to lessen the impact on small businesses? Provide
         justification for all of the alternatives considered and the reasons they were not selected.

       To schedule the delivery of your response or ask any related follow-up questions, please
contact the Committee on Small Business Majority Staff at (202) 225-5821. The Committee on
Small Business has broad authority to investigate “problems of all types of small business” under
House Rule X. Thank you in advance for your cooperation with this inquiry.

                                          In God We Trust,



_________________________                              _________________________
Roger Williams                                         Dan Meuser
Chairman                                               Member
Committee on Small Business                            Committee on Small Business




_________________________                              _________________________
Jake Ellzey                                            Aaron Bean
Member                                                 Member
Committee on Small Business                            Committee on Small Business



cc:      The Honorable Nydia M. Velazquez, Ranking Member
         Committee on Small Business


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