NAM to FTC: Noncompetes Protect Manufacturing Innovation – National Association of Manufacturers – NAM

Report on the Role of Noncompete Agreements in Advancing Sustainable Development Goals

Introduction: Regulatory Scrutiny and Industrial Policy

The National Association of Manufacturers (NAM) has submitted a formal response to the Federal Trade Commission (FTC) regarding the use of noncompete agreements in the manufacturing sector. This report analyzes the NAM’s position, contextualizing it within the framework of the United Nations Sustainable Development Goals (SDGs), particularly those concerning economic growth, innovation, and institutional stability.

The NAM expressed concern that potential FTC enforcement actions against lawful noncompete clauses could undermine progress toward key development objectives. The commission’s recent actions, including the formation of a labor market task force, suggest a heightened focus on employment agreements, prompting the manufacturing sector to articulate the role these agreements play in sustainable industrial strategy.

Fostering Innovation and Sustainable Industrialization (SDG 9)

A primary argument advanced by the NAM is that noncompete agreements are a critical mechanism for protecting intellectual property (IP), which is the bedrock of innovation and industrial development as outlined in SDG 9: Industry, Innovation, and Infrastructure. The protection of proprietary information encourages the long-term investment necessary to achieve targets related to research, development, and technological upgrading.

• According to NAM survey data, the vast majority of manufacturers utilize noncompete agreements specifically to safeguard investments in innovation.
• Approximately 93% of manufacturers use these agreements to protect intellectual property.
• 72% use them to safeguard unique industrial processes, which are often developed to enhance efficiency and sustainability in production.

The NAM contends that weakening these protections would disincentivize investment in R&D and critical U.S. infrastructure, directly impeding progress toward a resilient and innovative industrial base.

Promoting Decent Work and Sustained Economic Growth (SDG 8)

The debate over noncompete agreements intersects directly with SDG 8: Decent Work and Economic Growth. The NAM posits that the stability and growth of the manufacturing sector, which provides significant employment, depends on the ability to protect trade secrets from misappropriation.

1. Economic Cost: The NAM highlighted that trade secret theft, often perpetrated by employees moving to competitors, costs the U.S. economy between 1% and 3% of its GDP annually. Mitigating these multi-billion-dollar losses is essential for sustaining economic growth.
2. Investment Climate: By securing proprietary information, noncompetes help create a stable environment for business investment and strategic planning, which are prerequisites for creating and maintaining decent jobs.
3. Limitations of Alternatives: The association argues that other legal tools, such as nondisclosure agreements, are insufficient to fully protect a company from the economic damage caused by the loss of highly skilled employees and sensitive data to a competitor.

Potential Consequences for Sustainable Development

An aggressive FTC campaign against the lawful use of noncompete agreements could have significant negative consequences that run counter to established sustainable development objectives. The NAM identified several key risks:

• Reduced Investment: A chilling effect on investment in research, development, and critical infrastructure, undermining SDG 9.
• IP and Trade Secret Vulnerability: Increased risk to proprietary company information, weakening the innovation ecosystem.
• Economic Instability: Disruption to established business strategies, B2B relationships, and hiring practices, potentially harming the stable economic environment sought under SDG 8.

Recommendations for Institutional Integrity and Partnership (SDG 16 & 17)

In alignment with SDG 16: Peace, Justice, and Strong Institutions, which calls for effective and transparent institutions, the NAM has proposed a path forward based on collaboration and regulatory clarity.

The association recommends that the FTC should:

1. Actively seek input from industry stakeholders, including companies and trade associations, to understand how noncompete agreements are used to protect commercial information and drive innovation.
2. Provide clear, predictable guidance on what specific terms within such agreements are considered “unreasonable” or “unfair.”

This approach would prevent businesses from being surprised by costly enforcement actions and foster a predictable legal environment. Such a partnership between regulatory bodies and the private sector is crucial for building the trust and stability needed to achieve all Sustainable Development Goals, as envisioned in SDG 17: Partnerships for the Goals.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 8: Decent Work and Economic Growth
   • The article discusses economic issues central to SDG 8, such as the potential cost of trade secret theft, which is estimated to be “1% to 3% of the U.S. gross domestic product.” This directly impacts economic growth. The debate over noncompete agreements also relates to employment conditions, recruitment strategies, and the overall productivity of the manufacturing sector, which are key components of this goal.
2. SDG 9: Industry, Innovation and Infrastructure
   • This goal is directly addressed through the article’s focus on the manufacturing industry, innovation, and infrastructure. The National Association of Manufacturers (NAM) argues that ending the use of noncompete agreements would “jeopardize the Trump administration’s efforts to revive manufacturing in America.” Furthermore, it claims that an aggressive campaign against these agreements would “Discourage investment in critical U.S. infrastructure and research and development” and put “trade secrets and other closely guarded in-house information at risk,” all of which are core elements of SDG 9.
3. SDG 16: Peace, Justice and Strong Institutions
   • The article highlights the role of a key government institution, the Federal Trade Commission (FTC), and the legal framework governing employment agreements. The discussion revolves around the FTC’s enforcement policies, court rulings, and the call for regulatory clarity. The NAM’s request for the FTC to “provide clarity on what types of noncompete agreement terms it views as ‘unreasonable’ or ‘unfair’” is a direct appeal for more transparent and accountable institutional practices, which aligns with the aim of building effective institutions under SDG 16.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Target 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading and innovation.
   • The article connects to this target by emphasizing the need to protect intellectual property (IP) and industrial processes as a means to foster innovation within the manufacturing sector. The NAM’s argument that 93% of manufacturers use noncompetes to protect IP and 72% use them for industrial processes underscores the belief that these agreements are essential for safeguarding the technological advancements that drive economic productivity.
2. Target 9.5: Enhance scientific research, upgrade the technological capabilities of industrial sectors… encouraging innovation and… private research and development spending.
   • This target is directly implicated by the article’s warning that banning noncompetes would “Discourage investment in… research and development.” The entire premise of the NAM’s argument is that protecting proprietary information through these agreements is a prerequisite for companies to invest in R&D and maintain their technological edge, which is the central theme of Target 9.5.
3. Target 16.6: Develop effective, accountable and transparent institutions at all levels.
   • The article reflects this target in its conclusion. The NAM’s recommendation that the FTC “should provide clarity on what types of noncompete agreement terms it views as ‘unreasonable’ or ‘unfair’” is a call for a more transparent and predictable regulatory environment. This would prevent employers from being “surprised by costly enforcement actions,” thereby contributing to the development of a more effective and accountable institution.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. Indicator for Target 8.2:
   • The article provides a direct economic indicator: the “cost of trade secret misappropriation ranged from 1% to 3% of the U.S. gross domestic product.” A reduction in this percentage could be used to measure progress in securing economic productivity against losses from IP theft.
2. Indicators for Target 9.5:
   • An implied indicator is the level of “investment in critical U.S. infrastructure and research and development.” The article suggests that policy changes regarding noncompetes could negatively affect this investment, making it a key metric for tracking progress.
   • The NAM survey data itself can be seen as a qualitative indicator: “approximately 93% of manufacturers use noncompete agreements to protect IP, while 72% use them to safeguard industrial processes.” This data measures the perceived importance of these legal tools for protecting innovation.
3. Indicator for Target 16.6:
   • The article implies a qualitative indicator: the degree of “clarity” provided by the FTC on its enforcement standards. Progress could be measured by the issuance of clear guidelines or rules that reduce legal uncertainty for businesses, thereby minimizing the risk of “costly enforcement actions.”

4. Table of SDGs, Targets, and Indicators

Source: nam.org