Interview: Will a ban on noncompete agreements affect US rental consolidation?

The US Federal Trade Commission’s recent ban of noncompete agreements grabbed the attention of rental industry observers this week, raising the question of its effect on both employees and business owners selling their business.

Noncompetes prohibit workers from joining competing companies or starting competitive businesses for a prescribed period of time. Equipment rental companies regularly sign noncompete agreements when selling their business to consolidators, often going on to open new companies when the legal contracts expire.

Talk among industry observers called into question whether the ban could potentially affect the North American rental industry by shortening the turnround time between selling a business and opening a new one in the same market. Questions also surround the effect on employees looking to move to competing rental companies.

According to the FTC, the move to ban these legal contracts is meant to promote competition and protect freedom of workers to change jobs, as well as increase innovation and foster new business formation.

To find out how the ban - which will go into effect in 120 days if uncontested - might change the landscape of the US equipment rental industry, and the current wave of consolidation, we asked Josh Nickell, vice president of equipment rental at the American Rental Association (ARA), for his take on the issue. 

Rental Briefing: How might the current wave of consolidation within the rental industry change due to this ruling?

Josh Nickell, vice president of equipment rental, American Rental Association.

Nickell: The change to general noncompetes will have minimal effect on consolidators. When a business is acquired, the acquirer will still be allowed to negotiate legal noncompete agreements with the sellers. The staff won’t be covered, but the owner’s noncompete is most critical. Plus, nondisclosure and nonsolicitation agreements will still be applicable to staff.

Quality acquirers already put extra time and effort into staff retention. This is a time when staff are most likely to leave for roles at other companies including noncompetitive companies. So, the change just makes this focus on retention even more important, but it isn’t a new issue.

Rental Briefing: How might small to medium-size independent companies view this change?

Nickell: Many small and medium companies are less likely to use noncompetes, or tend to treat them more like a handshake rather than hiring expensive attorneys to defend them. So, this change will have less impact on their business.

Rental Briefing: What should businesses looking to sell their company consider in light of this change?

Nickell: Having nondisclosure and nonsolicitation agreements in place for key staff will be beneficial.

Rental Briefing: How might the overall landscape of the industry change as a result of this ruling?

Nickell: I don’t expect drastic changes in the industry. Many states already limit or outright prevent noncompetes.

The best companies foster retention through happy well-compensated employees. While a noncompete might have prevented someone from considering opportunities with competitors, I would argue that having an employee on staff that doesn’t want to be there is worse for the business than the potential loss due to competition. The best companies will continue to be a place people want to work, not need to.

Rental Briefing: How might individual employees be affected?

Nickell: The ban will give some additional flexibility to employees bound by noncompetes, but that is somewhat balanced by nondisclosure and nonsolicitation agreements. Companies may put more value on loyalty. Trust and loyalty have always been important in this industry. That doesn’t change.

I would caution individuals that the grass isn’t always greener. In addition, while your contractor relationships are incredibly valuable, your customers don’t want to be changing companies often to follow you. It adds complexity for them to establish new accounts, pricing, and history.