By Mahmood Bakkash and Joe Kirkwood

On Friday, August 23, 2024, the Small Business Administration (SBA) proposed a new rule regarding its small business programs. It’s a massive update with some very important changes, so we have broken it down into the key features below.

Like any proposed rule, these items may not go into effect as proposed or may never go into effect, but we will provide an update when and if they do.

If any of these items are particularly important to your business and future strategy, please contact us for a more detailed discussion of the nuances and potential impact.

The proposed rule would amend the SBA small business program rules by:

• Slightly broadening the scope of actions a minority shareholder can have the right to block in a Service-Disabled Veteran Owned Small Business (SDVOSB).

• Applying that new broadened scope of actions to the 8(a) Business Development (8(a)) and Women-Owned Small Business (WOSB) programs. Previously the scope was governed by case law; the new scope is less restrictive on minority owners (i.e. investors).

• Also applying the new broadened scope of actions to the affiliation rules. Previously the scope was governed by case law; the new scope is more restrictive on minority owners invested in non-8(a)/WOSB companies.

• Clarifying the size and status recertification/determination rules, especially regarding date of determination, GSA FFS contracts, eligibility after an acquisition, and the opportunity to protest an order award on ostensible subcontractor grounds.

• Consolidating the size and status recertification/determination rules across programs into one new rule, 13 CFR §125.12.

• Amending the joint venture affiliation rules so that the Protégé in a Mentor-Protégé Joint Venture (MPJV) must perform the primary and vital requirements of the contract and not be unusually reliant on its joint venture partner (this would be applicable to all JVs, but especially important to MPJVs).

• Allowing procuring activities to demonstrate at least a minor level of past performance as part of a joint venture’s offer.

• Requiring governing documents of an MPJV entity to specify that when a mentor seeks to sell its interest in a MPJV, the Protégé has a right of first refusal to purchase that interest. 

• Adding Protégé rights to amend or terminate the Mentor Protégé Agreement (MPA) in the event of the acquisition of the Mentor by a third party, if the third party is not situated to fulfill the MPA’s requirements.

• Requiring that Protégés not only not be affiliated with the Mentor, but also that Mentors may not “employ or otherwise control the managers or key employees of the Protégé.” 

• Requiring any company purchasing a Mentor, but already has its own Protégé on the same multiple award contract (MAC) to exit one of the joint ventures.

• Changing 8(a) rules, including increasing the maximum ownership percentage by non-disadvantaged individuals, requiring two (2) years of tax returns in the application instead of proving revenue in primary NAICS code, and more.

• Changing HubZONE rules regarding when a company must be eligible (including at time of offer), moving to triannual recertifications, requiring 51% of teleworking employees to be located in a HubZONE to qualify, and more.

• Standardizing various requirements and rules across all small business programs.

By: Jocelyn McKenzie and Joe Kirkwood

The U.S. District Court for the Northern District of Texas has blocked FTC’s nationwide ban on non-compete clauses, just two weeks before it was set to take effect on September 4, 2024.

If you haven’t read our last article on the Federal Trade Commission’s (FTC) Final Rule on non-competition agreements issued on April 23, 2024, the Rule would have explicitly interpreted Section 5 of the FTC Act to mean that entering into, enforcing, or representing that a worker is subject to a non-compete is an unfair method of competition in violation of the Act.

On August 20, 2024, after months of litigation concerning, among other things, the constitutionality of the Rule, Judge Ada Brown found that the FTC had overstepped its authority, ruling that the ban was “arbitrary and capricious” due to its broad, “one-size-fits-all" approach without sufficient evidence to justify it. Therefore, the Court granted an injunction preventing the Rule from taking effect. This means that not only will it not take effect in the immediate future, the likelihood that it will ever take effect is now also uncertain.

For businesses that find non-compete agreements to be vital for protecting their legitimate business interests, including sensitive information, intellectual property, and client relationships, this ruling is a victory. However, the battle is not over. While the FTC will most likely appeal this ruling, conflicting rulings from courts in the Eastern District of Pennsylvania and the Middle District of Florida point to differing opinions throughout the federal legal system that will need to be resolved by a higher court. Moreover, state legislation across the country continues to trend toward banning or greatly restricting the use of non-competes, with many states relevant to our clients already banning or refusing to enforce them.

As we’ve consistently advised, in many industries, well-crafted non-solicitation clauses and non-disclosure agreements offer sufficient protection for businesses without conflicting with shifting legal standards. At NOVA Business Law Group, LLP, we are deeply experienced in business law and routinely provide reasoned, long-term guidance on strategy regarding issues like these. We invite you to contact us to review your current agreements and proactively prepare for future changes.