![]() ![]() FTC’s Legal Authority for Banning Non-Competes ![]() But the employment contract containing a non-compete clause has a choice of law provision that applies the laws from State B, which permits non-compete agreements. Imagine an employer and worker are from State A, which bans non-competes. There are several states that already severely limit the use of non-compete agreements, so why is the FTC trying to ban their outright use? One reason is because arbitration clauses and collective action waivers can make it economically unfeasible for many workers to take legal action when subject to an unlawful non-compete.Īnother reason is that employment contracts usually have choice of law provisions, which dictate which state’s laws apply to an employment dispute arising out of the employment contract. A good example of something that’s not a non-compete, but could still be outlawed by the proposed rule, is a TRAP, or Training Repayment Agreement Provision.įinally, this proposed rule doesn’t apply to non-competes relating to sales of businesses and in situations where a state or local law provides greater rights and protections to workers. These employment clauses or provisions could still be banned if they have the same effect as a non-compete. ![]() It would not apply to franchisee-franchisor employment relationships, though.įourth, other contractual provisions could be unenforceable under this rule, even if they don’t technically count as non-competes. Third, the rule doesn’t just apply to employees, but also to unpaid workers and independent contractors. Second, if this rule goes into effect, employers must inform current and former workers subject to a non-compete that their non-compete agreements are no longer valid. The presence of even an unenforceable non-compete can still have its desired effect, as workers don’t want to take the risk of getting sued. This is important because even in states where non-competes aren’t allowed, many employers will still include one in the worker’s employment contract. In other words, employers can’t threaten their workers by claiming they’ll enforce a non-compete that doesn’t exist or is unenforceable. But there are a few interesting aspects of this proposed rule that are worth noting.įirst, besides banning the use of the non-compete, the proposed rule also bans employers from “represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe the worker is subject to an enforceable non-compete clause.” What the FTC’s Proposed Rule Does for WorkersĪs far as proposed rules go, this one is fairly straightforward, as it would essentially stop employers from using non-compete agreements with their workers. ![]()
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