The Federal Trade Commission (FTC) proposed new Federal regulations to ban non-compete clauses from employment agreements nationwide. The ban will include non-solicitation and other restrictions that are currently designed to deter employees from competing with an employer after the employment relationship concludes. While this has been the law in California (and a handful of other states to varying degrees), the FTC’s proposal will have an even broader reach than California law. The FTC is targeting any contractual term that has the effect of prohibiting a worker from seeking employment or operating a business after termination, including prohibiting employers from seeking to recoup their investment in training where an employee departs within a specified period of time.
Further, the FTC’s ban will expand well beyond traditional employment to impact relationships with independent contractors, externs, interns, volunteers and even sole proprietors providing service to a client. § 910.1(f).
Exceptions
The regulations identify two exceptions to the non-compete ban: (1) a franchisee in a franchisee-franchisor relationship, and (2) sale of all or substantially all of a business to preserve the goodwill of the business. §§ 910.1(f) & 910.3.
Rule of Reason
The franchisee-franchisor exception is consistent with the “rule of reason” exception to anti-trust restrictions recognized by the FTC in conjunction with prosecuting anti-poaching cases. In essence, a...
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