NationStates

[Update: am re-drafting over the next few days due to all the comments coming in]

Introduction

This is largely based off the US Federal Trade Commission's January 2023 proposal to ban employers from imposing noncompete clauses on their workers, which it claims is "a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses". The FTC reckons this could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans. This has been on WALL for drafting for sometime.

https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition

Exceptions

1. The exceptions on non-compete clauses is when employee shareholders sell out (this occurs frequently in family businesses and sales of franchisees). Both the FTC and existing common law jurisdictions allow non-competes if the sale is "for valuable consideration".
   
2. In Draft 5, there is now an exception for "unjust enrichment" largely related to employees paid in advance (or receiving a premium for their work) for non-competes.
   
3. To give a (grossly simplified) example: if Chefs A, B, C sell a popular restaurant to Person D for "valuable consideration" (say US$5 million) and split the proceeds 40:40:20, so Chef A receive US$2 million, Chef B receives US$2 million and Chef C receives US$1 million, it is not an unenforceable contract for Person D to require that Chefs A, B and C do not run another restaurant nearby, say "no new restaurant within one hundred miles for one year" - Person D may not acquire the restaurant in the first place, or may acquire it for a lower price if Chefs A, B and C can compete against Person D immediately.
   
4. There are no publicity requirements (unlike the proposed FTC rules) because of GAR#442 (Circulation of World Assembly Law).
5. Due to extensive comments from Separatist Peoples, Imperium Anglorum and Cretox State, there had been extensive revisions. Yes, WALL takes these matters seriously.
6. Any grammatical errors are mine alone.

Draft 5

The World Assembly (WA),
Noting previous resolutions to protect the rights of workers such as GARs #302, #447 and #503;
Dismayed by the consequences of non-compete clauses in employment contracts in some WA states, preventing workers from joining or starting a business competing with their previous employer after their employment ends;
Concerned by the adversity from non-compete clauses on both employee welfare and economic liberty, through, amongst other issues:

1. lost opportunities in improving remuneration;
2. preventing employers from hiring qualified workers and disrupting competition;
3. impeding the pursuit of entrepreneurship;

1. Hereby defines:
   
   
   1. A “disposal of interest” means a sale of an interest by an employee (or any the holder of an interest, howsoever such interest originates) in the employer for valuable consideration in a commercially reasonable transaction, and where all parties to the agreement have received independent legal advice on the said disposal;
   2. An "employee" includes all forms of formal and informal employment including temporary workers, interns, and apprentices, whether paid or unpaid;
   3. IAO means the Independent Adjudicative Office of the WA;
   4. A "non-compete clause" means a contractual term between an employer and an employee that either:
      
      1. restrains a departing employee from seeking or accepting roles with another employer, and/or to operate a business, except in the case of "disposal of interests" (defined below);
      2. functionally impedes competition between employers or impedes future employment by the said employee, including but not limited to:
         
         1. A very broadly defined non-disclosure clause that merely serves to impede employees from utilizing their skills and general, non-properietary knowledge to work in a similar industry to that of their previous employer rather than making a valid claim on trade secrets, and;
         2. A training or apprenticeship contract requiring reimbursement of training expenses over and above the actual costs incurred by the employer;
         3. A contract that requires liquidating or ascertained damages to be paid merely for the act of departing from the employer;
         4. Any other provisions in a contract that are conclusively deemed under due process to more likely than not restrain competition by a former employee against a former employer;
2. Hereby requires that, as of the passing of this resolution:
   
   1. All non-compete clauses shall be deemed manifestly unfair and all existing such clauses are deemed to have been severed and declared null and void;
   2. No employer may restrict an employee from resigning and taking employment elsewhere or starting a business, nor subsequently claim for loss of business, provided that, pursuant to WA resolutions or WA state laws, the employee has given due written notice to the employer of the intent to leave the employer, and/or that a valuable monetary payment has been made to the employer for compensation in lieu of notice to facilitate an early departure by the employee;
3. Hereby clarifies that:
   
   1. A non-compete clause may be deemed enforceable for a limited period of time if entered into voluntarily by the beneficial owners of an employer and key employees demonstrably in a leadership capacity and compensated accordingly as part of a “disposal of interest”;
   2. Subject to due process, an existing non-compete clause in place prior to the passing of this resolution, may be subject to a claim of unjust enrichment by any of the parties to such contract(s), without any claims beyond any payments already made by the paying party;
   3. This resolution does not affect a WA state’s rights to interfere on the grounds of national security, subject to due process.
   4. In case of disputes on the terms of a contract, the burden of proof shall be on the employer to any claims made by the employer, at a level no less than a preponderance of evidence basis;
   5. In case of disputes, a WA state must assert jurisdiction over a non-WA state if the employer is duly established in a WA state, failing which jurisdiction may be asserted if an employee is a citizen or resident of a WA state;
   6. In case of disputes, either due to conflicts on jurisdiction or due to the exhaustion of due process at the level of a WA state, the IAO shall adjudicate both as a matter of law and as a matter of fact on a de novo basis.

Co-authors: Imperium Anglorum, Separatist Peoples, Cretox State

Ms. Gutierrez: "Ah, a first draft! That moderately distinctive, papery odor of ink and... paper! And another quiet chamber with silent, stone-faced submittants! Well, a good morning to you all 'too,' Bear; Mr. Blythe, Mr. Bell!"

Ms. Gutierrez: "'All' is always an awful lot, don't you think? All non-compete clauses... I can't help but wonder, suppose if in my former homeland of Miradero, a policeman gests reprimanded for some awful abuse of power! The city council plans to reprimand him... but before that happens, the policeman quits the employment and finds a new position in the same profession with some other city. Now, instead of being disciplined, he has simply gotten another job! A non-compete clause may be the way Miradero keeps a policeman from slipping away from town and into another policeman position where he can perpetuate his abuses, as the non-compete clause provides grounds to either keep him at the precinct that will issue the penalty or prevent him from reentering police work."

Ms. Gutierrez: "With that in mind, I don't think Maricela Gutierrez—ah, the nation, not me, the person—well, I'll also be casting the vote, since I'm representing myself, or my nation, or—what I mean is, I wonder what you think about the scenario I just outlined, since for now it's the reason I can't support the resolution. Thank you, Bear, for your time. (And also thanks to the two of you, Mr. Blythe and Mr. Bell, in case you decide to participate in the chamber.)"

Ms. Gutierrez sets the draft down, double-checks her nails, and hums a jaunty tune.

Maricela Gutierrez wrote:Ms. Gutierrez: "Ah, a first draft! That moderately distinctive, papery odor of ink and... paper! And another quiet chamber with silent, stone-faced submittants! Well, a good morning to you all 'too,' Bear; Mr. Blythe, Mr. Bell!"

Ms. Gutierrez: "'All' is always an awful lot, don't you think? All non-compete clauses... I can't help but wonder, suppose if in my former homeland of Miradero, a policeman gests reprimanded for some awful abuse of power! The city council plans to reprimand him... but before that happens, the policeman quits the employment and finds a new position in the same profession with some other city. Now, instead of being disciplined, he has simply gotten another job! A non-compete clause may be the way Miradero keeps a policeman from slipping away from town and into another policeman position where he can perpetuate his abuses, as the non-compete clause provides grounds to either keep him at the precinct that will issue the penalty or prevent him from reentering police work."

Ms. Gutierrez: "With that in mind, I don't think Maricela Gutierrez—ah, the nation, not me, the person—well, I'll also be casting the vote, since I'm representing myself, or my nation, or—what I mean is, I wonder what you think about the scenario I just outlined, since for now it's the reason I can't support the resolution. Thank you, Bear, for your time. (And also thanks to the two of you, Mr. Blythe and Mr. Bell, in case you decide to participate in the chamber.)"

Ms. Gutierrez sets the draft down, double-checks her nails, and hums a jaunty tune.

Ambassador, if your national cannot handle police misconduct through a more appropriate means than non-compete clauses in civil service contracts, we have significant reservations about the functioning of your government and its ability to enforce the rule of law....

As for the draft, we tentatively support the draft. We will review it at greater length as we do feel there may be some places may yet need some tinkering as there are SOME legitimate cases in our opinion for contracts that are or are functionally equivalent may be utilized.

OOC: I can not help but think that 1(c) is meant to be two provisions? You place a semi-colon after the bit about training costs, but then continued on without starting a new clause.

1(b) is rather convoluted to parse and flows awkwardly.

Desmosthenes and Burke wrote:Ambassador, if your national cannot handle police misconduct through a more appropriate means than non-compete clauses in civil service contracts, we have significant reservations about the functioning of your government and its ability to enforce the rule of law....

Ms. Gutierrez taps her nameplate.

Ms. Gutierrez: "Oh, I don't mean to be pushy, but please, I do have a name, Ambassadorrrrrrrr—my goodness, I am very sorry, perhaps I really do need glasses, because I cannot make out your nameplate, Ambassador."

Ms. Gutierrez: "But may I reassure you that there is no need to worry about Maricela Gutierrez! The, ah, nation in this case. I'm happy to report we have no such personnel issues in our (admittedly limited) borders. But when I think of my old homeland and of the possibility that similar nations might be member states of the World Assembly, well, I worry a bit! It is surprising how even in a nation which is often perceived to be well-functioning, the right (or wrong) contract can precipitate losing control over law enforcement..."

Drafts 1-3

Desmosthenes and Burke wrote:

Maricela Gutierrez wrote:Ms. Gutierrez:

*Snip*

Ambassador, if your national cannot handle police misconduct through a more appropriate means than non-compete clauses in civil service contracts, we have significant reservations about the functioning of your government and its ability to enforce the rule of law....

As for the draft, we tentatively support the draft. We will review it at greater length as we do feel there may be some places may yet need some tinkering as there are SOME legitimate cases in our opinion for contracts that are or are functionally equivalent may be utilized.

OOC: I can not help but think that 1(c) is meant to be two provisions? You place a semi-colon after the bit about training costs, but then continued on without starting a new clause.

1(b) is rather convoluted to parse and flows awkwardly.

I am inclined to exclude anyone in the service of the federal government (or the civil services, or civil defence forces) would not apply but I think I can exclude that, if this issue becomes necessary. Also over occupational permits issues by a government.

A police officer in Illinois cannot reasonably be argued to compete against a police officer in New York. Or a fire officer in Inverness is competing against a fire officer in London to put out a fire. I don't want to do one concerning government owned enterprises (SOEs etc) or local governments. I am taking an absolutist view on this.

Some of the bullets have been fixed, that was due to a cut and paste from WALL.

I am still thinking about executive directors and CEOs.

Simone Republic wrote:

Desmosthenes and Burke wrote:

I am inclined to exclude anyone in the service of the federal government (or the civil services, or civil defence forces) would not apply but I think I can exclude that, if this issue becomes necessary. Also over occupational permits issues by a government.

A police officer in Illinois cannot reasonably be argued to compete against a police officer in New York. Or a fire officer in Inverness is competing against a fire officer in London to put out a fire.

Some.of the bullets have been fixed, that was due to a cut and paste from WALL.

I am still thinking about executive directors and CEOs.

Draft 1 has been amended to include "key employees in a senior leadership capacity with share options, profit participation and/or other performance based compensation mechanisms" - so it doens't catch highly paid engineers with stock options, but it catches highly paid CEOs, or say the lead engineer or an AI project or the main designer of a fashion brand. No one will acquire a business built around a single designer (or chef etc) without a non-compete.

Bump

"Support as written."

~Alexander Nicholas Saverchenko-Colleti,
World Assembly Ambassador,
The Communal Union of the Ice States.

Bump.

Some amendments implemented as per Separatist Peoples, primarily clause 3b (which I drafted off Lipkin Gorman v Karpnale Ltd [1988] UKHL 12) and the implementation of the “but for” test (Scottish Equitable plc v Derby) and the role of the IAO.

Bump. There had been some changes as per WALL given the exacting drafting standards of the three other legal and regulatory/compliance professionals on this.

Cretox State is added as a co-author provided I can get Cretox to return from CTE as this draft includes comments from Cretox.

A few comments:

• I'd remove any bolding; it is unnecessary.
• We know what WA states are.
• Introductory statement at 1(b) is repeated for some reason. If you use the standard series the third level should be (i) and not (a).
• 1(b)(a)(1): impede → impedes; what does "unreasonably" mean here?
• 1(b)(a)(2): what does "reasonable costs" mean here?
• 1(b)(a)(3): why should damages for departure be anathema?
• 1(b)(a)(4): rephrase this to "more likely than not... restrains competition..."; currently much more wordy than necessary; if you really want preponderance of the evidence (one of those things American drafters love for some reason, probably because it's longer like "transportation" over "transport") place it in the right place
• 1(c): employee here seems circular inasmuch it is a person under employment
• 1(d): I'm not sure why you need to define "but for"
• 2(b)(b): If you're using "malice" to mean "wilful" here, say that
• 3(a) doesn't cover divestiture by an party inheriting a stake in a firm
• 3(b): "due a process" seems like a typo; nb that different jurisdictions have different ideas about "unjust enrichment" and that civil law countries use the term "unjustified enrichment" because they require a respondent to assert a basis
• 3(c): "for which" → "in which"
• 3(e): what about a job done in a non-member state by a person now residing in a member state who was an employee of a different member state?

I really needed a paralegal to reconcile between comments between four attorneys and regulatory/compliance professionals.

Draft 4 is below.



Given that I need to jiggle three different co-authors with actual standards, I am doing a separate change-log.

From Imperium Anglorum

Imperium Anglorum wrote:A few comments:

• I'd remove any bolding; it is unnecessary.
• We know what WA states are.
• Introductory statement at 1(b)is repeated or some reason. If you use the standard series the third level should be (i) and not (a).
• 3(c): "for which" → "in which"
• 1(b)(a)(1): impede → impedes; what does "unreasonably" mean here?
• 1(c): employee here seems circular inasmuch it is a person under employment
• 2(b)(b): If you're using "malice" to mean "wilful" here, say that

Fixed. There's a couple that's not relevant anymore as they were taken out.

Imperium Anglorum wrote:[*]1(d): I'm not sure why you need to define "but for"
[*]1(b)(a)(4): rephrase this to "more likely than not... restrains competition..."; currently much more wordy than necessary; if you really want preponderance of the evidence (one of those things American drafters love for some reason, probably because it's longer like "transportation" over "transport") place it in the right place
[*]1(b)(a)(2): what does "reasonable costs" mean here?

All gone. The first one is for Sep's unjust enrichment test but taken out. The second change is just because I like to write "on a preponderance of evidence basis" rather than say "more likely than not".

My idea of asking someone out on a date is that "on a preponderance of evidence it would perhaps be mutually beneficial in terms of having each other's company if we have the opportunity to share some perhaps pleasurable moments together at Ruth's Chris, on a complete package the finest wines of Europe with all costs plus your ride home and the activity therefrom fully indemnified on my part" rather than "let's drive to Ruth's Chris for dinner, get drunk and I'd make sure I have a taxi to get you home".

*I did utter something to this effect once but the girl said no. This is before Uber so having to pay for a taxi was costlier.

Imperium Anglorum wrote:[*]1(b)(a)(3): why should damages for departure be anathema?

I have been reluctant to allow employees to compensate employers for departure without a lot of safeguards. (This is partly influenced by Hong Kong law which pretty much allows employees to leave entirely on their own free will and accord at any time so long as they write a cheque to the employer, so long as trade secrets are not involved, but Hong Kong is unusual in this respect.)

Given the length of this resolution, I intend to write a trade secrets resolution eventually to address both national security clearances (as Cretox raised), and employees leaving wiith confidential data (as all three of you raised).

Imperium Anglorum wrote:[*]3(a) doesn't cover divestiture by an party inheriting a stake in a firm

[*]3(b): nb that different jurisdictions have different ideas about "unjust enrichment" and that civil law countries use the term "unjustified enrichment" because they require a respondent to assert a basis

Yes I am aware (as Sep pointed out below) on unjust enrichment that this would create issues between common and civil law, it's a compromise to keep it within 5,000 characters and we do not another resolution on unjust enrichment later. The "but for" test is obviously a lift from English laws.

Imperium Anglorum wrote:[*]3(e): what about a job done in a non-member state by a person now residing in a member state who was an employee of a different member state?[/list]

I don't have a solution other than to dump the whole lot to IAO eventually if all avenues of the judicial process are exhausted. This also indirectly means that only citizens and legal residents of a WA state would benefit.

The text now reads:

- In case of disputes, a WA state must assert jurisdiction over a non-WA state if the employer is duly established in a WA state, failing which jurisdiction may be asserted if an employee is a citizen or resident of a WA state;

- In case of disputes, either due to conflicts on jurisdiction or due to the exhaustion of due process at the level of a WA state, the IAO shall adjudicate both as a matter of law and as a matter of fact on a de novo basis


From Cretox

1. The clause on "claim on disclosure of confidential trade data" is entirely gone. This is both for space reasons (it's running to 6,500 characters incorporating everyone's comments), and because I believe the disclosure of trade data when employees change jobs is a big enough topic to warrant a separate resolution on its own right. So this included the following list:

1. The employee has demonstrable authority to have access to such data; and
2. That there is the actual disclosure of such data and the employee(s) concerned had acted with malice; and
3. That the data is demonstrably of substantial value to the employer and to a competitor of the employer; and
4. That the employee has been duly compensated to not utilize such data against the employer;

2. The last clause "in case of disputes on the terms of a contract, the burden of proof shall be on the employer to demonstrate that any terms are not unfair methods of competition and/or unenforceable restraints of trade, at a level no less than a preponderance of evidence basis" has been simplified to "In case of disputes on the terms of a contract, the burden of proof shall be on the employer to any claims made by the employer, at a level no less than a preponderance of evidence basis".

3. Added: "This resolution does not affect a WA state’s rights to interfere on the grounds of national security, subject to due process."

From Sep

1. The definition of a "restrain(t) on trade" is gone as I drafted this more on English law but I standardized everything to just "non-disclosure". Cretox also made the same point.

2. "IAO should adjudicate only as a matter of law and not as fact". <- This slightly leans to IA/Cretox as the solutions advocated are different. I changed it so that in case of disputes on jurisdiction, IAO is dumped with the entire matter on a de novo basis. This should increase billable hours for lawyers. So my proposed solution is slightly more IntFed to take care of the jurisdiction issues IA raised above, about employees travelling internationally and working in different places etc.

3. "Unjust enrichment claims" have been inserted. If an employee entered into such a contract the day before the law goes into effect, tough luck but the employee is only required to compensate "without any claims beyond any payments already made by the paying party". I took out the "but for" test as per IA above and will rely on "unjust enrichment" standing on its own without defining the term. Terms on "unjust enrichment" and the "but for" test that might become a separate resolution.

Magecastle Embassy Building A5 wrote:"Support as written."

~Alexander Nicholas Saverchenko-Colleti,
World Assembly Ambassador,
The Communal Union of the Ice States.

Thanks for your support. It's gone through numerous changes but given the technicalities, it's likely to be back-and-forth between four attorneys and regulatory/compliance professionals as we hammer out a draft.

And for once for something coming from me, this explicitly protects workers' rights.

Bump and warm reminder to the long list of coauthors to read the thing