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
The sole exception 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 for restraint of trade if the sale is "for valuable consideration".
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.
Notes:
- There are no publicity requirements (unlike the proposed FTC rules) because of GAR#442 (Circulation of World Assembly Law).
- The actual wording is slightly closer to English common law on restraints of trade than US employment law.
- Sep took quick look on WALL so he is also listed as a co-author. The idea was IA's from the perspectives of economics.
Draft 1
The World Assembly,
Recognizing previous resolutions to protect the rights of workers (GAR#302, GAR#503);
Dismayed by the prevalence of non-compete clauses in employment contracts in some member states and in some industries, 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 a combination of (i) lost opportunities in improving employee remuneration; (ii) letting employers hire qualified workers and disrupting competition (iii) impeding the pursuit of entrepreneurship;
- Hereby defines, for the purpose of this resolution:
- A "non-compete clause" to mean a contractual term between an employer and an employee that restraints a departing employee from seeking or accepting roles with another employer, or to operate a business, and therefore is also considered a restraint of trade except in the case of "disposal of interests";
- A contractual term that "functionally" acts as a non-compete clauses including but not limited to:
- A broadly defined non-disclosure clause that effectively prevents employees from utilizing their skills and knowledge to work in a similar industry to that of their previous employer and;
- A training or apprenticeship contract requiring reimbursement of training expenses over and above the actual reasonable costs incurred by the employer;
- Any other provisions in a contract that are reasonably determined under due process to be a restraint of trade by an employer against an employee;
- An "employee" includes all forms of formal and informal employment including temporary workers, interns, apprentices, whether paid or unpaid;
- Hereby requires that, as of the passing of this resolution:
- All non-compete clauses shall be deemed unfair methods of competition and unenforceable restraints of trade against an employee;
- All existing non-compete clauses in all contracts are deemed to have been rescinded and declared null and void;
- No employer may restrict an employee from resigning and to take up employment elsewhere or to start a business, nor to claim loss of business, provided that a payment in lieu of notice has been made;
- No claim on disclosure of confidential trade data can be made unless an employer can demonstrate beyond reasonable doubt that the employee is of sufficient seniority to have access to such data and that the employee has been duly compensated to not utilize such data against the employer;
- Hereby clarifies that:
- A restraint of trade clause may be deemed enforceable for a limited period of time if it is entered into voluntarily by the substantial beneficial owners of an employer (and key employees with share options, profit participation and/or other performance based compensation mechanisms) as part of the disposal of their interest in the employer for valuable consideration in a commercially reasonable transaction;
- Member states are responsible for the implementation and interpretation of this resolution.
- In case of disputes on jurisdiction, the member state that is the primary place of employment of the employee shall have priority on jurisdiction.
- 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.
Co-authors: Imperium Anglorum, Separatist Peoples
Previous draft:
"substantial beneficial owners of an employer (and the said owners may also be employees)
Now:
"substantial beneficial owners of an employer (and key employees with share options, profit participation and/or other performance based compensation mechanisms"
