Final rule preserves noncompetes in franchisor-franchisee relationship, following IFA advocacy push; IFA cites significant continued concern with noncompete ban in employee contracts for franchised small businesses

WASHINGTON – Following advocacy efforts from the International Franchise Association (IFA), the Federal Trade Commission (FTC) announced this week that its final “Non-Compete Clause Rule” would preserve noncompete clauses in contracts between franchisors and franchisees. While IFA commends the decision to protect the franchisor-franchisee relationship in the final rule, the organization raised continued concerns with FTC overreach in banning noncompete clauses in employment relationships and the harm it will bring to competition and intellectual property, particularly for franchised small businesses.

“Banning noncompetes in employment agreements will undoubtedly harm small businesses everywhere,” said Michael Layman, IFA senior vice president of government relations and public affairs. “However, IFA is glad the Commission listened to the concerns of the franchise community and recognized the importance of protecting the franchisor-franchisee relationship in the final rule. The preservation of noncompetes in contracts between franchisees and franchisors is especially critical to prevent former franchisees from unfairly using proprietary information to compete with current franchise small business owners, which would be detrimental to the franchise business model, the brands companies have built, and the local businesses franchisees run.”

IFA submitted comments in April 2023 on the proposed rule, urging the FTC to avoid extending the noncompete ban to franchise agreements, saying, “A blanket ban on noncompete clauses in franchise agreements would be extremely damaging to the franchise business model, encourage breaches of contract, and hurt small business owners that depend on the viability of the franchise system to protect their equity in their franchised businesses.”

Additionally, IFA joined more than 280 organizations in opposition to the proposed rule and the FTC’s authority on the issue, saying, “We strongly oppose the proposal because noncompetes serve vital business and employee interests and because the FTC lacks legal authority to issue the proposed rule.” 

The final rule passed the FTC on April 23, 2024, in a 3-2 vote.

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