General Counsel Sarah Bush Points Out Ways a Ban Would Hurt Franchise Industry
The International Franchise Association continues to discourage the Federal Trade Commission from enacting a “blanket ban on noncompete clauses in franchise agreements.” The IFA this week insisted that such a ban would be injurious to the franchise business model as well as to franchisees and franchisors. The IFA submitted its objections in response to a potential change to the FTC’s Noncompete Clause Rule.
IFA General Counsel Sarah Bush stated the following in sending the association’s comments to the federal agency: “Noncompete clauses protect the integrity of franchising and individual franchisees from unfair competition from existing and former franchisees. Such a ban 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.”
Justifying Noncompete Clauses
The comments further asserted that “noncompete clauses serve an important and legitimate function” and that they “protect the equity of franchisees in the businesses that they have established, the confidential and proprietary information of franchisors, and the goodwill, know-how and integrity of franchise systems.” In providing those protections, Bush wrote, noncompete clauses “promote competition. There is neither a factual nor a legal basis that would support voiding all noncompete clauses under all franchise agreements across hundreds of industries under all circumstances.” She added that the franchise agreement prominently makes franchisees aware of noncompete clauses.
In additional comments submitted by Bush, the IFA emphasized that “franchisees are typically small-business owners, although the franchise model has paved the way for many franchisees to become successful multi-unit, multi-brand operators. Franchising offers a gateway to entrepreneurship by providing the opportunity for independent business ownership in an existing brand with an established brand reputation, typically requiring less time, cost and risk than starting an independent business from scratch.”
The comments warn that “if this proposed noncompete rule were extended to cover the core franchisor-franchisee relationship … we fear that the result would be to strip away these entrepreneurs’ empowerment and investments, relegating them to become mere employees of their franchisors.”
Read Bush’s full comments here.
IFA Not Alone in Opposition
In other recent lobbying against the noncompete ban, the IFA joined more than 280 organizations in submitting a nine-page letter to the FTC. Their letter to the FTC said, in part, that “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.”
A wide range of industry trade groups and business associations comprise the 280 organizations joining the IFA in submitting their April 19 letter to the FTC’s secretary, April Tabor. Those groups represent advertisers, bakers, bankers, aerospace businesses, truckers, insurance companies, hotels, builders, computer businesses, electrical contractors, and dozens of chambers of commerce from coast to coast, to name just a few. The full text of the letter is available here.