lFA Says FTC's Proposed Rule will Damage Franchise Business Model

Last week, the International Franchise Association (IFA) urged the Federal Trade Commission (FTC) to reject a “blanket ban on noncompete clauses in franchise agreements,” noting that an across-the-board ban would harm franchisors and franchisees, damaging the franchise business model. The group issued the comments following the FTC’s recent Notice of Proposed Rulemaking for its proposed “Noncompete Clause Rule.” The IFA joined more than 280 organizations in opposition to the proposed rule and the FTC’s authority on the issue.

“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,” said IFA General Counsel Sarah Bush. She added, “Noncompete clauses serve to protect the equity of franchisees in the businesses that they have established, the confidential and proprietary information of franchisors, and the goodwill, knowhow, and integrity of franchise systems, and in ensuring such protections, they 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.” You can read IFA’s full comments here.