Federal trade commission's rule on non-compete ban: Relevance for a common law jurisdiction- India

Abstract

Countries have been pondering about the use and legality of non-compete agreement for many years. Lack of regulatory clarity on these covenants has allowed companies to use these contracts with impunity. These covenants not only restrict the employees from joining a competitor but also refrain them from having a competing business of their own. Promotion of competition has been at the center of FTC regulations, and so the use of non-competes and its effects on competition have been a concern. Thus the FTC issued the final order banning non-compete in April 2024. In India too, as in many other Common Law countries, non-competes are rampantly used. In spite of that, there is no legal clarity on its enforceability in the court of law. The courts have decided these cases based on broad principles of restraint of trade. Even senior executives such as Jatin Dala, CFO of Wipro have been sued for approximately 3 million USD, by its employer for allegedly violating his non-compete. The article analyzes how the new FTC ban could be a legal guide for a common law country like India and many others. The article tries to analyze how the FTC regulation can be transpollinated to India and the benefits of doing the same.