As many Oklahoma employers are aware, Oklahoma has generally banned the use of non-compete agreements with employees and independent contractors (15 O.S. § 217; Scanline Medical LLC v. Brooks, 2011 OK CIV APP 88), with limited exceptions for non-solicit and non-disclosure agreements, and those non-compete agreements associated with the dissolution or sale of a business. 15 O.S. § 219B; 15 O.S. § 217; 15 O.S. § 218.
A proposed federal rule is likely to complicate the equation. On January 5, 2023, the U.S. Federal Trade Commission (FTC) proposed a new rule to effectively ban non-compete agreements with U.S. workers. If implemented, the FTC rule would prohibit employers from entering into or attempting to enter into a non-compete agreement with a worker; maintaining a non-compete clause with a worker; or representing to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable clause of that kind. The rule would apply to employees and independent contractors and would invalidate any pre-existing non-compete clauses. Like Oklahoma’s law, the FTC rule would provide an exception to the prohibition on non-compete agreements when a business is sold. But the proposed requirements to qualify for the FTC exception are different from Oklahoma's requirements.
In Oklahoma a non-compete associated with the sale of a business will be enforceable so long as i) there is a sale of the goodwill of the business as part of the transaction, which can include selling less than the entire ownership of the business but must be an “appreciable” amount (Key v. Perkins, 46 P.2d 530, (1935)); and ii) the non-compete territory is limited to contiguous counties. 15 O.S. § 218. Under the proposed FTC rule, only workers with a 25% or greater ownership stake can be bound by a non-compete agreement when they sell their stake, and there is no territorial limit for the non-compete obligations.
The proposed FTC rule, if implemented, adds a layer of requirements for a purchaser of a business who wants to restrain the seller from competing after the transaction is completed, but the goal will still be achievable. What’s less clear is how the FTC rule might change Oklahoma’s enforcement of agreements that prohibit former employees or independent contractors from directly soliciting established customers of the former employer (15 O.S. § 219B), or enforcement of non-disclosure agreements between a worker and employer.
Under the proposed FTC rule, a non-disclosure agreement will be considered an unenforceable non-compete agreement if it is so broad that it effectively precludes the worker from working in the same field after the conclusion of employment. That section of the rule, if implemented, will certainly be litigated due to the commonplace nature of non-disclosure agreements in the workplace these days. And although the proposed FTC rule doesn’t mention non-solicit agreements, it seems likely that the same or similar test would apply to non-solicit agreements, meaning that if the FTC rule is adopted, another set of requirements will need to be considered by employers drafting both non-solicit and non-disclosure clauses with their workers.
Although the proposed rule is not a final enforceable rule yet, employers should remain vigilant to make sure they do not run afoul of the new rule in the event it is made final.
By: Keith Barrett | Attorney at Law
