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Articles Posted in Employment Law

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It is important for every business to take extensive efforts to protect their trade secrets and limit their disclosure to persons with subject to comprehensive confidentiality agreements. Often, trade secret misappropriation occurs when a business shares its trade secrets with an outside vendor. This is exactly what a plaintiff claims to have happened in Ecolab, Inc. v. IBA Inc. & Webco Chemical Corp., Case No. 4:24-cv-40407-DHH (D. Mass., August 14, 2024), a recent case filed in the U.S. District Court of Massachusetts. Ecolab shows the importance of businesses being careful with whom they share their trade secrets and effectively using confidentiality agreements. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

According to the complaint filed by the plaintiff, Ecolab, Inc. (Ecolab), Ecolab creates and sells infection prevention products. This includes “acified sodium chlorite teat dip products” (ASC products) that Ecolab sells to the dairy industry. Ecolab alleges it developed these products after extensive efforts over a period of several years, and its manufacturing process for its ASC products constitute trade secrets.

Ecolab contracted with IBA Inc. (IBA) in 2002 to manufacture and distribute Ecolab’s ASC products. Ecolab had to share its trade secrets with IBA to facilitate IBA’s manufacturing duties. Before disclosure, Ecolab required IBA to execute a confidentiality agreement prohibiting IBA from disclosing the trade secrets or using the trade secrets for its own purposes. The confidentiality agreement allowed IBA to disclose the trade secrets to third party subcontractors as long as the subcontractors were subject to the same confidentiality provisions. IBA then, with Ecolab’s permission, contracted with Webco Chemical Corporation (Webco) for Webco to manufacture the ASC products, while IBA would distribute them. Webco also executed a confidentiality agreement. The three parties continued this relationship until 2022, when, as Ecolab alleges, IBA and Webco stole Ecolab’s trade secrets and released their own line of competitive ASC products.

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Under Florida law, the tort of abuse of process involves the use of criminal or civil legal process against another primarily to accomplish a purpose for which it was not designed.  Florida’s Third District Court of Appeal in Cline v. Flagler Sales Corp., 207 So.2d 709 (Fla. 3d DCA 1968), discussed the elements abuse of process and stated in pertinent part, “[i]n an action for abuse of process it is not essential to show a termination of the proceeding in favor of the person against whom the process was issued and used, or to show want of probable cause or malice.  The cause of action consists of the willful or intentional misuse of process; a willful and intentional misuse of it for some wrongful or unlawful object, or ulterior purpose not intended by the law to effect.”  Abuse of process is sometimes confused with the tort of malicious prosecution, which is a distinct cause of action.  A leading legal treatise, Prosser on Torts, 3rd Ed., Ch. 23, Misuse of Legal Procedure, section 115, page 877, explained that: “Thus if the defendant prosecutes an innocent plaintiff for a crime without reasonable grounds to believe him guilty, it is malicious prosecution; if he prosecutes him with such grounds to extort payment of a debt, it is abuse of process.”  The Miami business litigation attorneys of the Mavrick Law Firm represent clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In the years since the Cline appellate decision, Florida jurisprudence further developed what is required to establish an abuse of process.  Bothmann v. Harrington, 458 So.2d 1163 (Fla. 3d DCA 1984), explained that abuse of process  requires “a use of the process for an immediate purpose other than that for which it is designed…’Legal malice’ is presumed to exist if the plaintiff establishes that the process has been used for an improper purpose.”   However, “[t]here is no abuse of process, however, when the process is used to accomplish the result for which it was created, regardless of an incidental or concurrent motive of spite or ulterior purpose. In other words, the usual case of abuse of process involves some form of extortion…Even a pure spite motive is not sufficient where process is used only to accomplish its intended purpose.”  Relying on W. Prosser, Handbook of the Law of Torts § 121  (4th ed. 1971), Brothmann added that: “Some definite act or threat not authorized by the process, or aimed at an objective not legitimate in the use of the process, is required; and there is no liability where the defendant has done nothing more than carry out the process to its authorized conclusion, even though with bad intentions.  The improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of process as a threat or club.  There is, in other words, a form of extortion, and it is what is done in the course of negotiation, rather than the issuance or any formal use of the process, itself, which constitutes the tort.”  Express or implied extortion sometimes occurs in, inter alia, employment and commercial litigation.

Although the tort of abuse of process often is tied to a form of extortion, it is not an element of the claim.  Florida’s Fourth District Court of Appeal, in Della-Donna v. Nova University, Inc., 512 So.2d 1051 (Fla. 4th DCA 1987), explained in pertinent part that: “For a plaintiff to establish a cause of action for abuse of process, it must be proved that the defendant made illegal, improper, or perverted use of process; that the defendant had ulterior motives or purposes in exercising such illegal, improper, or perverted use of process; and that as a result of such action on the part of the defendant, the plaintiff suffered damage…[T]he tort of abuse of process is concerned with the improper use of process after it issues.”

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Developments regarding the Federal Trade Commission’s (FTC) prohibition of non-compete agreements continue. Recently, a court in the Eastern District of Pennsylvania denied a motion for preliminary injunction to prevent enforcement of the ban in ATS Tree Services, LLC v. FTC, Case No. 2:24-CV-01743, 2024 WL 3511630 (E.D. Pa., July 23, 2024). This decision conflicts with Ryan LLC v. FTC, Case No. 3:24-CV-00986 (N.D. Tex., July 3, 2024), wherein the court granted a preliminary injunction preventing enforcement of the ban. Peter Mavrick is a Fort Lauderdale business litigation attorney.  Peter Mavrick is a Fort Lauderdale business litigation attorney.  The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

In denying the motion for preliminary injunction, the court in ATS Tree Services, LLC found that the plaintiff did not establish irreparable harm or the likelihood of success on the merits. 2024 WL 3511630. The plaintiff argued, among other things, that the FTC rule would cause it to suffer irreparable harm because the plaintiff’s employees could immediately leave employment to work for a competitor thereby depriving the plaintiff of the benefits of the training it provided its employees. The plaintiff also claimed it would be irreparably harmed because there was a risk its employees would expose the employer’s confidential information to a competitor once they left the company. However, the court rejected both arguments. The argument regarding deprivation of training benefits was rejected because it was too speculative. The plaintiff did not provide any evidence that its employees would actually leave to work for a competitor. The argument regarding disclosure of confidential information was rejected because The FTC’s non-compete ban does not apply to non-disclosure agreements.

The court also denied the plaintiff’s request for an injunction prohibiting enforcement of the ban against non-compete agreements.  The court determined that the plaintiff was not likely to succeed on the merits. The court determined the FTC had authority to engage in substantive rulemaking or its authority was not limited to procedural rulemaking. 2024 WL 3511630. The court analyzed the language of Section 6 of the FTC Act, which allows the FTC to “make rules and regulations for the purpose of carrying out the provisions of this chapter.” 15 U.S.C. § 46. The ATS court stated Section 6 does not explicitly limit the FTC’s rulemaking authority to only procedural rulemaking. In addition, the court analyzed Section 5 of the FTC Act, which allows the FTC to “prevent persons, partnerships, or corporations . . . from using unfair methods of competition . . . .” 15 U.S.C. § 45. Use of the word “prevent” inherently contemplates substantive rulemaking. 2024 WL 3511630. This holding contradicts the reasoning in Ryan LLC, which determined the FTC did not have substantive rulemaking authority. Ryan LLC, 2024 WL 3297524. Ryan LLC characterized Section 6 as a “housekeeping” statute.

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The Federal Trade Commission (FTC) controversially issued a final rule banning most non-compete agreements. This rule severely impedes the ability of businesses to protect their legitimate business interests such as customer relationships, goodwill, confidential business information, and trade secrets. However, the FTC’s rule is facing legal challenges from different directions. Last week we wrote about a direct legal challenge and the Northern District of Texas’ injunction prohibiting enforcement of the rule. Ryan LLC v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex., July 3, 2024). This week we examine a potential future indirect challenge to the FTC’s rule based on the Supreme Court Loper Bright Enterprises v. Raimondo, __ S. Ct. __, 2024 WL 3208360 (2024) decision eliminating Chevron deference. As discussed more fully below, Loper Bright effectively removed a tool the FTC could have used to enforce its non-compete ban. Peter Mavrick is a Fort Lauderdale business litigation attorney.  Peter Mavrick is a Fort Lauderdale business litigation attorney.  The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The Supreme Court established the legal doctrine known as Chevron deference in the case Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Chevron deference required court to be highly deferential to agency regulations. It established a two-step process a court must employ when determining whether to rely on an agency regulation. First, the court must determine “whether Congress has spoken to the precise question at issue.” This is done by reviewing the clarity of the relevant statute at issue. Second, if “the statute is silent or ambiguous with respect to the specific issue”, then the court must defer to an agency regulation when it “is based on a permissible construction of the statute.” This holding shifts power away from the executive branch of government and the agencies associated therewith in favor of the judicial branch of government.

In practice, Chevron essentially determined that agency regulations are binding precedent. In fact, courts have used Chevron as the foundation to enforce FTC regulations. See Mattox v. FTC, 752 F.2d 116 (5th Cir. 1985) (finding that FTC regulations regarding Hart-Scott-Rodino Act entitled to Chevron deference); Nat’l Automobile Dealers Ass’n v. FTC, 864 F. Supp. 2d 65 (D.D.C., May 22, 2012) (holding that FTC regulation regarding Fair Credit Reporting Act was entitled to Chevron deference). Therefore, FTC could have attempted to rely on Chevron to enforce its non-compete ban before Loper Bright.

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Non-compete agreements have been a standard business practice for many years. Businesses use non-compete agreements to protect their interests like proprietary business information, trade secrets, customer, goodwill, staff, and others. However, on April 23, 2024, the Federal Trade Commission (FTC) upended this long-standing business practice by issuing a rule banning most non-compete agreements. See 16 C.F.R. § 910. The FTC’s new rule was recently challenged in Ryan LLC et. al v. FTC, and the court enjoined the FTC from enforcing its ban. Ryan LLC et. al. v. FTC, Case No. 3:24-CV-00986-E, 2024 WL 3297524 (N.D. Tex. July 3, 2024). Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The court prohibited the FTC from enforcing its non-compete ban because the FTC exceeded its statutory authority. See Am. Fin. Services Ass’n v. F.T.C., 767 F.2d 957 (D.C. Cir. 1985) (“The judiciary remains the final authority with respect to questions of statutory construction and must reject administrative agency actions which exceed the agency’s statutory mandate or frustrate congressional intent.”). The court based its decision on the plain meaning of the FTC Act, which only grants the FTC procedural rulemaking authority for rules regarding unfair methods of competition as opposed to substantive rulemaking authority. 15 U.S.C. § 46; see also W. Virginia v. Envtl. Prot. Agency, 597 U.S. 697 (2022) (“It is a fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.”). The applicable statute allows the FTC to “make rules and regulations for the purpose of carrying out the provisions of this subchapter.” 15 U.S.C. § 46. The Ryan LLC court interpreted this statute as a “housekeeping” statute because it lacks penalty provisions and was historically for procedural rulemaking. Ryan LLC, 2024 WL 3297524 (citing Chrysler Corp. v. Brown, 441 U.S. 281 (1979) (“It is indeed a “housekeeping statute,” authorizing what the APA terms “rules of agency organization procedure or practice” as opposed to “substantive rules.”)).

The court also issued a preliminary injunction because it was substantially likely the FTC’s non-compete ban was arbitrary and capricious. Ryan LLC, 2024 WL 3297524 (“[B]ecause the FTC is an administrative agency, the Commission’s actions are constrained by the APA’s arbitrary-and-capricious standard.”); see also Fed. Communications Comm’n v. Prometheus Radio Project, 592 U.S. 414 (2021) (“The APA’s arbitrary-and-capricious standard requires that agency action be reasonable and reasonably explained.”). The FTC lacked evidence demonstrating why it chose a sweeping ban against most non-competes instead of targeting specific non-competes, failed to consider the positive benefits of non-compete agreements, and insufficiently addressed rule alternatives. Ryan LLC, 2024 WL 3297524.

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Many business contracts contain arbitration provisions, which often creates a question as to whether the contracting parties must resolve their dispute in arbitration. Florida courts consider three elements when determining whether to enforce a contractual arbitration provision. They are (1) whether a valid written agreement to arbitrate exists; (2) whether an arbitrable issue exists; and (3) whether the right to arbitration was waived. Seifert v. U.S. Home Corp., 750 So. 2d 633 (Fla. 1999). Peter Mavrick is a Fort Lauderdale business litigation attorney.  The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The second element generally requires further analysis because courts must determine the scope of the arbitration provision to decide if the claims at issue are subject to mandatory arbitration. Airbnb, Inc. v. Doe, 336 So. 3d 698 (Fla. 2022). Arbitration provisions can be narrow or broad depending on the language of the provision. Jackson v. Shakespeare Foundation, Inc., 108 So. 3d 587 (Fla. 2013). Narrow provisions typically contain the phrase, “arising out of.” Id. An example is “all claims arising out of this contact shall be arbitrated.” This type of provision will only require the contracting parties to arbitrate claims bearing a direct relationship to the contract. Id.

Conversely, broad arbitration provisions require contracting parties to arbitrate claims that have a significant relationship to the contract. Id. There must be a contractual nexus between the contract and the claim asserted. Id. In other words, resolution of the claim “requires either reference to, or construction of, a portion of the contract.” Id. Broad arbitration provisions usually contain the phrase “relating to” and often join the narrow phrase “arising out of.” For example, a broad arbitration may be written to state “all claims arising out of or relating to this contact shall be arbitrated.”

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A fiduciary relationship exists when an individual must act in the interests of another. Watkins v. NCNB Nat’l Bank of Fla., N.A., 622 So.2d 1063 (Fla. 3rd DCA 1993) (“To establish a fiduciary relationship, a party must allege some degree of dependency on one side and some degree of undertaking on the other side to advise, counsel, and protect the weaker party.”). The relationship can form expressly through contract or implicitly based on specific facts and circumstances surrounding the parties’ relationship. First Nat’l Bank & Trust Co. v. Pack, 789 So.2d 411 (Fla. 4th DCA 2001). Although some case-law suggests an employer/employee relationship does not result in the formation of a fiduciary relationship, many authorities stand for the opposite proposition. See Renpak, Inc. v. Oppenheimer, 104 So. 2d 642, 644 (Fla. 2d DCA 1958) (“A mere employee of a corporation generally does not occupy a position of trust and owe a fiduciary duty unless he also serves as its agent.”); infra. In this article, we explore two scenarios where a fiduciary duty is commonly imposed upon employees. Peter Mavrick is a Fort Lauderdale business litigation attorney.  The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Employees owe their employer a fiduciary duty of loyalty. Valiant Services Group, LLC v. Commercial Works, Inc., 2022 WL 738471, at *2 (M.D. Fla. Jan. 24, 2022) (“The duty of loyalty is part of a fiduciary duty, and a breach of a duty of loyalty gives rise to a breach of fiduciary duty claim.”). This duty requires the employee to refrain from engaging in disloyal acts of competition with the employer. OPS Int’l, Inc. v. Ekeanyanwu, 672 F. Supp. 3d 1228 (M.D. Fla. 2023) (An employee cannot “engage in disloyal acts in anticipation of his future competition.”). An employee cannot therefore use confidential information acquired during the course of employment to compete against the employer, solicit the employer’s customers, or solicit the employer’s employees. Id. Notwithstanding, employees may make preparations to complete and take with him or her a customer list developed by the employee without violating their duty of loyalty. Fish v. Adams, 401 So. 2d 843 (Fla. 5th DCA 1981) (The “planning of a competing business is not ipso facto a breach of an employee’s duty of loyalty.”); Id. (An “employee may take with him a customer list that he himself has developed.”).

Employees who are also company officers owe their employers additional fiduciary duties. Renpak, Inc., 104 So. 2d 642 (“[C]orporate officers or directors are not precluded, because of the fiduciary nature of their position, from entering into and engaging in another business enterprise similar to but separate from the corporation if they act in good faith and refrain from interference with the business of the corporation.”). The corporate officer owes a duty of loyalty to the company he or she works for as well as a duty of care. McCoy v. Durden, 155 So. 3d 399 (Fla. 1st DCA 2014) (“In short, Florida courts have recognized that corporate officers and directors owe both a duty of loyalty and a duty of care to the corporation that they serve.”). These duties require the officer to act in the best interests of the corporation.  Taubenfeld v. Lasko, 324 So. 3d 529 (Fla. 4th DCA 2021). The company’s “shareholders take[ ] precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally.” Id.; see also Cohen v. Hattaway, 595 So. 2d 105 (Fla. 5th DCA 1992) (“Corporate directors and officers owe a fiduciary obligation to the corporation and its shareholders and must act in good faith and in the best interest of the corporation.”). Therefore, an employee who is also a company officer advance company interests even to the detriment of himself or herself.

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Florida law protects employers and similarly situated persons from unlawful competition. But every competitive act does not qualify as an unlawful competitive act. White v. Mederi Caretenders Visiting Services of Se. Florida, LLC, 226 So. 3d 774 (Fla. 2017) (“Section 542.335 does not protect covenants ‘whose sole purpose is to prevent competition per se’ because those contracts are void against public policy.”). There “must be special facts present over and above ordinary competition” to be protected by Florida’s non-compete laws. Passalacqua v. Naviant, Inc., 844 So. 2d 792 (Fla. 4th DCA 2003). “These special facts must be such that without the covenant not to compete the employee would gain an unfair advantage in future competition with the employer.” Id (emphasis removed). Peter Mavrick is a Fort Lauderdale business litigation attorney.  The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Florida’s legislature created a list of special facts constituting unlawful competition. They are called legitimate business interests and are as follows:

1: Use of another’s trade secrets;

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We previously wrote about two potential laws that might limit enforceability of non-compete agreements. The first law is a proposed Florida statute that would constrain or prohibit restrictive covenants for certain medical professionals. The second law is a Federal Trade Commission rule that would ban most non-compete agreements as unfair competition. Congress is proposing a similar law that would ban most non-compete agreements, called the Workforce Mobility Act (the Act). The relevant wording of the Act, in its present form, is as follows: “…No person shall enter into, enforce, or attempt to enforce a noncompete agreement with any individual who is employed by, or performs work under contract with, such person with respect to the activities of such person in or affecting commerce.  S. 220, 118th Cong. § 3 (2023-2024). Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm  Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Public agencies and private citizens can enforce the Act. If passed, the Act would make any violation an unlawful unfair and deceptive act or practice under 15 USC § 57a. Id. The Federal Trade Commission, the United States Department of Labor, and the States of the United States would each have authority to enforce the law. Id. Individuals will also have a private cause of action to enforce the Act. Id. They can sue to recover damages (if any) along with attorney’s fees if they are the prevailing party. Id.

The sweeping nature of the Act’s wording will likely have broad effect throughout interstate commerce. However, the Act does not ban all non-compete agreements outright because the definition of “non-compete agreements” is somewhat narrow. Congress defined non-compete agreements as:

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Nationwide, the body of law regulating non-compete agreements (including non-solicitation covenants, non-circumvention covenants, covenants barring poaching of employees) has been mainly regulated by state statutes as well as court decisions in state and federal courts.  Federal law has generally stayed out of the regulation of restrictive covenants.  About a year ago, the Federal Trade Commission (FTC), a federal agency regulating commerce and competition law, issued a proposed rule that would ban most non-compete agreements as unfair competition.  If promulgated, such a rule would have a significant impact on many businesses and their employees.  At this point, the proposed rule is not the law and awaits a final decision.  The wording of the proposed draft of the rule is as follows: “It is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent 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 non-compete clause. To comply with paragraph (a) of this section,… an employer that entered into a non-compete clause with a worker prior to the compliance date must rescind the non-compete clause no later than the compliance date.  Proposed CFR § 910.2. The FTC accepted comment concerning the proposed rule through April 2023, and is expected to make a final decision about the proposed rule sometime in April 2024.  Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm  Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

The effects of the FTC’s proposed rule are probably far reaching based on the FTC’s definition of “noncompete clause.” The FTC defines a noncomplete clause to mean “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”  Proposed CFR § 910.1. This definition includes de facto clauses prohibiting workers from obtaining employment or operating a business after the conclusion of the worker’s employment with an employer. Id. One example of a de facto clause is an overly broad non-disclosure agreement that precludes a former employee from working in the same field as the former employer.

The FTC similarly defined worker broadly. Worker encompasses any natural person who works for an employer. Id. It does not matter whether the worker was paid or unpaid. Id. It does not matter whether the worker was classified as an employee or independent contractor. Id. Any worker qualifies under the proposed rule. Therefore, most, if not all, employment related relationships will fall within the ambit of “worker” for purposes of the proposed rule.

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