According to a press release by the Federal Trade Commission (FTC) on January 5th, the agency is considering a new rule that would ban noncompete agreements in employment contracts.
While this proposal would be a significant change to national law, it is not surprising that it has been made. In recent years, the Biden administration has made its position on noncompete clauses clear. President Biden issued an Executive Order in 2021 urging the FTC to change laws regarding non-competition clauses. In November 2022, the agency declared its intention to enforce bans on unfair competition practices more strictly.
The proposed rule is intended to ban all noncompete clauses and agreements, as well as any contracts that perform a similar function, such as certain types of nondisclosure agreements. It would also invalidate existing noncompete clauses, rendering them unenforceable. The FTC’s argument in favor of the change is that noncompete agreements unfairly restrict workers’ rights and income by preventing them from transferring to other companies and thus suppressing workers’ wages. In making this argument, the agency has chosen to prioritize the interests of employees instead of entrepreneurs and other companies.
The rule has not yet been put in place and may be changed or challenged. However, unless significant action is taken, it appears likely that some form of the rule will likely become law in the next year. If you own a business in Florida, preparing for changes to non-competition clause rules is in your best interest.
Current Laws Regarding Noncompete Clauses in Florida
Unlike other states such as California, Florida currently permits noncompete clauses in employment contracts and other agreements. According to F.S. §542.335, “enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited.”
The word “reasonable” plays an important role here. An organization can only enforce non-competition clauses and other restrictive covenants if it can demonstrate that they are reasonably necessary to protect its legitimate business interests. Examples of legitimate business interests provided by the law include:
- Trade secrets and other confidential information
- “Extraordinary or specialized training”
- Substantial relationships with specific prospective or existing customers
- Client goodwill
In general, Florida will enforce noncompete agreements if the organization can prove that the action by the current or former employee could harm its business practices. The Florida Supreme Court has acknowledged that the law is broad and up for interpretation on a case-by-case basis.
As such, a federal ban on all noncompete agreements would significantly change the legal landscape surrounding these contracts in Florida. State employers would no longer be able to rely on broad enforcement of these clauses to avoid the risk of competitors poaching employees or customers.
How to Prepare for Potential Noncompete Clause Changes
The proposed ban on non-competition clauses will be a significant change if it goes through. As an employer, it is worthwhile to start preparing for potential changes. Actions you can take to set your business up for success include:
- File Comments With the FTC. The FTC is currently taking comments on the proposed rule from parties that may be affected. You can leave a comment regarding your opinions on ending noncompete clauses to ensure the agency understands how it would impact your business.
- Review Employment Contracts. Checking your extant employment contracts for noncompete clauses and other restrictive covenants can help you prepare for the possibility of these clauses being invalidated.
- Consider Strategies for Retaining Employees. One of the most significant benefits of noncompete clauses is the protection they grant against competitors poaching employees. You can prepare your business for the potential end of non-competition agreements by developing other strategies to retain employees that may prefer to leave for a competitor or start their own business.
- Consult With Experienced Employment Attorneys. Depending on the language of your contracts and your company’s needs, there may be other legal strategies that can help you protect your legitimate business interests. Knowledgeable Miami employment lawyers can help you determine what changes you can make to guard your interests regardless of the FTC’s final decision.
At EPGD Business Law, our proven associates have the knowledge and skills to help you prepare your organization for the future, no matter what the FTC decides to do about non-competition agreements. Schedule your consultation today to learn how we can assist you with planning and protecting your interests.
