FTC’s Ban on Non-Compete Agreements Coming Closer to Fruition

In April 2024 the Federal Trade Commission (FTC) issued a landmark rule that, if put into effect, would aim to ban non-compete agreements across the United States. The purpose of this new rule is to open the gates to increased competition and worker mobility. This would be a significant change and impact employers and employees alike. There are an estimated 30 million people bound by noncompete agreements currently. Should those limitations for work no longer be in effect – it is easy to see how it could really shake up the employment sector.

While – as of the writing on this article – noncompete agreements are still enforceable, that could change very quickly. If the legal challenges to the new rule all fail then it will come into play after 120 days – in this rule’s case, September 4, 2024. Very recently the FTC has faced multiple legal challenges to the rule. The two most recent legal challenges handed wins to the Federal Agency’s rule. In one case the judge ruled that “The FTC has clear legal authority to issue ‘procedural and substantive rules as is necessary to prevent unfair methods of competition….’”

So what, precisely, is a non-compete agreement? What is the FTC’s new rule? And what might be the practical implications for employers?

Non-Compete Agreements

Many employers use non-competes to protect trade secrets, ensure their return on investment in training employees, and attempt to maintain existing client relationships. Non-compete agreements, or “non-competes”, generally restrict employees from working for a competing business or from starting a similar business within a given geographic area or specified timeline. Non-compete agreements are currently enforceable in most states, though the states differ on limitations to the non-compete agreements and how strictly the agreements are scrutinized by the courts.

Non-compete agreements are currently enforceable in Florida under Florida Statute 542.335, but only if those noncompete agreements meet certain legal requirements. The requirements include the condition that the non-compete agreement must be reasonable in terms of limiting the area, timeframe, and line of business that an ex-employee may pursue. The noncompete must also be set in pursuit of protecting a legitimate business interest, among additional requirements.

What is the FTC’s New Rule?

On April 23, 2024, the FTC issued a rule which prohibits non-compete clauses from being put in employment contracts. The rule is set to take effect 120 days after its publication in the Federal Register, pending the resolution of any and all legal challenges to the rule – and it has been facing many.

The new rule includes items which prohibit new non-competes from going into effect. Being a federal rule, the terms would preempt state laws that do not offer the same protections. However, any state law that provides MORE protection can still be enforced.

Legal Challenges and Uncertainty

The FTC’s rule is not yet in effect and is currently facing multiple lawsuits. However, as mentioned above, the FTC has recently won multiple challenges in court. This does not mean that the rule is immune – but the Sept. 4 deadline for the rule to come into effect comes closer every day.

Implications for Employers

While the legal questions remain uncertain – employers should prepare and anticipate that this rule could very well come into effect. Employers may be well served to:

• Review Employment Contracts: Examine current non-compete agreements and consider what alternative methods they might utilize to protect their business interests. (An esteemed business litigation attorney at Suncoast Civil Law can help you strategize.)
• Notifying Employees: If the rule goes into effect, employers will need to notify employees who’s non-compete agreements are no longer enforceable.
• Stay in the Know: Staying informed about changes and developments in the law will help business owners to anticipate necessary actions moving forward.

Contact Suncoast Civil Law

Employers can seek legal counsel to navigate the evolving landscape, and gain strategy to ensure compliance with current and future business regulations. Contact the experienced  Sarasota business litigation lawyers at Suncoast Civil Law for your business litigation needs.

Sources:

thehill.com/business/4790236-federal-trade-commission-noncompete-ban/

news.bloomberglaw.com/antitrust/judge-sides-with-ftc-in-noncompete-challenge-splitting-courts