LEGAL ALERT: FTC Announces Final Rule That Will Ban Non-Compete Clauses in Florida
The End of Non Compete Clauses as We Know Them? Important Information for Florida Business Owners
Updated: April 29, 2024
A Final Rule issued by the Federal Trade Commission (FTC) has essentially made non compete agreements and clauses null and void. In a major shift from business as usual, the new rule bans the enforcement of almost all existing non compete agreements as well as the creation of almost any new ones. The new rule will likely be challenged on constitutional grounds by multiple parties, including the U.S. Chamber of Commerce, so be sure to keep an eye on this case as it develops. We’ll see how it plays out in the courts.
The final rule is 570 pages long, so keep in mind that what follows is not a comprehensive overview. Until then, here are some limited takeaways on how the new rule impacts Florida business owners.
What Is the FTC’s Non Compete Ban and Who Does It Apply to?
Almost every business and every worker (some 30 million, or 18% per the FTC’s estimate – including both employees and independent contractors) that has entered into a non compete will be impacted by the FTC’s new rule. That said, there are a few specific exemptions that you can read about further down. It also targets potential workarounds, such as non disclosure agreements (NDAs) and non-solicitation agreements that would have the same effect as a non compete clause or agreement.
When Does the FTC’s New Rule for Non Compete Agreements Take Effect?
The FTC’s non compete ban will go into effect 120 days after the final rule has been published, not 120 days after their recent announcement. As of the posting of this article (April 29, 2024), the rule has not yet been published in the Federal Register. In other words, the exact date isn’t known to us yet, but according to the FTC chair, the effective date is expected to be some time in September.
Is There a Notice Requirement for Employers?
Yes. Employers have until the final rule takes effect to provide notice to all workers (other than senior executives) who are subject to a non-compete that will be invalidated once the rule takes effect. A sample notice provided by the FTC is available below.
“A new rule enforced by the Federal Trade Commission makes it unlawful for us to enforce a non-compete clause. As of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE]. [EMPLOYER NAME] will not enforce any non-compete clause against you. This means that as of [DATE EMPLOYER CHOOSES BUT NO LATER THAN EFFECTIVE DATE OF THE FINAL RULE.]
You may seek or accept a job with any company or any person – even if they compete with [EMPLOYER NAME].
You may run your own business – even if it competes with [EMPLOYER NAME].
You may compete with [EMPLOYER NAME] following your employment with [EMPLOYER NAME].
The FTC’s new rule does not affect any other terms or conditions of your employment. For more information about the rule, visit ftc.gov/noncompetes. Complete and accurate translations of the notice in certain languages other than English, including Spanish, Chinese, Arabic, Vietnamese, Tagalog, and Korean, are available at ftc.gov/noncompetes.
What Exemptions Exist Under the FTC’s New Rule Banning Non Compete Agreements?
Despite the ruling’s broad scope, the FTC has allowed for a few exceptions:
- Non compete agreements used by nonprofit organizations, as they fall outside of the FTC’s authority.
- Non compete agreements that are entered into as a part of buying or selling a business.
- Enforcement on non compete agreements that were violated prior to the ruling’s effective date (120 days after it is published in the Federal Register.)
- Existing non compete agreements for senior executives can remain in place. However, new non compete agreements won’t be allowed even for senior executives.
- The FTC defines senior executives as individuals who 1) received at least $151,164 in compensation during the previous year and 2) make policy decisions for the company “that control significant aspects of a business entity or a common enterprise” (Final Rule, § 910.1). It does not, however, cover those whose authority is limited only to advising or who only have authority over subsidiary or affiliate companies.
What Does This Mean for Existing Florida Non Compete Laws?
You may already know that Florida has its own restrictions in place for non competes. However, the FTC’s new rule will take precedence over state law, but it won’t nullify any additional laws that the State has enacted. In other words, the State of Florida can’t pass any laws to ignore the rule, but it can pass laws that would supplement it.
Practical Steps for Moving Forward
Unfortunately, as the Final Ruling was only recently released, there is still limited information about certain aspects of the rule. If passed as presently written, then non-exempt non competes will be treated as an unfair method of competition in violation of Section 5 of the FTC Act. Keep in mind that what we know now is subject to change as things are worked out in the courts, too. For now, the best move is to stay informed on any recent developments, which we’ll also be sure to post on our website.
This information is a summary meant for general information and discussion purposes only and may be considered an advertisement for certain purposes. It is based on the information available to us at this point in time and, as such, is not a full analysis, may not be relied upon as legal advice, and does not claim to represent the views of our clients or FL Patel Law PLLC. The views expressed herein are solely those of the author unless otherwise noted.
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