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Noncompete agreements are common contracts prohibiting employees from starting or gaining employment at a rival business. The goal of noncompete agreements is to protect a business’s assets and proprietary information, ensuring a former employee won’t steal the company’s trade secrets to develop their own business or work for a rival company. Noncompetes also prohibit employees from soliciting clients, patients, or customers from their former employer. Although a common clause in business contracts, noncompetes are also highly contested, rarely enforceable, and generally misunderstood. New Federal Trade Commission (FTC) guidelines drastically change noncompete laws in Florida and throughout the United States. Below, we discuss the new changes and what they mean for your business.

New FTC Rule Bans Noncompete Agreements 

The FTC released its final federal ruling regarding noncompete agreements nationwide this past April. The new regulations ban employers from enforcing noncompete agreements for new contracts and existing relationships. The commission determined that noncompete agreements violate Section 5 of the FTC Act and are an unfair method of competition. The FTC estimates that over 8,000 new businesses will be established each year due to the new legislation. This rule applies to most employee and employer relationships in all 50 states (including noncompete laws in Florida) with a few exceptions. The rule is set to go into effect on September 4th, 2024.

Why Did The FTC Issue the Ruling?

According to the FTC, these changes foster a culture of greater competition, protect worker freedoms, and increase new businesses. In the FTC’s view, noncompete agreements have become an exploitative measure, preventing workers from seeking new jobs or starting their own. Noncompetes forced workers to stay at jobs they didn’t like due to noncompete restrictions. In addition, many workers were forced to take a lower-paying job or relocate to comply with a noncompete agreement’s terms. The FTC found that noncompetes affected nearly 30 million workers nationwide.

What Noncompete Agreements Are Affected by the New Law?

Existing noncompetes for the majority of workers in the United States will be subject to these new regulations starting September 4th. The law applies to nearly all working relationships between an employer and employee, including full-time, part-time, seasonal, and independent contractors. Even company volunteers would be protected by these new measures.

Are There Any Exemptions?

There are two exemptions to this ruling. One is for existing senior executives who have policy-making authority within a business and earn more than $151,164 in one year. The FTC estimates this represents less than one percent of the workforce. The other exemption is for noncompete clauses in a business sale if the owner dies.

What Happens If I Already Have a Noncompete With a Former Employer?

If you signed a noncompete contract with a former employer, they should notify you of the change and state that the noncompete is no longer enforceable as of September 4th. 

What Should I Do as a Business Owner with Current and Future Noncompete Contracts?

If you’re a business owner who had their employees (or former employees) sign noncompetes, you must notify them that the noncompete agreement will no longer be enforceable after the September deadline. In this notification, you must explicitly state that you won’t enforce any current noncompetes. However, there is a chance that legal challenges to the rule will delay its effective date. Business owners should stay updated about legal matters surrounding this ruling to determine the best steps for their businesses. An experienced business attorney, like our team at The Boutty Law Firm, can help you decide what measures your specific business needs to take to stay compliant with the new law.

Noncompete Alternatives

Although noncompetes are no longer enforceable, there are still ways you can protect your business’s proprietary information, such as having your employees sign a Non-Disclosure Agreement (NDA). Another way to avoid having an employee start a competing business is to institute business measures that promote employee retention and longevity.

What if an Employer Unfairly Enforces a Noncompete After the Ruling Goes Into Effect?

If your employer unfairly enforces a noncompete, you can report the business to the FTC’s Bureau of Competition. You should also contact a business lawyer to help navigate the legal implications of challenging a noncompete agreement.

Boutty Law Firm: Navigating Business Law in Florida

If your former employer is unjustly enforcing your noncompete agreement, it’s important to have legal representation that can fight for your rights to seek other employment opportunities or start your new business. If you’re a business owner, we can help you develop contracts that adhere to the latest regulations while protecting your business assets and proprietary information. Call our Central Florida office at 407-622-1395 for a free consultation.