Could Non Compete Agreements be Going the Way of the Dinosaur?

With some exceptions and with a good number of restrictions and limitations, Florida allows employers to require employees and others, such as contractors or vendors, to sign non compete agreements. But many states do not—and the current trend is that the United States government may, one day, make these kinds of agreements completely illegal.

The illegality and the crackdown on non compete agreements, federally and in individual states,  is mostly in terms of noncompete agreements between employees and employers. most do not affect noncompetes between others, such as contractors or agreements that someone buying a business might have the seller sign.

New FTC Rule Coming?

In 2023, the Federal Trade Commission proposed a rule that would have banned all employee employer non compete agreements, as well as those with contractors. The ban would not apply to the sale of business, where non competes could still be used, if the buyer owned and purchased more than 25% ownership in the business.

Additionally, more senior executives, or higher level corporate officers, may be exempt when and if the ban passes, once and if the final rule restricting these covenants passes. Or the FTC may go easy, and only impose the ban on certain industries and not others. There are a lot of options, and we don’t know which, if any, the FTC will choose.

A decision on whether the rule will become final, is expected sometime this year, in 2024. And you can be certain that any ban, if it does pass, will be met with legal challenges.

State Restrictions

But regardless of what happens on a national level, many employers may have businesses, offices, or employees, who are based in other states, and it is important to remember that each state has its own laws on non compete agreements.

Some states, like California, North Dakota have a complete and outright ban on non compete agreements. And to make matters more confusing, many cities, in efforts to curb the use of these agreements, are drafting local ordinances, making them unenforceable—New York is considering doing just that.

Getting Around State Bans

As good practice, it is best to consider the state where the worker is located and working, when considering what state’s laws may apply to non compete agreements.

You can include a choice of law provision, choosing the law of a state where non compete agreements are more allowable and flexible for employers (like Florida), but be aware that if you do that, your entire agreement will be governed by that state’s laws-and there’s no guarantee that a court will enforce it, seeing enforcement of a contractual clause that state law bans, as a public policy problem.

Remember as well, that in the event that a non compete is not allowed, or if they do become restricted by the FTC, you can still try to restrict the usage, possession, or dissemination of your company’s confidential information or trade secrets. Certainly, that alone is not ideal in the absence of a noncompete agreement, but it at least can give an employer a “fallback” position should non competes be outlawed.

Drafted properly, at least in Florida, non compete agreements are still legal. Let us help you with these contracts. Call the West Palm Beach business litigation attorneys at Pike & Lustig today.

Sources:

nysenate.gov/newsroom/in-the-news/2023/sean-m-ryan/new-york-could-be-latest-state-ban-noncompete-agreements

forbes.com/sites/corinnepost/2023/12/14/how-ftc-non-competes-ban-could-shift-talent-and-innovation-strategies/