FTC considers eliminating them

If you are an employer concerned that an employee will go to work for a competitor, taking valuable clients or corporate secrets with them, you may consider implementing a noncompete agreement.

A noncompete agreement is a legal contract between two parties where one party agrees not to engage in competing business activities against the other. The terms of the agreement will vary depending on the business interests, such as protecting trade secrets or securing a geographic sales territory.

Typically, employers have used noncompetes with high-level employees, but they are increasingly being used by small and mid-sized businesses. Noncompetes are also used when a business is sold, protecting the buyer and preventing the seller from immediately starting a new competitive business.

Noncompetes are legal and binding in Florida as long as the restrictions are appropriate. Under Florida statute, the employer must have legitimate business concerns to justify this type of agreement, and noncompete restrictions must be reasonable in time, place and scope.

A properly crafted agreement must fit within Florida law parameters to be enforceable and there are three main requirements for this. The noncompete must:
• be reasonable in duration, geographic area and line of business
• be in writing
• must protect one or more legitimate business interests which includes trade secrets, substantial relationships with clients, specialized training, customer goodwill, and certain intellectual property rights.

When a noncompete is unenforceable

Generally, an overly broad noncompete will not survive judicial scrutiny if challenged. For example, the acceptable duration for a noncompete agreement in Florida is two years; longer timelines will likely be unenforceable. Or if a business attempts to restrict future employment in a too broad geographic area, not relevant to business interests, it will be unenforceable. For example, a company with just a few South Florida locations probably won’t be able to prevent an ex-employee from starting a similar enterprise in Jacksonville or in other states.

The noncompete agreement should be drafted to restrict only the specific line of work that employee performed. For example, if a software salesperson sold only gaming software, the agreement could restrict the employee from competing in the gaming software business.

If an employee or former employee is violating their agreement, action should be taken to enforce it. Depending on the circumstances, actions taken may include the following:
• remind the employee of their obligations under their non-compete agreement
• during exit interviews, reinforce the post-employment noncompete restrictions
• if an employee appears to be ignoring the noncompete, send a cease-and-desist letter
• contact the new employer who may be unaware the employee signed a noncompete agreement. Typically, they will stop using that employee for competing activities.
• continued disregard for the non-compete may require arbitration

If you have questions about creating a noncompete agreement, or as an employee, what signing one may mean for you in the future, consult with Employment Attorney Derek Usman.

FTC proposes to ban noncompete clauses

On January 5, 2023, the Federal Trade Commission, FTC.gov, reviewed a new rule that would ban employers from imposing noncompetes on their workers, which it describes as a widespread and often exploitative practice that suppresses wages, hampers innovation and blocks entrepreneurs from starting new businesses. By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.

The FTC is seeking public comment on the proposed rule at https://www.regulations.gov/docket/FTC-2023-0007/document 

According to the FTC, “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina M. Khan. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”

Read the full article and stay updated at ftc.gov

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