By: Michelle Bilsky, Paralegal; Michael C. Caborn, Esquire
On January 5, 2023, the Federal Trade Commission (FTC) announced its Non-Compete Clause Rulemaking, Matter No. P201200 (NPRM). The rule was open for public comment through April 19, 2023.
In its current form, the rule would prohibit the use of essentially all noncompete clauses that employers impose on their employees and other workers. This is true regardless of the employee’s position with the employer; whether that be janitor or CEO. The rule would make it illegal for employers to: i) enter into or attempt to enter into a noncompete clause with workers; ii) maintain a noncompete clause with a worker that was executed prior to the rule’s effective date; and iii) represent to a worker, in bad faith, that the worker is subject to a noncompete clause.
The FTC finds its authority to issue the rule under its expanded interpretation of Section 5 of the FTC Act, which bans “unfair methods of competition.” The FTC acknowledges that employers have legitimate means of protecting their information that do not suppress wages, hamper innovation, or block entrepreneurs from starting new businesses. These alternatives include trade secret laws, non-disclosure agreements, employment contracts for a fixed duration, training reimbursement agreements, and non-solicitation/non-recruitment agreements.
The rule is not limited to the Fair Labor Standards Act (FLSA) definition of employees; rather it applies to workers which it defines as anyone who works, whether paid or unpaid, for an employer, including employees, independent contractors, externs, interns, volunteers, and apprentices. It would apply to nearly all post-employment noncompete clauses with one exception, which are those entered into as part of the sale of a business as long as the person covered by the noncompete clause owned 25% or more of the business being sold. Further, the rule bans employers from maintaining pre-existing noncompete clauses and requires them to notify all workers covered by prior noncompete clauses (current and former employees) that those clauses are rescinded. Finally, the FTC notes that the compliance date is set for 180 days after final publication in order to provide employers with enough time to implement alternative’s to their existing noncompete clauses.
Currently, Florida permits the use of noncompete agreements as long as they are reasonable in scope and duration. Florida courts routinely uphold noncompete agreements that meet statutory requirements; however, the new rule would preempt existing state laws, including §542.335, Fla. Stat., that conflict with its terms. WHWW will continue to monitor this rule and will provide an update once it reaches its final publication.
Michelle Bilsky has worked in HR and compliance for over 25 years. Her industry experience includes restaurants, healthcare, security, IT, insurance, and managed care organizations. Michelle earned her bachelor’s degree in psychology from UCF, her executive Leadership Certificate from Wharton and is currently attending FAMU Law School, with an expected graduation date of December 2023. Her elective courses in law school have centered on employment law including DOL (wage and hour), EEOC, Title VII, and NLRB.
Michael C. Caborn practices law in the areas of business litigation, bankruptcy, creditors rights and collections, foreclosure litigation, real property and receiverships. Mike holds both his law degree and undergraduate degree from the University of Florida. He currently serves as a board member and general counsel for the not-for-profit company Operation American Dream, Inc, which funds scholarships for children of U.S. Military, law enforcement and fire rescue personnel who have sacrificed their lives in the line of duty.