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Update: FTC Action Against Employer Use of Noncompete Clauses

Last year, the Federal Trade Commission (FTC) announced its Non-Compete Clause Rulemaking, Matter No. P201200 (NPRM). On April 23, 2024, the FTC approved the final rule. The final rule was published in the Federal Register on May 7, 2024 and has an effective date of September 4, 2024.

The rule prohibits 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 makes 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. Noncompete clause is defined as “[a] term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” either seeking or accepting work after the conclusion of employment, or operating a business after the conclusion of employment.

There is one exception regarding existing noncompete agreements which cover senior executives, defined as those individuals in policy making positions who earn over $151,164 annually. Existing noncompete agreements for those qualifying as senior executives may remain in place, however new agreements are not permitted.

The FTC rule does not affect employers’ other legitimate means of protecting their information such as confidentiality agreements which enforce trade secret laws, non-disclosure agreements, employment contracts for a fixed duration, training reimbursement agreements, and non-solicitation/non-recruitment agreements.

Key Provisions:

  • The rule is not limited to the 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.
  • The requirements of the rule do not apply to a non-compete clause that is entered into by a person pursuant to a bona fide sale of a business entity, of the person’s ownership interest in a business entity, or of all or substantially all of a business entity’s operating assets..
  • All pre-existing noncompete clauses will be void as of the effective date of the new rule.
  • Employers are required to notify all workers covered by prior noncompete clauses (current and former employees) that those clauses will not be enforced.(model notification language is in the rule).
  • Any restrictive covenant with an employee, regardless of its title, that restricts an employee’s ability to work in the field of their choice after termination of employment will be analyzed under the new rule and will be void if found to have the “intent” to act as a noncompete.

Florida Law 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 expressly preempts existing state laws that conflict with its terms. This conflict preemption renders our existing statute unenforceable under the Supremacy Clause of the United States Constitution. WHWW can assist employers with drafting enforceable alternatives to noncompete agreements which can still protect the employers’ interests.

Michelle Bilsky, Esquire
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