What Does the FTC’s New Noncompete Rule Mean for Florida Businesses?

On April 23, 2024, the U.S. Federal Trade Commission (FTC) announced the issuance of a new final rule “banning noncompetes nationwide.” According to the FTC, its new rule “will generate over 8,500 new businesses each year, raise worker wages, lower health care costs, and boost innovation.” The FTC’s announcement raises several important questions for business owners—particularly in states like Florida that have traditionally favored the enforcement of reasonable non-competition covenants. So, what do business owners need to know? An experienced Miami commercial litigation attorney at Edelboim Lieberman explains:

The True Scope of the FTC’s Noncompete Ban

The first thing business owners need to know about the FTC’s ban on noncompetes is that it does not ban all noncompetes. While the FTC’s announcement refers multiple times to “banning noncompetes,” and while the announcement quotes FTC Chair Lina M. Khan as stating that “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market,” the so-called ban is limited to noncompetes between employers and their workers.

This is made clear in the final rule itself, which states:

“The final rule provides that it is an unfair method of competition—and therefore a violation of section 5 [of the Federal Trade Commission Act]—for employers to, inter alia, enter into noncompete clauses with workers on or after the final rule’s effective date. The Commission thus adopts a comprehensive ban on new noncompetes with all workers.”

The final rule goes on to state employers can enforce pre-existing noncompetes with senior executives, but cannot enforce pre-existing noncompetes with other workers. Somewhat confusingly, while the final rule uses the term “worker” instead of “employee” in order to cover noncompetes with independent contractors, interns, volunteers, and other individuals, it also defines a “noncompete clause” as a “term or condition of employment.” The final rule also expressly acknowledges that some noncompetes are not covered, stating:

“The final rule does not apply to noncompetes entered into by a person pursuant to a bona fide sale of a business entity. . . . [and t]he final rule further provides that it is not an unfair method of competition to enforce or attempt to enforce a noncompete or to make representations about a noncompete where a person has a good-faith basis to believe that the final rule is inapplicable.”

Particularly noteworthy in this regard is the FTC’s express decision not to ban noncompetes between franchisors and franchisees. This further clarifies that the FTC’s ban on noncompetes applies exclusively in the employment context (using the term “employment” generally to include independent contractors and other “workers”)—and does not apply to agreements entered into between commercial entities.

Using Noncompetes in the Commercial Setting

In light of these limitations on the FTC’s noncompete ban, it is clear that companies in Florida can continue to enter into and enforce non-competition agreements with other companies. Additionally, while companies may not be able to enter into or enforce noncompetes with independent contractors and sole proprietors going forward, companies still can (and should) enforce non-disclosure agreements (NDAs), non-solicitation covenants, statutory trade secret protections, and other mechanisms for protecting their confidential and proprietary information. The FTC’s final rule expressly acknowledges the continuing enforceability of these other types of protections in all contexts—both commercial and employment-related.

Will the FTC’s Noncompete Ban Be Struck Down?

The FTC’s limited noncompete ban has received strong opposition, and several lawsuits challenging the legality of the ban have already been filed. The ban is currently set to take effect 120 days after it is published in the Federal Register, and it is possible that these lawsuits could prevent this from happening while the litigation remains pending—if not permanently. In any case, businesses that have entered into noncompetes with “workers” (as defined in the FTC’s final rule) should monitor for developments. These businesses should also monitor for violations of their existing non-competes, as workers may not be aware of the final rule’s delayed effective date, and as the final rule “does not apply where a cause of action related to a noncompete accrued prior to the effective date.”

Florida Law on the Enforcement of Noncompetes

When it comes to enforcing noncompetes that aren’t banned by the FTC’s final rule, businesses must look to Florida law to determine the viability of pursuing legal action. Florida’s noncompete law is more favorable for businesses than the comparable laws in many other states, with Section 542.335 of the Florida Statutes stating:

 “[E]nforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited.”

This is a somewhat roundabout way of saying that noncompetes are enforceable in Florida (subject to any implications of the FTC’s limited noncompete ban), provided that they are reasonable and serve a legitimate business interest. Under Section 542.335, legitimate business interests include protecting a company’s interest in:

• Trade secrets
• Valuable confidential business or professional information
• Substantial relationships with prospective or existing customers
• Customer goodwill
• Extraordinary or specialized training

In some cases, a company’s ability to enforce a noncompete may be subject to a mandatory mediation or arbitration clause in the relevant contract. However, in many cases, companies will be able to pursue commercial litigation immediately in order to protect their trade secrets, confidential information, relationships or goodwill. If you have questions about enforcing a noncompete in Florida, we invite you to contact us for more information.

Questions? Contact Us to Speak with a Miami Commercial Litigation Attorney

Do you need to know more about enforcing a noncompete in Florida in the wake of the FTC’s limited ban? If so, we can help, and we invite you to get in touch. To speak with a Miami commercial litigation attorney about your company’s options in confidence, give us a call at 305-768-9909 or tell us how we can reach you online today.