Anne Willis Chapman, Esq.
Florida Board Certified in Labor and Employment Law
Update:
In the original post, below we noted that the precise effective date of the FTC rule was unclear. The final rule was published in the Federal Register on May 8, 2024 meaning that the expected effective date is now September 4, 2024. This date is the deadline for employers to comply with the Final Rule, including the requirement related to notification to employees. However, a legal challenge has already been filed requesting a stay of enforcement of the non-compete ban. It appears that the federal court handling this legal challenge will likely issue a decision on whether to stay enforcement this Summer prior to the deadline.
After publishing its proposed rule last year, the Federal Trade Commission (FTC) issued a Final Rule banning employee covenants not to compete in a 3-2 vote on April 23, 2024. The Rule requires employers to provide notice to employees that the employer will not enforce any non-compete agreements and prohibits employers from enforcing or entering into new non-compete agreements after the effective date. The Rule does not impact non competes in connection with the sale of a business.
The basis for the Rule is that the FTC determined that non-compete agreements are a method of unfair competition in violation of Section 5 of the FTC Act. Currently, the Rule will become effective 120 days after its publication in the Federal Register. The effective date will likely be late August or early September.
The broad Rule bars most employee non-compete provisions nationwide. While Florida has a statute authorizing such restrictive covenants, the FTC Rule states that it preempts state law. The definition of “workers” under the FTC Rule is broader than the traditional definition of employee and includes independent contractors, interns and others in addition to employees.
While most private employers would be covered by the Rule, the FTC Act only applies to corporations that are organized to carry on business for its own profit or that of its members. Accordingly, the FTC’s ban does not apply to many non-profit entities. Likewise, existing agreements with senior executives entered into prior to the effective date would not be impacted. Senior executives are defined as individuals that are paid more than $154,161 annually and are in policy making roles.
The immediate impact of the Rule is unclear as a legal challenge has already been filed in a federal lawsuit filed by the Chamber of Commerce to block the Rule from going in effect. A delay or invalidation of the Rule is possible. However, employers should use this opportunity to conduct analysis of their current non-compete agreements and evaluate if notice may need to be provided or if changes should be made to the agreements to avoid the concerns of the Rule related to non compete agreement. Non-solicitation and confidentiality provisions may still be enforced if they comply with the Rule’s requirements.
If you have any questions concerning the new Rule or its impact on your workforce, please feel free to reach out to our Board Certified Labor and Employment Law Attorney Anne Willis Chapman at achapman@blalockwalters.com or 941.748.0100.
