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Are Non-Competes Enforceable?

Law Offices of Kevin D. Smith, P.A. June 10, 2024

Non-compete agreements, also referred to as “non-competes,” have long been a staple document used by employers of all sizes to protect their business interests. However, the era of non-competes in U.S. employment is coming to an end after the Federal Trade Commission (FTC) issued its final rule to prohibit the use of these agreements across the country.  

As of its effective date, the rule will ban nearly all non-competes nationwide, prohibiting employers from signing new agreements and making all existing agreements unenforceable. The rule marks a dramatic change in how employment contracts will be managed from now on. If you are an employer or employee who currently relies on non-compete agreements in your employment, you may need legal counsel from an attorney to understand the implications of this ban and discuss your next steps.  

At the Law Offices of Kevin D. Smith, P.A., I provide customized legal services and advice for employers and employees in Fort Lauderdale, Florida, and throughout Palm Beach County, Miami-Dade County, Broward County, and surrounding areas.  

What Are Non-Compete Agreements?

While many states define non-compete agreements differently, the general rule is that non-competes restrict a person’s ability to work one way or another.  

While many states currently permit employers to use these agreements to protect their business interests, most of them make it a requirement that non-competes must be reasonable in duration and geographical scope.

Even though states differ in how they define non-compete agreements and have varied rules regarding the enforcement of these agreements, the FTC’s final rule is likely to affect employer-employee relationships in most—if not all—states that currently allow non-competes.  

The FTC’s Final Rule That Bans Non-Competes

In order to understand what the FTC’s final rule is all about and what its implications are, we need to dissect it into three parts: how it defines a non-compete clause, what it considers to be an unfair method of competition, and what exceptions it contains.  

1. What Is a “Non-Compete Clause”? 

According to the website of the Federal Trade Commission, a non-compete clause is a condition of employment or term that penalizes or in any way prohibits an employee from:  

  • Finding or accepting work in the U.S. with a different entity after the conclusion of their employment; or 

  • Operating their own business in the U.S. after their employment ends.  

While that definition does not explicitly affect other common employment contracts with restrictive covenants like non-disclosure agreements, whether or not a specific clause falls under the definition of the FTC’s non-compete clause depends on the language used in the clause.  

2. What Is an Unfair Method of Competition? 

The FTC’s final rule considers it to be an unfair method of competition when a person or entity:  

  • Enters or attempts to enter into a non-compete clause;  

  • Enforces or attempts to enforce a non-compete clause; or 

  • Represents that an employee is subject to a non-compete clause.  

Under this rule, employers are prohibited from making their new employees enter into a non-compete agreement or enforcing any existing non-competes.  

3. What Are the Exceptions?

The final rule has a few exceptions that would apply in the following situations:  

  • The rule would not ban non-competes entered into when selling a business entity or someone’s ownership interest in a business entity; and 

  • The rule would not apply to any legal actions arising from non-compete agreements if they happen before the rule’s effective date.  

In addition, if an employee is a senior executive or in a policy-making position and earns no less than $151,164 in total annual compensation, any existing non-competes with that employee would still be enforceable after the rule takes effect.  

When Will the FTC’s Final Rule Go Into Effect?

The final rule banning non-compete agreements nationwide will become effective 120 days after it was published in the Federal Register, the official journal of the federal government of the U.S. The rule was published on May 7, 2024, and will go into effect on September 4, 2024.  

So, are non-competes enforceable? If you’re reading this before September 4, 2024, then the answer is, “Yes.” However, you—as an employer—need to keep in mind that even if you make your employee sign a non-compete agreement before the date the final rule takes effect, you will no longer be able to enforce the agreement after September 4, even if your employee starts working for a competitor or starts their own business and uses your intellectual property, directly takes your clients, or in any other way hurts your legitimate business interests.  

Given that you have a limited amount of time until the rule goes into effect, it would make sense to start looking for other ways to protect your business interests without the use of non-competes. And I may be able to help you with that. As an attorney at the Law Offices of Kevin D. Smith, P.A., I help my clients find creative solutions to their employment law matters using practical and common-sense approaches.  

Looking for an Alternative to Non-Competes?

Given that many non-compete agreements will no longer be enforceable after September 4, 2024, the FTC’s final rule banning non-competes presents a major change to employers’ efforts to protect their businesses from departing employees.  

If you are worried about the implications of the final rule on your business or want to explore alternatives to non-competes to protect your company from unfair competition, reach out to the Law Offices of Kevin D. Smith, P.A. I also represent employees who need legal counsel regarding their post-employment obligations to their current or former employer after the rule goes into effect. Contact my office today to set up a consultation.