Lawsuits Challenge New FTC Non-Compete Rule: What Should Businesses Know?

As many business owners in South Florida now know, the Federal Trade Commission (FTC) recently announced a final rule to ban non-compete agreements. According to the FTC’s press release about the issuance of the final rule, the new rule is intended “to promote competition by banning non-competes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.” In issuing the final rule, FTC Chair Lina M. Khan said that “non-compete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned.” Yet as businesses in South Florida and across the country argue, the new FTC rule would harm business owners and change the nature of the economy, according to a recent article in The New York Times.

In response to the issuance of the final rule — which has not yet taken effect — business groups have filed lawsuits to stop the FTC rule from becoming effective. If you currently own a business in South Florida and currently have employees with whom you have non-compete agreements, or if you are planning to hire new employees, what do you need to know and consider about the FTC rule? Our West Palm Beach business lawyers can help.

What the Final FTC Rule Will Require If and When It Takes Effect 

If the new FTC rule takes effect, it will result in the following changes at Florida businesses concerning non-compete agreements:

• Employers will be banned from entering into any new non-compete agreements;
• All existing non-compete agreements will be unenforceable except for those with senior executives (who make up less than 1 percent); and
• Employers will be required to provide notice to employees about unenforceability of existing non=compete agreements.

The final rule cannot take effect until 120 days following its publication in the Federal Register. According to an article in the Sun Sentinel, that date is likely to be more than four months away. In the meantime, the lawsuits could prevent it from taking effect.

Lawsuits Opposing FTC Rule Banning Non-Compete Agreements 

According to the articles in The New York Times and the Sun Sentinel, the parties suing to prevent the rule from taking effect argue that it is too broad, and that the FTC does not have the authority to implement the rule.

With the lawsuit pending, it is possible that the rule will not take effect. Yet businesses should also prepare for the strong possibility that it will take effect and should look at any existing non-compete agreements in place to determine whether they may soon be unenforceable. In the meantime, businesses likely do not need to take any actions to rescind existing non-competes but should discuss any concerns with a business lawyer in South Florida.

Contact a West Palm Beach Business Law Attorney Today 

If you have any questions about how the new FTC rule is likely to impact your business, or if you have questions or concerns about the steps you should take as you wait to know whether and when the rule will take effect, you should seek legal advice. One of the experienced West Palm Beach business law attorneys at Kelley Kaplan & Eller, PLLC can speak with you today and can answer your questions. Contact us for more information.

Sources:

ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes

nytimes.com/2024/04/24/business/lawsuit-ftc-noncompete-ban.html

sun-sentinel.com/2024/05/06/south-florida-businesses-play-waiting-game-with-new-ftc-ban-on-noncompete-agreements/