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FTC’s proposed rule banning noncompete agreements

On Behalf of | Apr 17, 2023 | Employment Contracts |

The Federal Trade Commission proposed a new rule that could prohibit employers from requiring employees to sign a noncompete agreement. The FTC believes that noncompete agreements constitute unfair competition that violates Section 5 of the Federal Trade Commission Act.

If this rule becomes law, how may it affect Florida employers?

The FTC rule would supersede state law

Current Florida law considers noncompete agreements to be valid trade restraints. However, the FTC rule will supersede Florida law if it goes into effect. Additionally, the FTC rule may not permit some nondisclosure and nonsolicit agreements that are currently legal in Florida if those agreements prevent workers from seeking or accepting employment with another employer.

The FTC rule would apply to most existing noncompete agreements

If the rule goes into effect, it will not only make future noncompete agreements illegal but will make most existing agreements unenforceable. However, it would not apply to agreements between a seller and buyer of a business when the restricted party has at least a 25% ownership interest.

The FTC rarely uses its rule-making authority to impose industrywide regulations. However, it believes that employers are currently overusing noncompete agreements and forcing employees to sign them when their job responsibilities do not warrant it. The FTC also believes that some employers are misusing these agreements to keep low-wage earners from seeking higher wages elsewhere, resulting in artificially suppressed wages.

Employers may want to investigate other available options to protect their business assets when employees depart.