In “Breaking Through the Noise,” my colleagues discussed restrictive covenants, including non-compete agreements, as a hot trend in the employment litigation cycle (if you want to hear their thoughts, go to timestamp 44:55-1:00:35). This topic is so hot, the President even had something to say about it!
With the stated goal of removing barriers to employment, promoting competition, and stimulating economic growth, President Biden has issued Executive Order 14036 (an accompanying fact sheet can be found here). This order asks the Federal Trade Commission (FTC) to limit or even entirely ban covenants not to compete with former employers, among other things.
Often, as part of the employee onboarding process, employers will have their employees sign contracts that restrict their ability to work for a competing business after the existing employment relationship concludes. These contracts are generally enforceable in Florida, provided that the scope of the restrictions is reasonable in terms of geography and time, and that they also are tailored to restrict the sorts of activities or lines of business in which the signing employee is/was actually engaged.
The polestar of laws governing these sorts of contracts is that the restrictions must be “reasonably necessary to protect the legitimate business interest” of the employer. Non-competition agreements are not used solely for highly compensated employees or those who are privy to highly confidential or proprietary trade secrets. Indeed, not too long ago fast food restaurants required their front-line employees sign non-compete agreements! Most of the chains, however, have abandoned this practice in recent years when faced with litigation.
Notwithstanding its lofty goals, President Biden’s Executive Order does not contain any mandates—it merely encourages the FTC to exercise its rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” As such, employers do not yet need to be concerned that their ability to enforce existing non-compete agreements is either eroded or eliminated entirely.
That being said, with the possibility of a changing landscape for non-compete agreements looming on the horizon, employers may be well served by re-examining their existing non-compete agreements. Employers should be certain whether a non-compete agreement is appropriate for all employees who have executed them, and to the extent that it is, that the time and scope are reasonable and that there is a clear explanation in the contract of the legitimate business interest that the employer is protecting.
While there is not yet a timeline for FTC rulemaking, employers who utilize non-compete agreements should stay tuned!