Commentary: Navigating the new course for noncompetes after FTC action

Navigating the new course for noncompetes after FTC action

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  • | 1:00 a.m. May 2, 2024
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I was conflicted when I learned about the Federal Trade Commission’s and National Labor Relations Board’s plans to invalidate noncompete agreements.

I have litigated noncompete cases in Florida courts for 30 years, and of course, it’s hard to lose a portion of your practice.

When used properly, noncompete agreements can help businesses retain important talent and protect against unfair competition.

Tad Delegal

Because businesses sometimes provide substantial and specialized training to employees, connect employees with critical customers, and/or share important confidential information, they can be substantially harmed when employees compete.

Florida’s noncompete law is designed to prevent unfair competition and, when used appropriately, restrictive covenant agreements should only protect legitimate business interests.

The reality is that too many businesses abuse noncompetes.

There is no cost for an employer to impose restrictive covenants as a condition of employment. Too often, businesses require noncompete agreements for all employees regardless of legitimate business interests.

Most noncompetes are signed by employees who will not substantially harm business operations when they leave, and therefore, those agreements should not be enforceable.

The financial burden of challenging noncompete agreements in court is prohibitive.

Most employees with unenforceable contracts cannot afford to effectively fight them. Most employees simply do not have the financial resources to hire an attorney who understands this area of law.

As a result, I have seen sandwich makers, hair stylists, bail bondsmen and preschool teachers stymied by the costs and obstacles of litigating noncompetes. 

Many employees simply conclude that they will not be able to fight their former employers’ superior resources in court. As a result, lower-level employees, or employees whose departure and competition will not substantially affect their former employer’s business, wind up sticking with their old employers, or complying with agreements that should not be enforced.

Employers hire attorneys well-versed in enforcing such agreements, while the employees are either unrepresented or hire attorneys with little expertise who frequently fail to raise critical defenses and challenges.

Judges unfortunately become accustomed to enforcing agreements through temporary injunctions, and some judges simply do not appropriately inquire as to whether required legitimate business interests exist.

The Florida Supreme Court has made clear that the statute is designed only to prevent unfair competition, but the high standards that should apply are often ignored because the agreements are so rarely challenged competently in court.

There may have been means of accounting for the inequalities – perhaps by permitting contingency fee multipliers for invalid agreements or setting a minimum salary – but the same problems with overly broad use and enforcement exist even in states that more severely restrict the contracts.

No matter how much legislators try to limit noncompetes to legitimate use, employers keep imposing them to unjustly restrict fair competition.

While I personally wish Florida and other states could have constructively limited them, it simply appears that the abuse of restrictive covenants has artificially restricted competition because employers insist upon unwarranted agreements as a condition of hiring.

The FTC‘s new rule is not scheduled to go into effect until August, and will likely be enjoined and further challenged.

The rule permits restrictive covenants already in place for executives earning more than $150,000 to remain but bans new ones.

Some businesses would be harmed by the FTC rule, and from a selfish perspective, I would hate to lose this area of practice. In the balance, though, the FTC’s rule may be the only way to counter the injustices permitted under the current system.

Tad Delegal is a founding partner at Delegal Poindexter & Underkofler and a past president of the Jacksonville Bar Association. He is board certified by The Florida Bar in labor and employment law and state and federal administrative practice.  



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