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What’s the current state of non-compete clauses?

On Behalf of | Feb 7, 2024 | BUSINESS & COMMERCIAL LAW - Business Formation & Planning |

If you’re starting a new business, one of the first things you’ll need to do is bring on at least a few core people to get things up and running. That means having them sign employment agreements. These are crucial to laying out your expectations and requirements of them as well as their rights.

Non-compete clauses have been widely used in both employment and severance agreements in numerous industries. Their purpose is to prevent employees at all levels from taking the knowledge, information and skills they’ve acquired during their time with an employer to a competitor.

Federal action on non-competes

As you likely know, non-compete clauses have been under fire from the White House on down for being used when unnecessary and being overly broad. For example, some fast-food restaurants were holding low-paid employees to them – preventing them from getting much-needed work if they left. They can be better justified in tech and toy companies where new innovations are occurring all the time.

The Federal Trade Commission (FTC) has proposed a rule that would prohibit most non-compete clauses except in cases where they’re required and, even then, to limit their scope so that they don’t unduly burden former employees as they seek a new job in their field. That is scheduled to be finalized this year.

What about Florida law?

Some states have already taken steps to limit or nearly prohibit these clauses. While they’re still allowed under Florida law, they (and any “restrictive covenant”) has to be “reasonable in time, area, and line of business.” Further, to be enforceable, a company must “prove the existence of one or more legitimate business interests justifying the restrictive covenant.”

Laws that affect businesses’ employment and other contracts are in a constant state of flux. It’s crucial to have legal guidance when drafting, negotiating or modifying any contact. By having this guidance on the front end, you can better save your business the time, money and possibly reputational harm of having to go to court to enforce or defend it.