Employee Rights Related to Non-Compete Agreements

Noncompetes are now unenforceable! Well, that’s not quite true, despite the headlines. This is what is true, and is something I’m following as a lawyer who drafts/negotiates #noncompete provisions along with litigating them (I have 2 upcoming trials primarily focused on the enforceability of such clauses): On April 23, the Federal Trade Commission (#FTC) issued a final rule to ban many, but not all, #noncompetes across the United States. The rule isn’t effective until 120 days after publication in the Federal Register. So, don’t go to your boss’ office today, stick up your middle finger, and tell him or her to shove the noncompete where the sun doesn’t shine. Furthermore, there is an exception. Existing noncompetes for senior executives can remain in force under the FTC’s final rule, but employers are banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Additionally, there is a possibility that the rule never becomes effective. The expectation is that litigation will soon commence over whether the ban is proper, with a request that the FTC’s rule be stayed in the meantime. Importantly, whether or not the rule withstands challenge, there are mechanisms employers can use to protect their proprietary information, which they should be examining irrespective of the outcome. As the FTC has noted, secret laws and non-disclosure agreements (NDAs) both provide employers with well-established means to protect proprietary and other sensitive information. Some say NDAs aren’t worth the paper they’re printed on; I’m currently in the middle of a multi-million dollar case involving the breach of one, so we shall see! If you have any questions about the above, then feel free to contact me! https://lnkd.in/eihUvXP8

Big news on noncompetes—from two very different directions. First, the NLRB just quietly backed off its aggressive stance that most noncompetes violate federal labor law. The agency's Acting General Counsel rescinded 2023's memo that took that position, signaling a retreat from treating noncompetes as an unfair labor practice. Meanwhile, Ohio lawmakers are headed in the opposite direction. Last month, they introduced SB 11, a bipartisan bill that would ban nearly all noncompetes in the state. If it passes, it'll be a game-changer, giving employees much more freedom to jump to competitors. The contrast is pretty stark. While the NLRB is easing up, state legislatures are doubling down on efforts to kill noncompetes. And it's not just Ohio—at least a dozen states, both red and blue, have already taken action to limit or ban them. What does this mean for employers? Don't assume noncompetes are going to stick around. Even if the NLRB is slowing its roll, the bigger trend is clear: these agreements are on the chopping block. Now's the time to rethink your approach to restrictive covenants. Here's my suggestion: 📃 If you're worried about protecting confidential information, a non-disclosure agreement (NDA) might be all you need. 📃 If you don't want employees poaching your customers, employees, or vendors, a non-solicit (plus an NDA) should do the trick. 📃 If an employee's role is so unique that their departure to a competitor would cause real damage, then—and only then—should you consider a noncompete (plus an NDA and non-solicit). The key is common sense. Don't overuse noncompetes just because you can. Tailor your agreements to what you actually need to protect. Otherwise, you're just throwing money away trying to enforce a contract that might not hold up in court. And while that's great for lawyers like me, it's terrible for your business.

This is a terrible misconception, and if you’re going to be a serious business person, you need to get this straight. Non-competes are absolutely enforceable in many situations. You just have to understand the difference between employment non-competes and business sale non-competes—and how different states treat them. Let’s break it down. Employment Non-Competes… These are the ones people are usually talking about when they say non-competes aren’t enforceable. And in some states, that’s true. California? Completely banned. California law makes employment non-competes unenforceable under Business and Professions Code Section 16600. If you’re working in California, your employer can’t stop you from taking another job or starting a competing business. No carve-outs, no exceptions (unless you’re selling a business—more on that later). Florida? Totally different story. Florida loves enforcing non-competes—if they’re reasonable. Under Florida law, an employment non-compete has to protect a “legitimate business interest” and be limited in time and geography. Courts usually consider up to two years reasonable, and they’ll strike down anything overly broad. But overall, Florida is very pro-enforcement. Business Sale Non-Competes… Now, this is where people really get it wrong. If you sell a business, the buyer doesn’t want you opening up across the street the next day and taking all your old customers with you. That’s why these non-competes are almost always enforceable. Florida enforces them aggressively. If you sell a business, the law allows you to agree not to compete for a reasonable time and in a reasonable geographic area. Courts routinely uphold these agreements. California, despite its usual anti-non-compete stance, allows them too. Under Business and Professions Code Sections 16601 and 16602, if you sell a business and its goodwill, you can be restricted from competing in that business. California courts recognize that buyers need protection, and they’ll enforce these non-competes when they’re tied to a legitimate sale. The Federal Angle… The FTC recently tried to ban most non-competes nationwide. But in August 2024, a federal judge blocked it. The fight isn’t over, but for now, non-competes are still governed by state law. However, even the FTC didn’t try to eliminate business sale noncompetes. They’re too essential. Bottom Line… If you’re hiring employees, know your state’s rules. If you’re selling a business, expect to be bound by a non-compete. Anyone saying “non-competes aren’t enforceable” is just wrong. They’re enforceable all the time—you just have to know when and where.