How Will Changing Laws and Policies Affect Non-Compete Agreements?

For many employers, non-compete agreements provide essential protections. These agreements ensure that employees who have gained a knowledge and understanding of a company’s business practices and trade secrets cannot use this information to engage in unfair competition by working for a competitor or starting their own competing business. In some cases, a business may need to pursue litigation to enforce non-compete agreements and address violations that have resulted in financial losses or other issues that have affected a company’s ability to operate successfully. However, the ability to do so may change in the future as new laws and regulations are implemented that affect non-compete agreements.

Potential Limitations on Non-Compete Agreements

Some advocates believe that non-compete agreements place unfair restrictions on workers, limiting their ability to change jobs, pursue opportunities, and increase their income. To address this issue, multiple states have passed laws restricting non-compete agreements in certain situations, such as for employees under a certain income level. For employers in Florida, non-compete agreements are generally enforceable as long as their restrictions are reasonable and they are necessary to protect a company’s legitimate business interests.

However, changes at the federal level may affect non-compete agreements for businesses throughout the United States. In an executive order issued in July of 2021, President Biden encouraged the Federal Trade Commission (FTC) to take action to limit the unfair use of these agreements. The Biden administration has stated that it believes non-compete agreements should be significantly limited or banned outright unless they are absolutely necessary to protect trade secrets. While the FTC has not yet taken action to address this issue, it may choose to implement new rules in the future, such as by limiting the types of jobs where non-compete agreements may be used.

A potential new federal law may also affect non-compete agreements. The Workforce Mobility Act of 2021, which was introduced in the Senate earlier this year, would place significant limitations on when non-compete agreements may be used. If this law is passed, it would only allow for the use of non-compete agreements in cases where a business is sold or a partnership is dissolved. It would also require employers to provide employees with information about the limitations that apply to these agreements, and it would allow employees to sue employers who commit violations of these restrictions and requirements.

Sources:

https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/

https://www.congress.gov/bill/117th-congress/senate-bill/483

https://www.shrm.org/resourcesandtools/legal-and-compliance/employment-law/pages/what-biden-order-on-noncompetes-means-for-employers.aspx