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Employment and Labor

New Non-Compete Rule May Not Pass But Employers Should Stay On Alert

New Non-Compete Rule May Not Pass But Employers Should Stay On Alert

For the Federal Trade Commission’s (FTC) proposed rule to ban non-compete clauses to become law, many hurdles would have to be overcome. Those who follow politics in this country have aptly observed that this is unlikely due to a divided U.S. Congress.

However, the FTC struck a chord when it proposed this rule, forcing many who have been affected by non-competes in both positive and negative ways to think closely about their place in our society. It is largely understood that non-competes provide an important protection for companies. Non-competes are a very streamlined and effective legal mechanism, at least in Florida, to bring certain potential harms to an abrupt halt. A few examples of such harms recognized by Florida’s non-compete statute include: (1) the threat of a competitor who aims to poach employees to whom a company has provided significant training at great cost (and at great savings to the competitor); (2) the threat of a competitor who aims to poach employees with access to valuable intellectual property; and (3) the threat of a competitor who aims to poach valuable clients by influencing current employees to bring such information with them to the competitor.

On the other hand, the conversation spurred by the proposed rule has revealed that most people do not want companies to be able to limit movement of certain categories of employees who are unlikely to become the pawns of unscrupulous competitors- such as janitors, grocery store clerks, hairdressers, and the like. Most people believe that a non-compete forced upon these categories of employees exists solely to stifle competition, and not to prevent against the legitimate harms described above.

To address those very legitimate harms, some have argued that other causes of action will suffice in the absence of non-competes. Such causes of action have long been used alongside breach of a non-compete itself. They are usually directed at the actions of the competitor, rather than the former employee. These causes of action include tortious interference with business relationship, misappropriation of trade secrets, and violation of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA). It is well-established under Florida law that client lists are trade secrets. And courts have allowed FDUTPA claims to proceed based on recruitment of a competitor’s employees to access such trade secrets. There is a strong argument for its application to situations where a competitor targets an employee very close to the end of a time-consuming and expensive training program as well. These causes of action would remain viable tools to address such unfair competition.

However, the difference in proof between breach of a non-compete and other causes of action directed toward the new employer’s actions is what concerns companies most: a breach of a non-compete is markedly easier to establish. The ability to obtain an injunction so early in a case by establishing the low bar of likelihood of success on the merits of such a simple cause of action is an incredibly effective deterrent from these methods of unfair competition. While it is also possible to obtain injunctive relief for misappropriation of trade secrets, how does one prove that clients were stolen so soon after an employee leaves for a competitor?

Like all changes in the law, if this one comes to fruition, new solutions to these problems will become the norm. One possible solution is investment in software that tracks client behavior and creates lists of clients who cancelled appointments or declined to make new appointments soon after the departure of certain employees. If a large enough number of clients who consistently used the business’s services suddenly stops doing so, this information could be used to establish a likelihood of success on the merits, or at least open the door to discovery to obtain proof that those clients’ information was wrongfully obtained.

Though the FTC’s proposed rule is unlikely to become law under our current Congress, this may not always be the case. Companies who wish to be prepared to adjust to the potential change in this legal landscape should make a plan with experienced employment counsel to protect their investment in their clients and employees.