Florida Will Soon Be Friendliest State in Country For Enforcing Non-Compete Agreements

Florida will soon be a place where businesses can operate with more peace of mind, thanks to a new law that will make it the most enforcement-friendly state in the country for non-compete and garden leave agreements. The “Florida Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth (CHOICE) Act,” passed both the Florida House and Senate on April 24 and expected to be signed by Governor DeSantis, will reshape the state’s laws on restrictive covenants starting on July 1, 2025. The Act does not amend any current statutes, but instead provides more certainty to employers looking to enforce certain non-compete agreements and agreements offering “garden leave” (a period of time where an employee is not required to perform any work but is still paid their salary and benefits in return for not accepting employment elsewhere). Here is what employers should know about the CHOICE Act and three steps you can take to prepare.

Overview of the CHOICE Act

While many federal and state regulatory efforts seek to curb non-compete agreements, the CHOICE Act goes the other direction and creates a presumption that “covered” non-compete agreements and garden leave provisions are enforceable and do not violate public policy. Importantly, the law requires courts to issue an injunction unless the former employee or poaching employer can prove the new employment will not result in unfair competition.

Who is Covered?

The Act defines a “covered employee” as any employee or contractor who works primarily in Florida or works for an employer with their principal place of business in Florida who earns or is reasonably expected to earn a salary greater than twice the annual mean wage of either:

• the county where the company has its principal place of business; or
• the county where the employee resides if the employer’s principal place of business is not in the state.

Notably, “salary” does not include discretionary incentives or awards or anticipated but indeterminable compensation, like bonuses or commissions. The Act excludes from this definition any person classified as a “healthcare practitioner” under Florida law.

What Agreements Are Covered?

The new law covers two types of agreements:

 Type 1- Garden Leave Agreements

A garden leave agreement will be fully enforceable provided that:

1. The employee is advised, in writing, of the right to seek counsel prior to executing the agreement and has at least seven days to review the agreement before execution;
2. The employee and employer agree to provide up to four years advance, express notice before terminating employment (e.g., the “notice period”);
3. The employer agrees to pay the employee their regular base salary and benefits for the duration of the notice period;
4. The employee acknowledges, in writing, that in the course of their employment, the employee will receive confidential information or information about customer relationships;
5. The garden leave provisions provide that:
   • After the first 90 days of the notice period, the covered employee does not have to provide services to the covered employer;
   • The covered employee may engage in nonwork activities at any time, including during normal business hours, during the remainder of the notice period; and
   • The covered employee may, with the permission of the covered employer, work for another employer while still employed by the covered employer during the remainder of the notice period.

Type 2- Non-Compete Agreements

Likewise, a non-compete agreement will be fully enforceable provided that:

1. The employee is advised, in writing, of the right to seek counsel prior to executing the agreement and has at least seven days to review the agreement before signing;
2. The employee acknowledges, in writing, that in the course of their employment, the employee will receive confidential information or information about customer relationships;
3. The employee agrees not to assume a role with or for another business in which the employee would provide services similar to the services provided to the covered employer during the three years preceding the non-compete period, or in which it is reasonably likely the employee would use confidential information or customer relationships;
4. The non-compete period does not exceed four years; and
5. The non-compete period is reduced day-for-day by any non-working portion of the notice period pursuant to a covered garden leave agreement, if applicable.

Notably, there are no restrictions on the geographic scope of a covered non-compete agreement. 

What Else?

• Employers may introduce these agreements either at the beginning of employment or during the course of employment, provided that the employee still has seven days to consider signing the agreement before the offer of employment (or continued employment) expires.
• Employers may also elect to shorten a period of garden leave at their discretion by providing the employee with 30 days’ advanced written notice.
• The bill also states that, if the covered employer has a principal place of business in Florida and uses a covered agreement expressly governed by Florida law, then “if any provision of this section is in conflict with any other law, the provisions of this section govern.” What happens if the employee of such a covered employer lives in a state that bans non-compete agreements outright, like California? This situation is very likely to play out in the courts, and it may come down to where the first suit is filed.

Remedies Available

Of course, drafting and executing these agreements means very little if employers have to jump through hoops to enforce them. However, the CHOICE Act makes obtaining an injunction against a breaching employee a lot less burdensome because it requires courts to issue a preliminary injunction against a covered employee.

A judge may only modify or dissolve the injunction if the covered employee – or prospective employer – proves by clear and convincing evidence (which must be based on non-confidential information) that:

• the employee will not perform similar work during the restricted period or use confidential information or customer relationships;
• the employer failed to pay the salary or benefits required under a covered garden leave agreement, or failed to provide consideration for a non-compete agreement, after the employee provided a “reasonable opportunity” to cure the failure; or
• the prospective employer is not engaged in (or preparing to engage in) a similar business as the covered employer within the restricted territory.

If the employee engages in “gross misconduct” against the covered employer, the covered employer may reduce the salary or benefits of the covered employee or “take other appropriate action” during the notice period, which would not be considered a breach of the garden leave agreement.

3 Key Steps For Employers

Assuming this bill is signed into law, Florida will become by far the most enforcement-friendly state in the country for non-competes and garden leave provisions starting July 1, 2025. (Arguably, it already was, but this law would go substantially further than the current Florida restrictive covenants statute.) Employers should prepare for this new day by considering the following three steps:

• Review existing agreements and consider whether your agreements need to be modified to comply with the Act’s definition of a “covered” garden leave or non-compete agreement.
• Understand that restrictive covenants can still be used and enforced against employees who earn less than two times the mean salary for the applicable county. However, employers will not have an entitlement to a preliminary injunction without proving a legitimate business interest and irreparable harm.
• It is always a good practice to review your company’s confidentiality protocols and make sure your policies regarding trade secrets, customer information, and confidential information are comprehensive, up to date, and legally compliant. While the CHOICE Act only requires that the employee acknowledge access to confidential information, the more guardrails in place, the better.

FTC’s Non-Compete Ban Struck Down For All Employers Nationwide

A Texas federal court just struck down the FTC’s proposed ban on non-competition agreements on a nationwide basis mere weeks before it was set to take effect, meaning employers across the country can breathe a sigh of relief and continue to maintain non-competes as their state laws allow. While there is a slim chance the rule could be resurrected by a federal appeals court in the future, what’s for certain after the ruling on 8/20/24 is that you will not have to comply with the rule by September 4 as originally scheduled. What do you need to know about this significant development and what should you do now that the landscape has shifted once again? 

What Happened?

A Texas employer, the U.S. Chamber of Commerce, and a handful of other business organizations sued the Federal Trade Commission (FTC) in federal court seeking an order blocking the non-compete rule from taking effect on September 4 as scheduled.

Judge Ada Brown from the Northern District of Texas initially agreed that the rule was an invalid exercise of the agency’s power on July 3, but only blocked the rule as it applied to the parties in the case and left open the question of whether the FTC could proceed with the ban. She later promised to issue a final ruling on the matter by August 30.

Judge Deploys 2 Main Arguments to Kill Non-Compete Ban

The judge took a two-pronged attack to the FTC’s non-compete ban. Her first line of attack was ruling that the agency didn’t have the power to issue the rule because Congress only authorized it to issue procedural rules to address unfair methods of competition, not substantive rules. “The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do,” she said.

Her second rebuke was concluding that the rule itself was “arbitrary and capricious” for the following reasons:

• She found that the rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation.
• The rule aimed to impose a one-size-fits-all approach with no end date.
• She pointed out that no state in the country has enacted a non-compete ban as broad as the FTC’s rule.
• She questioned why the rule didn’t target specific, harmful non-competes instead of taking a blanket approach.
• The agency failed to consider the positive benefits of non-competes, she said.
• She added that the agency failed to sufficiently address potential alternatives rather than a nationwide ban on just about every non-compete.

Rule Blocked for All Employers Across the Country

Most importantly for employers, Judge Brown concluded that her order setting aside the non-compete ban should apply to all employers across the country. As noted above, she originally just blocked the rule from taking effect for those parties that had filed suit in the Texas case. In fact, in a separate decision just a week or so after her July 3 limited ruling, she again declined to extend the preliminary injunction nationwide – leaving employers in a state of uncertainty as the days dwindled down towards the effective date.

Following Judge Brown’s ruling, a Pennsylvania court in a separate lawsuit declined a motion to block the rule, and a Florida court granted a limited injunction similar to the Texas court’s original order, leaving employers in doubt about whether the rule might be vacated prior to its September 4 effective date.

But this updated ruling put an end to all of that concern. Brown noted that federal law required her to “hold unlawful” and “set aside” the non-compete ban with nationwide effect. All parties in all judicial districts across the country are equally covered by the ruling, she said.

Post-Chevron Shockwaves

The decision is one of the first prominent cases to demonstrate the evolving power of courts to overrule agency actions now the Supreme Court has struck down the Chevron doctrine. For those unfamiliar, SCOTUS issued the groundbreaking Loper Bright ruling on June 28 tossing out a decades-old standard that had required courts to give substantial deference to agencies like the FTC.

The new standard? Courts should instead exercise their independent judgment when deciding whether an agency’s actions are proper exercises of power – essentially enabling courts to strike down agency rules more easily. 

And this decision is a perfect example of how this new standard will be deployed by courts to significant effect. The first sentence of Judge Brown’s analysis section quotes the Supreme Court’s Loper Bright case, in fact, noting that the Administrative Procedure Act should serve “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.”

What’s Next?

The FTC could try to breathe new life into the rule by filing an appeal of this decision in the coming weeks. It could also seek an emergency order from the appellate court that would cause the rule to take effect as scheduled.

However, any appeal would be heard by the notoriously business-friendly 5th Circuit Court of Appeals, where the odds of the rule being resurrected are slim. And the next step after that would be a potential visit to the Supreme Court, which has taken direct aim at the regulatory state in recent years and is likely a hostile environment for any attempt by the FTC to wield such power.

What Should You Do?

• Employers can breathe a sigh of relief. We are now back once again to the status quo, where state-specific restrictions shape the contours of covenants not to compete, and you can continue to have non-compete restrictions as a tool in your arsenal to protect key relationships and confidential information.
• Now is an especially critical time for you to ensure your existing non-competes are precisely tailored to meet the state laws in which you operate and that you are limiting their use to critical employees – as the FTC has already indicated it will try to flex its muscles through targeted investigations if it can’t wield the power of a national rule. “Today’s decision does not prevent the FTC from addressing non-competes through case-by-case enforcement actions,” an agency spokesperson said soon after the court decision.
• You might also want to compile an inventory of all existing restrictive covenant agreements, including those that bind former workers. There is a slim chance that an appeals court could bring the non-compete ban back to life, and in such a circumstance it would be beneficial to have a full and complete list of your effective agreements. Even if the rule never sees the light of day, however, having such an inventory could be a helpful resource for compliance and tracking purposes.