MIAMI BUSINESS LITIGATION: NON-COMPETE CONTRACTS BARRED BY PROPOSED WORKFORCE MOBILITY ACT

We previously wrote about two potential laws that might limit enforceability of non-compete agreements. The first law is a proposed Florida statute that would constrain or prohibit restrictive covenants for certain medical professionals. The second law is a Federal Trade Commission rule that would ban most non-compete agreements as unfair competition. Congress is proposing a similar law that would ban most non-compete agreements, called the Workforce Mobility Act (the Act). The relevant wording of the Act, in its present form, is as follows: “…No person shall enter into, enforce, or attempt to enforce a noncompete agreement with any individual who is employed by, or performs work under contract with, such person with respect to the activities of such person in or affecting commerce. S. 220, 118th Cong. § 3 (2023-2024). Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Public agencies and private citizens can enforce the Act. If passed, the Act would make any violation an unlawful unfair and deceptive act or practice under 15 USC § 57a. Id. The Federal Trade Commission, the United States Department of Labor, and the States of the United States would each have authority to enforce the law. Id. Individuals will also have a private cause of action to enforce the Act. Id. They can sue to recover damages (if any) along with attorney’s fees if they are the prevailing party. Id.

The sweeping nature of the Act’s wording will likely have broad effect throughout interstate commerce. However, the Act does not ban all non-compete agreements outright because the definition of “non-compete agreements” is somewhat narrow. Congress defined non-compete agreements as:

an agreement, entered into after the date of enactment of this Act between a person and an individual performing work for the person, that restricts such individual, after the working relationship between the person and individual terminates, from performing—

• any work for another person for a specified period of time;
• any work in a specified geographical area; or
• any work for another person that is similar to such individual’s work for the person that is a party to such agreement.

This definition limits non-compete agreements to those entered after the Act is enacted. Employees, consultants, and other similarly situated persons will therefore have to honor pre-existing non-compete provisions. The definition also does not prevent persons from prohibiting competition during a term of employment. Employees cannot therefore compete against their present employers. This aligns with the common-law duty of loyalty. See Werner Enterprises, Inc. v. Mendez, 362 So. 3d 278, 282 (Fla. 5th DCA 2023) (“An employee owes a duty of loyalty to his employer.”).

The Act also contains three exceptions to its application. The first exception allows the buyer of a business to prohibit the seller from competing within a specified geographic area if the buyer operates the purchased business within that same area. Id. The second exception is similar to the first exception but applies to senior executives. The buyer of a business can prohibit senior executives working for the seller from competing within a specified geographic area, if the senior executives were provided severance compensation. Id. In both cases, the non-compete covenant can last no more than one-year. The third exception applies to trade secrets because “[n]othing in [the] Act… preclude[s] a person from entering into an agreement… not [to] disclose any information (including after the individual is no longer employed or performing work for the person) regarding the… the work performed… that is a trade secret.” Id.

It is unclear whether the Act will become law. Versions of the Act were previously introduced as late as 2021 but never made it out of committee. The present version of the Act has bipartisan support, which suggests it has a stronger chance of success, but only time will tell.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.