Protecting Trade Secrets and Investments in the Post-FTC Non-Compete Ban Era

One of the most famous quotes from the ancient Greek philosopher Heraclitus is that 'change is the only constant in life.' This sentiment rings true when examining the regulatory landscape in the US, where regulatory authorities have enacted significant amendments in recent years. Recently, the Federal Trade Commission issued a final ruling that effectively banned non-compete agreements for all US workers, terming it as an unfair method of competition.

While the fate of this ruling remains uncertain due to legal challenges, business owners should still know how to protect their trade secrets and investments in a post-FTC non-compete ban era. Keep reading to find out more.

FTC Non-Compete Ban Overview

If the FTC's rule on non-compete agreements becomes effective, it will prevent US employers from enforcing new and existing non-compete agreements for all employees, including independent contractors and unpaid workers. The final ruling exempted senior executives or employees earning over $151,164 annually and workers in policy-making positions.

Alternatives to Non-Compete Agreements

The FTC's rationale in banning the enforcement of the non-compete clause for workers was that these clauses constitute unfair methods of competition. For businesses that rely on these restrictive covenants to protect their trade secrets, the FTC's rule signals a need to explore alternative means of maintaining a competitive advantage.

We've highlighted potential strategies business owners can use in place of non-compete provisions below.

Trade Secret Law

Loosely defined, trade secret law refers to a branch of intellectual property regulation prohibiting the disclosure, utilization, or acquisition of confidential company information without explicit authorization.

Business owners can use trade secret law to protect their investments without preventing former workers from taking on new jobs, as is often the case with the worker's non-compete clause. Here are common trade secret laws you can use to protect sensitive company information:

• The Uniform Trade Secret Act (UTSA)
  This trade secret law is currently adopted by 47 US States, including New Jersey and New York. This regulation provides the legal framework for dealing with trade secret theft cases, allowing companies to sue for trade secret misappropriation and win the following:
  • Injunctive relief
  • Monetary settlement
  • Punitive awards
  • Reimbursement of attorney fees
• The Economic Espionage Act
  It categorizes trade secret theft as a federal offense with significant penalties such as fines and mandatory restitution to victims.
• The Defend Trade Secret Act of 2016
  This trade secret law aligns trade secrets with other forms of intellectual property like patents and copyrights.

Non-Disclosure Agreements

In addition to trade secret law, businesses can use Non-Disclosure Agreements (NDAs) to protect their intellectual property. A non-disclosure agreement is simply a legal contract in which parties agree not to disclose confidential information they have shared as part of their business agreement. Unlike a non-compete clause, which prevents workers from taking on new positions, NDAs only prevent them from sharing confidential information.

Other Alternatives to Non-Competes

While the FTC's non-compete rule may be seen as a blow to protecting valuable company information, there are many other avenues to keep trade secrets confidential without preventing workers from taking on new jobs. Here are alternative strategies in addition to trade secrets and nondisclosure agreements:

• Patent law- These give an inventor exclusive rights to their invention for a defined period (usually 20 years).
• Invention assignment agreements- These contracts ensure that the company owns any intellectual property or inventions a worker creates while providing services to the company.
• Fixed duration contracts- If you invest heavily in training your workers, you can require them to sign a contract that commits them to stay with the company for a defined period. Courts typically find that monetary damages (such as compensation for the cost of training or recruiting a replacement) are sufficient to remedy a worker’s breach of the contract.

Conclusion

The FTC's decision to ban non-competitive trade has been met with enthusiasm and criticism across the US. While the rule's effective date hangs in the balance due to legal challenges, business owners should prepare to explore alternative avenues of protecting confidential business information, such as trade secret laws, nondisclosure agreements, and patent law. Please contact Wilkinson Law LLC for strategic advice on maintaining a competitive advantage in the new regulatory landscape.

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

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