UPDATE: Banning of Non-Compete Agreements Goes FEDERAL

May 3, 2024Supply Chain Chronicles

The rules have changed nationwide, so how do you now keep your trade secrets from walking out the door? Last year, we reported that a sweeping legal trend among the states was likely foretelling The Demise of the Non-Compete Agreement.

Now we’re back with the latest: The inevitable has come to pass, as the FTC has approved a nationwide Non-Compete Ban!

Amidst growing concerns that boilerplate non-compete agreements that contractually prohibit employees from leaving the firm for a competitor were wreaking needless devastation on the business, industry, the job market, and the economy in general, the FTC approved the proposed federal ban in a 3-2 vote on Tuesday, April 23, following suit with numerous state governments that had already put an end to non-competes within their borders.

What you need to know…

This pronouncement not only enjoins employers from enacting any further non-compete agreements but NULLIFIES those already in existence (with a few exceptions).

HOWEVER…

Other employment contract addendums such as certain NDAs or non-solicitation agreements could be adjudicated de facto non-competes and struck down. Expect a good few years of litigation whirlwind to iron things out, which is why we recommend being extremely careful when invoking any such form as a condition of a new hire’s employment, as it will now be put under a microscope.

If it seems like your trade secrets are now left open and vulnerable without these hiring contract provisions, there’s another recourse; the Defend Trade Secrets Act. There are specific ways to invoke this, and a boilerplate employment agreement won’t cut it.

A few steps we recommend are…

  • Institute a policy of “Need to Know” for your employees when it comes to private records and data
  • Clearly and conspicuously mark sensitive information as CONFIDENTIAL.
  • Consider going old-school, low-tech. Business secrets, sensitive and proprietary information in physical form? Put it behind lock and key; and restrict access to it! Confidential digital information? Password protect it behind the best encryption your resident tech nerds can muster!

These measures are now more crucial than ever to protect your intellectual property from a potentially dishonest employee bent on self-enrichment. The days of getting their signature and resting assured that you’re covered on the back end are officially over.

That’s where it stands for now. We’ll send any new developments your way, as always!

Have additional questions?

Contact Commerce Law Partners today and Prepare to Win.

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