Weekly take: Companies must look beyond non-competes to protect trade secrets
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Trade Secrets

Weekly take: Companies must look beyond non-competes to protect trade secrets


Regardless of whether the FTC’s ban on non-competes goes into effect, businesses should stop relying on these agreements

Last week, the US Federal Trade Commission voted to ban non-compete agreements.

These type of agreements restrict where employees can move when they change jobs.

It’s unclear, however, whether the ban will actually take effect.

The US Chamber of Commerce filed a lawsuit against the FTC in an attempt to block the plans. Texas-based tax service firm Ryan has also challenged the rule.

The ban’s detractors argue that the FTC doesn’t have the authority to enact such a policy.

Some critics have also claimed that such a rule would hinder companies’ trade secrets protection strategies. Their argument is that businesses can use non-compete agreements to prevent employees from taking trade secrets from their old company to a competitor.

But regardless of whether this ban takes effect, it's time for companies to look towards other measures to protect their trade secrets and abandon non-competes.

Non-compete negatives

I won't weigh in on whether the FTC has the authority to enact this ban. Where I will nail my colours to the mast, however, is to say that banning non-competes is a good idea.

The FTC put forward evidence that non-competes suppress earnings and can force employees to stay in unhealthy work environments.

Although not all non-competes are equally harmful, employees still generally have less power compared to their employers. Workers should have the freedom to change jobs – even if it inconveniences or creates risks for their employers.

Furthermore, public opinion seems to be against non-competes. The FTC received more than 26,000 public comments. A huge majority (25,000) were in favour of the ban.

Even if the FTC ban doesn’t take effect, its attempt could inspire more state legislatures to prohibit non-competes.

The risks

This would make using non-competes an increasingly risky proposition for businesses.

If businesses are relying on these agreements to protect their trade secrets, they could be in trouble if more states decide to ban non-competes.

California has banned non-competes for years, as have Oklahoma and North Dakota.

Companies should therefore ensure that their trade secrets are safe, even if employees with access to highly sensitive information want to jump ship.

To be fair, many companies are already aware of this. Many have put a lot of resources into developing robust trade secret protection programmes and have been doing so for a long time.

But if non-competes have been a part of this trade secret protection strategy, they should figure out whether their other measures are sufficient to protect their proprietary information or whether they need to do more.

Companies can be clearer to employees about what their trade secrets are, for example.

They can also offer more training to staff about what information workers can and can’t take with them if they leave. They can rely on the services of trade secrets lawyers to refine these strategies.

Although no method for protecting trade secrets is entirely risk free, it’s certainly possible to protect them without relying on non-competes. After all, many businesses, including in the aforementioned states, have been forced to do this already.

It’s for that reason that several in-house counsel told me last year that they didn’t think that banning non-competes would hinder their trade secret protection strategies.

If companies have been able to thrive in states such as California without non-competes, they should be able to do so nationally too.

Public opinion

Businesses may decide to advocate against non-compete bans anyway.

They might file additional lawsuits against the FTC’s ban or find ways to fight new state prohibitions.

Companies might publicly argue that non-competes have made their trade secrets safer, or that their non-competes haven’t harmed workers.

But I’d recommend against fighting too hard.

Trade secrets are important to companies. But when trade secrets professionals and those who value them are advocating for non-competes, people will start to associate trade secrets with practices that are bad for employees.

If employees are told that their freedom to move to new jobs is at odds with a company’s trade secrets protection strategy then they could end up becoming sceptical about the idea of trade secrets.

This could harm the public's perception of trade secrets, and possibly intellectual property in general, in the long term.

I won’t be surprised if one of the lawsuits against the FTC’s ban succeeds and companies don’t have to grapple with a national ban anytime soon.

But for companies' own sake, and for the benefit of their workers, they should find ways to protect sensitive information without resorting to non-competes.

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