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Will a proposed non-compete ban endanger intellectual property?

The terms that a company includes in its employment contracts establish the expectations that workers have about their jobs and the obligations that the company has to its workers. Businesses may include clauses that prohibit the discussion of company practices on social media and even caveats about dress codes and professional behavior in their employment contracts.

Many companies that have valuable intellectual property will integrate non-compete agreements into their employment contracts to prevent workers from misusing that intellectual property later. Such clauses prevent a worker from leaving the company to work for a direct competitor or starting their own company within the same industry for a time.

Recently, the Federal Trade Commission (FTC) indicated a desire to ban non-compete agreements at the federal level, preventing their inclusion in future contracts and eliminating the ability of employers to enforce them in civil court. The proposed ban is based on preliminary findings that non-competes “constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act,” according to the FTC.

Will such a ban leave your company’s intellectual property defenseless?

Your company will still have options

Even if your organization has historically utilized non-compete agreements to protect trade secrets and prevent new hires from taking action that would be detrimental to the company, you can still protect your business if the FTC bans non-compete agreements.

There are numerous strategies that can mitigate a company’s intellectual property risks and concerns about unfair competition related to their employees. If the FTC does move forward with a ban on non-compete agreements, many businesses will have to reevaluate their contracts and look at new ways to protect their intellectual property.

Many will likely add different restrictive covenants to their contracts. Non-disclosure agreements that prevent the sharing of private information and non-solicitation agreements can achieve many of the same goals that a non-compete agreement can. Companies may also need to alter their processes for employee exits.

Severance compensation can be useful leverage when trying to prevent an employee from misusing intellectual property as well. Detailed conversations with an employee can clarify what actions would violate the law or their contract with a company and reduce the likelihood of them misusing private business information.

The best solutions will depend on a company’s practices and exposure. Tracking major potential changes in employment law can protect businesses that are vulnerable to employing misconduct because of vulnerable, valuable intellectual property.

The FTC in early March voted unanimously to extend the public comment period on this proposed ban. The agency will now accept comments until April 19, and information on how to submit a comment can be found here.


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