Is the FTC Going to Ban Non-Compete Agreements?

Is the FTC Going to Ban Non-Compete Agreements?

In April of this year, the FTC will vote on whether to ban non-competition provisions in employment contracts. According to the US Government Office of Accountability, 20% of workers in the US are bound by non-compete agreements, and 98% of employers require signing one for their executives and managers as a condition to employment. If non-competes are banned, companies that depend on non-competes to protect client relationships will have to find alternatives.

In such an environment protecting trade secrets becomes crucial. Valuable proprietary information, such as customer lists, unreleased product information, unique processes and methods, and pricing information, can be protected as trade secrets. Additionally, as has been seen in California, where non-competes are already highly restricted, there is likely to be an increase in patent applications.

Some companies are likely to use internal secrecy to prevent their employees from leaving and taking valuable knowledge to a competitor. This may include splitting information about innovation efforts across different research and development labs and researchers, ensuring only a few understand how the pieces fit together.

While such a ban may create headaches and stress for employers, it’s likely a win for employees. According research from Duke and Ohio State, as a result of the increased use and enforcement of non-competes, between 1991 and 2014 wages decreased significantly. Conversely, another study indicated that wages in some industries could rise by as much as 14% as a direct result of the ban.

When non-competes are banned, skilled and talented workers become more mobile. Thus, companies that can attract and ensure the loyalty of top personnel from competitors (that would have otherwise been NCA-bound) have an advantage in the talent war.

If the FTC does ban non-competes, it will almost certainly be challenged in court. Whether it is ultimately held up or stricken down, companies should consider take steps to protect trade secrets, acquire, train, and develop talent, and establish healthy corporate cultures.

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