Trade Secrets, Confidentiality Agreements and Non-Competition Agreements

Here’s What Happened:

On April 23, 2024, the Federal Trade Commission (FTC) issued a new rule banning non-compete agreements in the United States for most American workers. Finding that non-compete agreements unfairly interfere with competition (and therefore violate Section 5 of the Federal Trade Commission Act) the FTC has ruled that no new non-compete agreements may be entered into after the effective date of the new rule. Non-compete agreements entered into before the final rule’s effective date are non-enforceable with the exception of agreements with “senior executives.” If the rule goes unchallenged, it is set to become effective in 120 days or October 8, 2024.

The rule has some exemptions such as existing non-competes with senior executives who earn more than $154,164 and are in a policy-making positions and non-competes included in the sale of a business will be exempt.

Lawsuits challenging the rule have already been filed.

However, there are unanswered questions. What about non-competes that are really trade secret protection agreements? Or non-competes that are really designed to protect confidential information?

A trade secret is information that derives economic value from being disclosed to the public or an industry. A business has a vested interest in protecting classic trade secrets that are not generally known and protected from disclosure such as a customer list, systems, or legacy technology. An employee or independent contractor can be exposed to a valuable trade secret during employment and take it with them when they leave.

Confidential information can also be at risk. Confidential information is distinguishable from trade secrets in many ways. Confidential information may be generally known but the business keeps it confidential for a period of time. For example, financial information that does not rise to the level of a trade secret but is valuable information for the business that might go stale after a certain period time.

WHY YOU SHOULD KNOW THIS: With the potential elimination of non-competition clauses, employment agreements should be carefully examined to insure that trade secrets and confidential information remain protected. A trade secret protection or confidentiality term should be properly labeled in the agreement.

If you are concerned about the status of your current employment agreements, seek the advice of an employment law attorney.

Case Information:  None