Life After The FTC Ban: Alternatives To Non-Competes | Hendershot Cowart P.C.
The FTC’s proposed ban on non-compete agreements is still making its way through the legal system, but businesses are already looking for alternatives to protect their interests.
Keep in mind that it is not necessarily the employee you want to prevent from joining a competitor – although the loss of a good employee is always a hit – rather, it’s the trade secret you want to keep safe.
Here are some alternatives to non-compete agreements that help you do just that:
Stronger Trade Secret Protections
There are state and federal laws in place to protect your trade secrets.
In Texas, the Texas Uniform Trade Secrets Act, or TUTSA, protects “all forms and types of information, including business, scientific, technical, economic, or engineering information, and any formula, design, prototype, pattern, plan, compilation, program device, program, code, device, method, technique, process, procedure, financial data, or list of actual or potential customers or suppliers, whether tangible or intangible and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if:
- the owner of the trade secret has taken reasonable measures under the circumstances to keep the information secret; and
- the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”
At the federal level, trade secrets are protected by the Defend Trade Secrets Act (DTSA). The federal law does not preempt TUTSA, but it gives companies the option of filing suit in federal court, especially in matters involving interstate commerce or employment arrangements that cross state lines.
TUTSA and DTSA give you a cause to bring a lawsuit if a trade secret is “misappropriated.” In other words, you have a legal claim if a trade secret is acquired or disclosed as a result of:
- “Theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and
- Does not include reverse engineering, independent derivation, or any other lawful means of acquisition.”
How do you take advantage of the protections of TUTSA or DTSA?
To enforce each of the acts, you do have to file a lawsuit – either in state or federal court – seeking an injunction and damages. You must also take reasonable measures to keep the information secret.
What are reasonable measures? Here are a few examples:
- Store physical information securely, i.e., requiring security badges to access file rooms.
- Store digital information securely, i.e., saving to a password-protected server.
- Take care with transmitting or sharing information electronically. If you use Zoom or other web conferencing applications, require passwords for participants and take other precautions.
- Label information as “proprietary and confidential”.
- Establish trademarks and copyrights.
- Proactively defend your trade secrets should they be misappropriated.
By strengthening your trade secret protection, you will be better positioned to ask the courts for injunctive relief and sue for damages if someone misuses confidential information.
Confidentiality Or Non-Disclosure Agreements
Confidentiality agreements, also known as non-disclosure agreements (NDAs), can be used to safeguard confidential business information, such as trade secrets, customer lists, or unique processes.
By clearly defining what constitutes a trade secret and outlining employee limitations regarding its use or disclosure, businesses can discourage employees from taking this information to competitors.
Non-Solicitation Agreements
Non-solicitation agreements focus on restricting an employee from soliciting the employer’s clients or employees after their employment ends.
Unlike non-compete clauses that prevent working for a competitor altogether, non-solicitation agreements aim to protect specific business relationships.
Golden Parachutes And Severance Packages
Offering attractive financial incentives for departing employees can discourage them from immediately joining a competitor.
These packages might include a signing bonus, continuation of benefits, or salary continuation for a set period.
Are You Prepared For An FTC Ban On Non-Competes?
Even if you have some or all of these protections in place, now is the time to revisit them.
A business attorney can review your existing agreements to confirm that they are enforceable should the FTC ban go into effect. An attorney can also revise partnership and shareholder agreements to take full advantage of the ban’s exemptions. Finally, your business attorney should review current policies and practices to make sure you are taking reasonable measures to enjoy the full protection of state and federal trade secret law.
