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How companies can protect trade secrets without noncompete clauses

Meghan McCarty Carino Apr 25, 2024
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The Federal Trade Commission has given employees more freedom, but they are still bound by regulations on intellectual property. designer491 via Getty Images

How companies can protect trade secrets without noncompete clauses

Meghan McCarty Carino Apr 25, 2024
Heard on:
The Federal Trade Commission has given employees more freedom, but they are still bound by regulations on intellectual property. designer491 via Getty Images
HTML EMBED:
COPY

Well, that was fast. The U.S. Chamber of Commerce and other business groups are suing to block the ban on noncompete agreements that the Federal Trade Commission approved Tuesday. About 1 in 5 workers in the U.S. are bound by a noncompete clause, which typically means they can’t work for a competitor or start their own rival business for a period of time. Companies often argue that they need noncompetes to protect their trade secrets. But do they?

What does a world without noncompetes look like? California. The state basically banned them back in the 1800s, said Mark Lemley, a law professor at Stanford.

“You know, banning noncompetes doesn’t mean people are free to do whatever they want,” said Lemley.

For instance, an engineer who worked on self-driving cars at Google was found to have violated trade secret law by taking documents to launch a competing company that was then bought by Uber.

“California law says we can’t stop you from going to work for Uber, but we can absolutely stop you from taking the secrets with you,” said Lemley.

All states have some form of trade secret protection, and there’s been a federal law on the books since 2016. But to qualify as a trade secret, the information has to be valuable as well as secret, like the closely guarded blend of 11 herbs and spices in KFC’s fried chicken, said Doug Brayley, an employment attorney in Boston. 

“It’s not even something that every single employee has access to, right? It’s probably in some vault somewhere or it’s behind a bunch of passwords,” said Brayley.

For less tasty intellectual property, Brayley said companies can turn to other “nons” — nondisclosure and nonsolicitation agreements — which bar employees from taking confidential information, clients or staff members with them when they leave. 

“There’s still a lot of arrows in the quiver for employers that want to protect the real important things about their business,” said Tory Summey, an employment attorney in Charlotte, North Carolina.

Summey said he’s already advising clients to move away from noncompete agreements and toward policies that more directly address what employees can and can’t do with company secrets. 

That means more onboarding sessions, bigger employee handbooks and tighter security, cyber and physical.

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