Leveraging Inspiration: The Inspired Patent Podcast

S1 E3 New FTC Rule on Non-Compete Agreements: How to Prepare Whether or Not the Rule Goes into Effect

In this episode of Leveraging Inspiration, Wayne Carroll discusses the upcoming FTC rule banning non-compete agreements scheduled to go into effect on September 4, 2024. He provides crucial information for employers on how to adapt, including alternative protective measures to consider.

Welcome to leveraging inspiration, inspired patent podcast. Where we help you leverage your inspiration, this is Wayne Carroll, the host, and today we are talking about trade secrets specifically the Federal Trade Commission rule that has a date to go into effect on September 4th, 2024. This rule will affect every business with employees in the United States if it goes into effect.

The Federal Trade Commission has been studying non-compete agreements. It has determined that businesses don't need them to protect their rights sufficiently and that, on the other hand, it hurts employees and reduces competition in the marketplace and innovation. Generally, the FTC believes that non-compete agreements stifle innovation because employees with skills they can take to new employers and bring more innovation cannot do so due to these agreements.

If the rule goes into effect, it will make it illegal for an employer to ask an employee to sign a non-compete agreement or make any indication that a non-compete agreement they have entered into prior can or will be enforced. Employers will need to notify all employees directly by sending them a piece of paper, text, or an email stating that they will not enforce the non-compete agreements signed. There's a minor carve-out for executives who are in a policy-making decision and a company making substantially more than $100,000 over the past year. These existing non-compete agreements can be enforced because the FTC considers it likely that executives in those positions actually negotiated their non-compete agreement as part of their compensation.

Here's where companies need to double down on their non-disclosure agreements and trade secret agreements and programs. The FTC specifically carves out and talks about how these are different than non-compete agreements and therefore they're not going to be part of a non-compete agreement. Employers should focus on ensuring their trade secret policies and non-disclosure agreements are robust and clearly defined to protect confidential information.

Employers need to know about this rule and get into it a little bit. It's recommended that employers update their employee agreements, employee manuals, and handbooks. If you're going to keep the non-compete portions in case this does not go into effect, one recommendation is to separate them so it's easier to remove if this rule does go into effect. Also, companies should take a closer look at what constitutes their trade secrets and ensure that any confidential information is secured both physically and electronically.

There are court cases that we are expecting may impose an injunction across the United States against the FTC from enforcing this rule until the cases are over. If a preliminary injunction is issued, we will need to wait and watch those court cases. In one case so far, the federal court has not issued a nationwide injunction but just an injunction against the FTC from enforcing the rule against the defendants in that case.

Thank you for listening. That's the update and the trade secret information for the new FTC non-compete rule. I'm Wayne Carroll, and this is leveraging inspiration.

Wayne can be reached at 480-741-2440 or [email protected]. You can also connect with Wayne on LinkedIn.

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