There are a million reasons why entrepreneurial businesses do not want a former employee to turn around and compete with them. But courts have never really liked non-competes and have traditionally limited the ability of the employer to enforce them. For example, by limiting geographic territory, enforcing only C-level employees, and placing temporal limitations. Now the Federal Trade Commission (“FTC”) is proposing to outlaw non-competes altogether. And, the chances are, non-competes will become completely unenforceable.
Before examining the proposed FTC ban, it’s important to understand what constitutes a non-compete. A non-compete typically applies some type of restriction on workers from leaving a company and working for a competitor. Or an employee from starting a competing business. Formally the FTC defines a non-compete as; “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”
Of course, I advise my clients to take any prophylactic steps that protect their business interests and prevent employees from taking valuable knowledge and expertise to a direct competitor. However, with the potential implications of the FTC’s proposed ban, I am beginning to rethink non-competes. Instead, I recommend creative alternatives such as the use of carefully crafted confidentiality and trade secret provisions in employment agreements and/or handbooks to stand in place of non-compete agreements.
Regardless, if you have key employees, now would be a critical time to review your policies to protect your intellectual property and your business interests against competitive threats without having a non-compete clause. Like almost everything else in my field, the facts and law control the approach, and it is not a one-size-fits-all decision.
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