Non-Compete Clauses May Become Illegal: Is There A Workaround?

by | Apr 24, 2023 | Business Agreements, Law and Business, LinkedIn Newsletter

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.

Click here to schedule time with us to strategize on best practices to best protect your IP and business assets from potential employee or partner misuse.

Find more information on how to protect your business in my LinkedIn Newsletter.


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