The Federal Trade Commission proposed a new rule at the start of the New Year that would ban noncompete clauses, claiming the clauses lower wages and “harm competition.” This comes six months after President Joe Biden issued an executive order recommending that the FTC do exactly that. The proposed ban would not only ban noncompete clauses moving forward but also nullify any noncompete clauses that are currently in effect.
Businesses use noncompete clauses for a plethora of reasons, including not just limiting competition but also protecting their own trade secrets and best practices. The government may be thinking of banning these clauses across the board, but there are other ways businesses can limit competition and protect themselves from departing employees.
Protect Company Info Through Confidentiality
Eliminating noncompete clauses does not mean your business needs to willingly let vital company information walk out the door with departing employees. Whether it is under current conditions or after this new rule is in effect (if it is adopted), you should still be making an effort to keep certain details in-house through the use of confidentiality agreements and restrictive covenants.
Confidentiality agreements for employees are common and expose former employees to significant liability should they violate their agreement by taking covered information or practices to their new employers. You should immediately consider adopting confidentiality agreements (if you have not already done so) as they pertain to some or all of the following company details:
- Internal processes
- Customer lists
- Financial information (both internal and external)
- Marketing techniques
- Employee or customer data
These and other business practices, processes, and information vital to the success of your company should be covered under strict and specific confidentiality agreements. Ensuring the accuracy and legality of these agreements will be important to protect your business in the event that a former employee violates the agreement. This also provides you with a means to eliminate or reduce competition without the use of a noncompete clause. On top of these agreements, consider marking any confidential information as such to avoid any confusion.
Evaluate Employee Compensation and Benefits Packages
FTC officials believe a noncompete clause “suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses,” and believe the new change would increase overall wages by nearly $300 billion per year. This exposes a potential bidding war to come for companies hoping to poach hard-working employees from competing companies and industries.
This will make employee retention even more of a priority. Business owners in industries of high competition will be forced to reevaluate their own compensation packages for employees and executives to ensure the sudden dissolution of standing noncompete clauses does not disrupt their place on the market.
The team at The Law Offices of Tyler Q. Dahl helps business owners through the formation, growth, and succession stages of their business. Noncompete clauses may soon be eliminated, but this does not mean your business cannot make effective use of other avenues available through the law to protect itself from unfair competition. Contact us and make sure your business is legally equipped to handle these potential changes.
Dahl Law Group
Latest posts by Dahl Law Group (see all)
- How are California Law Corporations Taxed? - December 19, 2024
