Intellectual property attorney says now is the time for businesses to review their non-competes to ensure protection of trade secrets and other business assets
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Troy, Mich.— July 16, 2021— Non-compete agreements have long been under fire, with some calling for the federal government to get involved—and now it has. The Biden administration recently ordered the Federal Trade Commission to crack down on the “unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Maxwell Goss, an IP attorney with Michigan-based Fishman Stewart, PLLC, identifies the key issues.
“In the words of Bob Dylan, this was a slow train coming,” Goss said. “The FTC will likely be proactive and scrutinize the uses and abuses of non-competes, putting new pro-worker policies into place.”
In the employment arena, a non-compete agreement prevents an employee who leaves one job from taking a competing job with another company in a certain territory for a specified period of time. Goss says part of the reason for the recent push for scrutiny is the fact that non-competes have been widely abused.
“The unfortunate reality is that non-competes have become an instrument by which certain employers bully employees into staying, harass them when they leave, and exert anticompetitive pressure on companies that dare to hire them,” Goss said.
Goss cites the example of Jimmy John’s, which notoriously had a policy of imposing non-competes on sandwich shop workers. The company abandoned this policy under pressure from state attorneys general. He points out that using non-competes with low-wage workers—who have little bargaining power and no real access to legal counsel—usually make little sense because these workers are traditionally not entrusted with high-value trade secrets.
Goss adds that many companies also impose non-competes that have few, if any, meaningful limitations.
“In every jurisdiction that allows them, non-competes must be reasonably limited in time, territory, and scope of work; yet, I routinely see non-compete clauses that are too broad,” Goss said. “Sure, these are unenforceable as written, but employees do not know what the enforceable limits are, and it may take costly litigation to find out.”
From a business standpoint, Goss maintains non-competes are a valid and vital tool in many industries, especially those in the tech sector, to protect trade secrets and other business interests.
“Non-competes are an efficient, proven way to protect trade secrets and other business interests. Implementing well-crafted non-compete agreements—as well as sound policies for enforcing them—can protect legitimate business interests by imposing reasonable limitations when an employee departs,” he said.
Goss questions whether federal involvement goes too far—and may not be the best solution – given that non-compete abuse is already being addressed by the states, including Illinois, Massachusetts, Oregon and Virginia—which in recent years have enacted substantial changes to their non-compete laws. Other states have bills on the table, and in nearly each case, the changes add greater protections for workers.
While it remains to be seen what the FTC will do, Goss notes that the President’s executive order does not impose any new rules by itself; rather, it directs the FTC to exercise its rule-making authority to “curtail” the unfair use of non-compete agreements.
“A sweeping ban on employee non-competes like they have in California seems unlikely,” Goss said. “The executive order itself contains hints that a sweeping ban is not intended.”
However, Goss recommends that businesses give prompt attention to reviewing and updating, if necessary, their non-competes.
“Make no mistake, now is the time to implement smart agreements and policies to ensure these tools serve their purpose in protecting trade secrets and other assets in the face of the changing legal landscape.”
About Fishman Stewart PLLC
Celebrating a quarter century in 2021, Fishman Stewart helps turn client creativity into valuable intellectual capital. Since 1996, the firm has obtained tens of thousands of patents and trademarks and represented clients in hundreds of cases in Federal Court. As strategic advisers to CEOs and senior executives, Fishman Stewart attorneys have developed IP management strategies for U.S. and foreign-based companies, from middle market to Fortune 500, to safeguard their business assets throughout the world. To discover how Fishman Stewart leverages intellectual property to effectively protect new product lines, increase market share and head off the competition, visit fishstewip.com.
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