Non-Compete Agreement: How employers can protect their business without one?

The Federal Trade Commission (FTC) has proposed a rule to ban the use of non-compete clause. It FTC’s opinion that non-compete is “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.”

Having read this news, our Philadelphia, Bucks County, and Montgomery county clients and employers are asking “how can I best protect my business without a non-compete clause?”

FTC’s Proposed New Rule

The rule proposed by the FTC makes it illegal for an employer to:

1. enter/attempt to enter or maintain a non-compete agreement with a worker or
2. represent to a worker that the worker is subject to a non-compete agreement.

Although the rule has not yet been approved or implemented, small business owners should think about how it might affect their company and employees if it is ultimately approved.

The proposed FTC non-compete ban would apply to non-compete agreements in Pennsylvania for independent contractors and employees. Further, the rule would also require that the employer rescind all existing non-compete agreements and actively inform the workers that the non-compete is no longer in effect.

Purpose of Non-Compete Agreements.

In our blog post on non-compete agreements, we explained that the purpose of the non-compete clause is to ensure that an employee does not learn the secret inner workings of the business only to use that information to compete with the company. However, without a non-compete, there are other mechanisms by which an employer can protect themselves, such as a non-solicitation agreement, a confidentiality clause, and other protections typically provided to trade secrets and non-public company information.

Ways to Protect Employers Without Non-Compete Agreements.

Without a non-compete agreement, an employer can implement the following restrictions on an employee to protect their revenue sources and intellectual property:

1. Non-Solicitation Agreements: A non-solicitation clause is an agreement in which the employee agrees not to solicit business from the employer’s clients, prospective clients, or employees for a certain period of time after the termination of employment. The non-solicitation agreement should be carefully drafted to ensure that it is enforceable in the jurisdiction where the employer plans to enforce the agreement.
2. Confidentiality / Non-Disclosure Agreements: According to the FTC, the proposed rule will not apply to non-disclosure agreements. Confidentiality agreements, or non-disclosure agreements prohibit an employee from disclosing to third parties any information they learn during their employment or using any such non-public information for their own (or someone else’s) benefit. To obtain the best level of protection, employers should carefully define confidential information to include any proprietary information and trade secrets relevant to their business.
3. Trade Secret Protection: The Uniform Trade Secrets Act defines a “trade secret” as any information that includes a formula, pattern, compilation, program, device, method, technique, or process that derives independent economic value from not being generally known and not being readily ascertainable to other persons who can obtain economic value from its disclosure; and there is reasonable effort maintain its secrecy. A company should be careful to protect its trade secrets by implementing strict access control, encryption, multi-factor authentication, or any other security protocol to protect access to non-public information.
4. Intellectual Property Assignment: An employer can also agree with the employee that all work performed by the employee is “work for hire” and any intellectual property developed or created during the course of the employee’s employment belongs to the company. This adds a layer of protection to employees
5. Non- Disparagement Clause: A non-disparagement clause in an employment contract will prohibit employees from making negative statements about the company. Sometimes this can also be used to protect non-public or trade secret information.

Contact Kaminsky Law.

Because the laws and regulations on non-competition are constantly changing small businesses should consult with an attorney that regularly litigates and enforces non-compete agreements in their state. At Kaminsky Law we have a wide range of experience with non-compete clauses and non-compete agreements. We have drafted and enforced non-competes for our small business clients. Our lawyers have also helped employees get out of overly restrictive non compete agreements.

At Kaminsky Law, we have the experience with employer and employee issues to help you navigate Pennsylvania’s non-compete and employment law. Moreover, Kaminsky Law can also help you with any other legal business issues like business disputes, litigation, and real estate.

Contact Kaminsky Law for a free consultation today at 215-876-0800 or fill out a contact form here!