A few days ago, I posted a long article on President-elect Biden’s proposed national partial ban of noncompetes and what to do about it: President Biden’s Proposed Ban of (Most) Noncompetes: Protection Strategies and Steps to Take Now.
TL;DR? This one’s for you.
President-elect Biden announced that he plans to “eliminate all non-compete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets, and outright ban all no-poaching agreements.”
What’s the problem?
There are a host of issues with the President-elect’s announcement, including the following:
- It’s too vague to know (at this point) where the drawing lines will be.
- It’s based on nascent research that identifies only correlation (not causation) between the use of noncompetes and certain effects on workers.
- It ignores that the research includes seemingly inconsistent results (showing, for example, that while low-wage workers may be adversely impacted by noncompetes, others benefit from them).
- It ignores that the report on which the announcement relies is based in part on research informed by employee-reported data, even though the report acknowledges that employees may be inaccurate reporters of that research.
- It would eliminate the known benefits of noncompetes, such as protecting trade secrets and customer goodwill; increased training; increased innovation; better employee-employer matching; 9.7% higher wages and increased job satisfaction when employees are provided a noncompete before accepting the job offer; fewer, but better, start-ups; greater worker productivity; and less risky behavior by some employees. And, it simultaneously ignores the unstudied potential benefits of noncompetes
- It ignores any unintended, unstudied consequences of a ban, including the impacts on small companies that have limited resources to protect themselves from larger competitors who hire their employees to unfairly compete with them.
- It ignores another part of the equation entirely: the impact on the remaining employees, whose interests are aligned with the company, its survival, and its success.
- It would undermine the Defend Trade Secrets Act, which was enacted because trade secrets needed greater protection – even when noncompetes are an available tool.
What to do about it?
There are three steps to take now.
First, evaluate the need (and appropriate language) for nondisclosure agreements, nonsolicitation agreements (as well as noninterference and no-service agreements), no-recruit / no-raid agreements (as well as no-hire agreements), garden leave or notice covenants, forfeiture-for-competition agreements, compensation-for-competition agreements, and invention assignment agreements. And, consider including springing or “time-out” noncompete language.
The relative enforceability (i.e., how likely a court is to enforce the particular agreement) and strength of protection offered by these agreements are plotted (roughly) on the graph below, with greater relative protections higher and greater relative enforceability farther to the left.
All of these tools – including recent developments that affect them – are explained in the longer version of this post.
Second, supplement any agreements with appropriate policies, including in particular, policies governing the proper use of company owned equipment and technology and personal devices (BYOD policies), trade secrets and confidential business information policies, and codes of conduct.
Third, protecting legitimate business interests comes down to training – starting before a new employee walks in the door, continuing during the employment cycle, and repeating at the end (where it starts for the new employer). Training is critical to preventing information from entering the company and contaminating the company’s existing information and research, as well as to making sure the company’s information isn’t taken from the company.
To help train employees about how to avoid these missteps, we have created some short “Ten Minute Training”TM videos for each of those scenarios. (Our trade secret training video for remote workers — Protecting Trade Secrets – Working at Home — is free and just requires registration; our other training videos, including for employees transitioning from one company to another, are available for free for our clients and can be licensed by other companies.) Please feel free to contact us if you would like access.
Now is the time to review and update your overall legitimate business interest protection strategy to the extent it would be impacted by a fundamental shift in noncompete enforcement. That includes (1) your restrictive covenants and similar agreements, to ensure that they are sufficiently protective without going too far; (2) applicable policies and codes of conduct; and (3) your training program for preventing the infiltration and exfiltration of your information and goodwill (contact us if you want any of the training videos).
Taking these steps should help to both reduce the need for enforcement actions and increase the likelihood of success if and when you do need to enforce your rights or defend your conduct.