April 30, 2024

Munger, Tolles & Olson Partner Carolyn Luedtke Quoted in IAM Trade Secrets Article Discussing the FTC’s Recent Ban on Noncompete Agreements in Employee Contracts

Munger, Tolles & Olson partner Carolyn Hoecker Luedtke was quoted in IAM Trade Secrets’ recent article titled “US FTC votes through noncompete clause ban spelling uncertainty for trade secret strategy.” The article discusses how the Federal Trade Commission (FTC)’s recent vote to prohibit certain noncompete employment agreements will affect employers, trade secret IP owners and employees nationwide. It acknowledges the FTC rule is being challenged in litigation and there is considerable uncertainty going forward for what this recent vote will mean for employers.

While the FTC says that it expects the new prohibition on noncompete agreements will increase employee earnings, business creation and patenting activity, others in the industry disagree about the impact of the rule. There is agreement that the new rule and the litigation challenging it creates uncertainty for companies operating in industries with confidential information who previously have relied on noncompetes as one tool to protect their confidential information, according to the article. Company owners and IP teams, now facing a possible future without noncompetes, will need to evaluate what changes, if any, are needed for employee contracts and trade secret protection strategies.

For example, the new rule includes a provision requiring that non-executive employees be notified that noncompetes within existing contracts are no longer enforceable. For senior executives, the new rule requires notice be delivered individually, Ms. Luedtke explained. She suggested that “it would make sense for employers with noncompetes to start to prepare a list of [which] senior executives are subject to a noncompete and gather information to provide that notice if and when the rule does go into effect.”

Ms. Luedtke also recommended that employers “may also wish to think about how to further buttress and strengthen their protections outside of a noncompete, such as robust outboarding for employees leaving for competitors to ensure that they are not taking confidential or trade secret information with them, and increased training for employees on the importance of respecting confidential and trade secret information during and after their employment.”

Read the full IAM Trade Secrets article. (Subscription may be required)