On January 5, 2023, the Federal Trade Commission proposed a nationwide ban on most employment non-compete agreements. Less than a month later, on February 1, a bipartisan group of U.S. Senators reintroduced the “Workforce Mobility Act of 2023,” which would ban the use and enforcement of post-employment non-compete agreements across the country.
As efforts to enact a nationwide ban on non-compete agreements gain momentum in Washington D.C., your business’ ability to use state or federal trade secret laws to protect the proprietary information that keeps you competitive is more critical than ever.
The Legal Landscape is Changing for Non-Compete Agreements
State law currently governs non-compete agreements across the United States. The laws of the state where the business hires workers usually apply. They are sometimes a factor businesses consider when looking to expand operations into new states. For example, a business in Texas can currently use a non-compete agreement to prevent former employees from joining competing companies or starting a rival company nearby. Maryland and Oregon prohibit non-compete agreements among lower-paid workers. California and Oklahoma ban them entirely.
Recent federal proposals banning the use of most non-compete agreements across the United States raise questions about their future viability under state laws. As a result, your business should take the necessary steps to secure other legal protections for your trade secrets. The most obvious is to develop a comprehensive strategy to maximize the protections offered by state and federal trade secret laws. The federal Defense of Trade Secrets Act and the Uniform Trade Secrets Act, adopted in one form or another by most states, are among the best legal tools your business can use to protect your trade secrets.
Establishing & Enforcing a Culture of Trade Secret Protection
Federal and state trade secret laws provide trade secret owners with legal remedies to protect their trade secrets. The first step is to determine the information that qualifies as a trade secret. Not all of your business’ confidential information is a legally protected trade secret. For confidential information to be considered a trade secret, it must (1) have economic value from not being generally known or easily discoverable, and (2) must be subject to reasonable efforts to maintain its secrecy.
Developing a culture of trade secret protection is the best way to ensure you meet these requirements. It requires a comprehensive approach. Through written agreements, policies and procedures, information technology, and training, you can educate your employees on the types of information you consider a trade secret, the value of those trade secrets to your business, and the consequences of misusing your company’s trade secrets. By using passwords and other electronic and physical barriers to control access to your business’ trade secrets, you can reinforce and foster an environment where your employees are vigilant about protecting your business’ valuable information.
Strengthening Confidentiality and Non-Disclosure Agreements
The first step to developing this culture of protection is to re-examine and revise the written agreements between your business and the individuals that create, use, and receive your trade secrets. The two most common categories of these written agreements are confidentiality and nondisclosure.
A confidentiality agreement most commonly exists between employers and employees or independent contractors. It’s the foundation for establishing a strong trade secret culture within your company. Businesses that have employee non-compete agreements most likely already have confidentiality agreements. But faced with the possibility of a federal ban on non-compete agreements you should re-examine your existing confidentiality agreements to ensure they include the robust protections afforded by federal and state trade secret laws. Your form of confidentiality agreement should limit the disclosure of confidential business information to persons with a need to know. They should also clearly define what constitutes “confidential information” and what are your employees’ and contractors’ obligations to maintain secrecy.
Nondisclosure agreements (“NDA”) are another important tool to protect your trade secrets. While NDAs share some of the same purposes as confidentiality agreements, they are perhaps more commonly used to protect against the unauthorized disclosure of your trade secrets shared with other companies for specific business purposes. There are three basic approaches to defining “confidential information” covered by an NDA: (1) provide a general description, usually a list of categories of covered information; (2) provide a specific description, and (3) visibly mark or designate each item covered. The most effective NDAs are comprehensive and tailored to your business’ needs.
Implement Comprehensive Trade Secret Protection Policies & Procedures
The second step to develop a strong culture of trade secret protection is to carefully examine your business’ policies and procedures for handling, securing, and granting access to confidential business information. Your business should tailor your trade secret policies and procedures to your business’ needs, and to the technology used to access, create, use, and internally share trade secrets.
These policies should address issues such as (1) employee training on trade secret protection, (2) access controls to sensitive information, and (3) procedures for reporting potential trade secret breaches. Policies and training should ensure physical and electronic protections are in place. These policies should also identify permissible and impermissible access, use, and sharing of the information and media used to access and use it.
Specifically, policies concerning access to company-issued e-mail, physical or cloud-based servers, and documents should clearly outline ownership of the media and any messages transmitted or accessed. Policies relating to trade secret protection should also limit the content of statements made by or on behalf of the business on its web page, social media, or elsewhere. Be sure your policies include instructions and protections for whistle-blowers as well as guidance from recent opinions by the National Labor Relations Board (“NLRB”) on these types of issues.
Your company’s policies should limit access to your confidential business information via passwords, dual-authentication, and tiered access to the types of trade secrets that are particularly sensitive. Training your employees and contractors on how to protect and avoid inadvertent disclosure of passwords or other improper methods of electronic access should be part of your hiring process and all regularly scheduled training programs and performance reviews. Your policies and training should also include closing and opening procedures, use of security systems, and physical limits for customers and partners in common areas where confidential business information may be used or viewed.
Act Now to Protect Your Trade Secrets From Departing Employees & Contractors
With a possible nationwide ban on non-compete agreements looming, trade secret protection is increasingly vital to protect your business’ cutting edge technologies and future innovations. A two-step approach of first strengthening confidentiality and non-disclosure agreements, then implementing a tailored, comprehensive, industry-specific set of policies and training to ensure compliance with the applicable federal and state laws will help you create and foster the desired culture. In today’s ever-evolving legal and competitive business landscape, a disciplined methodical approach to trade secret protection is necessary to allow your business to safeguard confidential information and proprietary data, and maintain your competitive edge.
Finkel Law Group, with offices in San Francisco and Oakland, has assisted many companies develop and implement legal, technical and management programs to protect their trade secrets. The firm’s attorneys have extensive experience preparing non-disclosure, confidentiality and invention assignment agreements our clients use for their employees, and have begun developing provisions to comply with the new whistleblower requirements under federal law.
When you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with developing a program to protect your trade secrets and other forms of intellectual property, please contact us at (415) 252-9600, (510) 344-6601, or info@finkellawgroup.com to speak with one of our attorneys about your matter.