On April 23, 2024, the Federal Trade Commission issued a final rule to promote competition by banning non-compete agreements nationwide. The aim is to protect the freedom of workers to change jobs, increase innovation and foster new business formation, according to the FTC’s news release.
However, chemical companies often invest substantial resources in developing new products, refining manufacturing processes and establishing relationships with clients and suppliers. Non-compete agreements were designed to help safeguard these investments by preventing employees from using their insider knowledge to benefit competitors. What happens now?
Joseph Reisman, who holds a doctorate in chemistry and is a partner at intellectual property and technology law firm Knobbe Martens, told Chemical Processing via an email interview that the FTC’s final rule banning employee non-compete agreements will go into effect no sooner than 120 days after it is published in the Federal Register. It is likely that the FTC authority to promulgate this rule will be challenged in court, and those courts may delay the effect of the final rule while litigation is pending.
Reisman's practice involves patent prosecution and strategic counseling, and legal opinion work, chiefly for clients in the pharmaceutical, chemical and biotechnology industries.
To prepare for the future, Reisman suggests “employers who use non-compete clauses in an effort to protect trade secrets (such as manufacturing process details or customers/supplier lists) should review their existing employment agreements and consider adding provisions (or entering into new agreements with employees) to specifically define certain classes of trade secrets and to explicitly restrict employees’ ability to (i) disclose such trade secrets to future employers and (ii) use such trade secrets for the benefit of a future employer."
He notes that the FTC statement supporting its final rule banning non-complete agreements stated that “the technology industry is highly dependent on protecting trade secrets and that it has thrived in California despite the inability of employers to enforce non-competes, suggesting that employers have less restrictive alternatives for protecting trade secrets.”
Accordingly, employers should be able to rely on agreements narrowly tailored to protect trade secrets even if non-compete agreements are banned or otherwise deemed unenforceable.
