Category Archives: Trade Secrets

(Out of date) Noncompete Agreements Banned as of September 4

Forms and Policies, Hiring, Noncompete, Termination, Trade Secrets, , ,

Update: Almost immediately after this post went live on August 20, 2024, a federal judge in Texas issued a nationwide injunction striking down the FTC’s noncompete ban. So much for my effots to try to help employers get into compliance before the deadline! So the FTC’s ban on noncompetes is blocked for the foreseeable future. As an employer, you don’t have to send the notices mentioned below. For now, you can still enforce a current noncompetition agreement against a former employee who takes a job with a competitor or sets up a business that competes with yours. However, it would be wise to consider other ways to protect your business’s trade secrets and work product because noncompetes will continue to remain controversial and the subject of a lot of expensive litigation in the future.

As I warned you in June, earlier this year, the Federal Trade Commission issued a rule banning employee noncompete agreements. The noncompete ban goes into effect on Wednesday, September 4, 2024. Despite many pending lawsuits, no nationwide injunction has been entered yet that protects employers from this ban. So now is the time to get into compliance.

What Agreements are Banned?

The noncompete ban prohibits employers from offering or requiring employees to sign any new employment agreement on or after September 4 that restricts the employee from competing with the employer when employment ends. In addition, the FTC rule prohibits employers from enforcing noncompete agreements that are already in effect.

The FTC final rule defines a non-compete clause as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from” seeking or accepting employment or operating a business after the conclusion of the worker’s employment.

You are allowed to require your current employees to be loyal to their employer and not compete while still working for your company. But that duty of loyalty can be explained in a policy in the handbook, rather than in an agreement that requires additional legal consideration (usually monetary) and agreement of both parties.

There is one notable exception to the FTC noncompete ban. As an employer, you cannot enter into a new noncompete with a “senior executive” beginning on September 4, 2024. But existing noncompetes with senior executives can be enforced after the deadline. The FTC’s final rule defines “senior executive” as a worker who (1) earns more than $151,164 per year, and (2) is in a “policy-making position.”

Send Required Notice to Former Employees by September 4

Perhaps the most urgent part of the FTC rule is the required notice regarding the noncompete ban that you as an employer must send out. Before September 4, employers are required to send out a notice to anyone who has previously signed a noncompete that is now unenforceable (former employees) to let them know that the agreement is unenforceable.

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Deadlines Quickly Approaching for Major Employment Law Changes

Compensation, Discrimination, Employee Rights, Trade Secrets, , , , , ,

Employers should be preparing for several significant payroll and policy deadlines this summer that are required by new federal employment rules and regulations:

  1. Salaried employees must make a minimum salary of $43,888 annually beginning Monday, July 1, 2024. On January 1, 2025, that annual salary minimum threshold increases to $58,656. Only 10% of that annual salary can be paid in nondiscretionary bonuses or commissions.
  2. Noncompete clauses in almost all employment and severance contracts are scheduled to be banned on the deadline of September 4, 2024.
  3. Pregnant workers and women giving or returning from childbirth have to be reasonably accommodated, including being given individualized maternity leaves, under the broad final regulations as of a deadline last week (June 18, 2024).

Salary Minimum Increases

Employers cannot legally just pay employees on salary because it is convenient for the employer or the employee. Under the Fair Labor Standards Act, which applies to virtually all businesses, employees must receive hourly pay and overtime pay unless (1) the duties performed by that employee fit into one of the narrow white-collar exemptions; and (2) that employee also makes at least the amount required by the FLSA salary minimum threshold.

Since 2019, that salary minimum threshold has been $35,568 annually. But the regulations have been amended so that salaried employees must make at least $43,888 beginning next week. While court cases have been filed to try to stop this change from taking effect, no court has entered an injunction yet. That means that companies are out of time to resist this change. Therefore, as an employer, you need to double-check that your salaried employees are earning enough ($844 per week) to meet this salary minimum as of next Monday.

While you are at it, double-check whether your salaried employees are also actually performing the duties that allow you to pay them as an executive, a professional, an administrator, a computer specialist or outside salesperson (outside salespeople don’t have to meet the salary minimum but do have a duties test). If the employee doesn’t meet the duties test for their position to be exempt, you cannot pay that person on salary even if the employee is paid the salary minimum threshold amount.

Noncompete Contracts Ban

In April 2024, the Federal Trade Commission finalized a rule banning almost all employers (banks, credit unions, nonprofits and airlines excepted) from entering into, enforcing or attempting to enforce noncompetition clauses with employees. The rule goes into effect on September 4, 2024.

The FTC says that noncompete agreements suppress wages and block workers from pursuing better jobs. Employers like noncompetes because they prevent competitors from poaching talent and protects trade secrets and client relationships. But the FTC is siding with the free market and employees who want the opportunity to take their talents anywhere they please.

In addition to banning employers from entering into new noncompete agreements with employees, from enforcing noncompete agreements signed in the past, and from threatening to enforce existing noncompetes against departing employees, the new rule also requires employers to send out notices (FTC provided a model notice) by the deadline to current and former employees telling them that their noncompetition agreements are no longer in effect and won’t be enforced.

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Four Steps to Protect Your Company’s Secrets When Employees Leave

Documentation, Forms and Policies, Hiring, Termination, Trade Secrets, Training, , , , ,

What can you do to protect your company secrets when Angela, your vice-president of sales, announces she is leaving your company and going to work for your competitor? Is there a way to keep Angela from telling her new employer all about your customers’ preferences, your company’s proprietary pricing, or the new business line you are exploring?

Truthfully, the day Angela announces her resignation is way too late to adequately protect your company’s most important secrets. Your efforts to safeguard your formulas, recipes, passwords, marketing plans, customer lists or other information you would like to keep confidential should have started before Angela was even hired.

There is no time like the present to begin taking at least four concrete actions if you value your business secrets:

  1. Physically protect your confidential information. Remember the urban myths that the secret recipe for KFC chicken or the formula for Coca-Cola were locked in a safe somewhere in company headquarters? According to Fox News, those are actual precautions taken by these companies. “The recipe [for Coca-Cola] lies in a vault in a downtown Atlanta SunTrust Bank vault and only two executives at a time have access to it.” As for KFC: “’Colonel Harlan Sanders’ Original Recipe eleven herbs and spices are inscribed in pencil on a yellowed piece of paper inside a Louisville, Kentucky safe’, says KFC spokesman Rick Maynard. ‘The safe lies inside a state-of-the-art vault that is surrounded by motion detectors, cameras and guards.’” Corporate espionage and theft of trade secrets is big business these days. These two food companies are serious about safeguarding their trade secrets. Are you as careful with yours?
    1. Do you at least have good password procedures, firewalls and cyberthreat protection, files marked “confidential”, inventories of your laptops and other equipment, and limitations on which employees have access to the keys to your business kingdom?
    2. Do you teach your new employees what information is confidential, how to protect it, remind employees frequently about their confidentiality obligations, and take immediate action if there is any breach in confidentiality?
    3. Do you prevent employees from downloading company documents onto flash drives or leaving the premises with your files?
    4. If you don’t take serious measures to protect your trade secrets, you really shouldn’t expect your current or departing employees to care either. Plus, the new Texas Uniform Trade Secrets Act doesn’t even recognize information as a trade secret unless the owner can demonstrate that the business has taken reasonable measures to keep the information secret. So without active measures to protect the secrecy of your proprietary information, you are helpless in the courts when your secrets are stolen.

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