From Lexology, Kate Vescera provides advice on how employers can protect themselves without non-compete agreements by using confidentiality agreements and non-solicitation agreements in light of the Federal Trade Commission’s proposal to prohibit non-compete agreements with most workers, including independent contractors. Kate writes:
Employers Should Have Strong Confidentiality Agreements
In the absence of the ability to enforce non-compete agreements, companies should make sure that they have strong confidentiality agreements and non-solicitation agreements with employees. The main concern for most employers is that employees will take the employer’s valuable confidential information with them and use it to compete with the employer if the employee goes to work for a competitor. If employers feel confident that employees will not use the company’s trade secrets or other confidential information, they likely will not feel as strongly about former employees working for a competitor. Therefore, the key to protecting a company without non-compete agreements is to make sure that employees are not using the company’s confidential information and trade secrets against it.
Confidentiality agreements should clearly define what types of information constitute the employer’s confidential information and clearly state the employee’s obligations with regard to protecting this information and not using it for the benefit of anyone other than the employer. If an employer has strong confidentiality agreements in place, it will generally accomplish the main goal of a non-compete agreement: preventing employees from using a company’s confidential information against it. However, confidentiality agreements can be somewhat more difficult to enforce than non-compete agreements, since it is generally easy to prove that an employee is working for a competitor, but harder to prove that an employee is using a former employer’s information unless the use is obvious. Despite the possible difficulty of proving a violation of a confidentiality agreement, they still help to deter employees from using a former employer’s confidential information and can also deter an employee’s new employer from using confidential information that an employee might bring with them since the new employers often want to avoid getting entangled in litigation.
Please note that the FTC Rule does specify that the definition of a non-compete agreement includes “a contractual term that is a de facto non-compete clause because it has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer” such as “[a] non-disclosure agreement between an employer and a worker that is written so broadly that it effectively precludes the worker from working in the same field after the conclusion of the worker’s employment with the employer.” Therefore, it is important that confidentiality agreements be written to prevent a former employee from using an employer’s legitimate confidential information, but not to be so broad that they would effectively prevent the former employee from being able to work in the field.
Employers Should Also Have Strong Non-Solicitation Agreements
Another concern that employers often have which they may try to alleviate through a non-compete agreement is that a former employee will attempt to take clients and/or other employees with them if they go to work for a competitor. This can be dealt with through a non-solicitation agreement rather than a non-compete agreement. A non-solicitation agreement essentially says that if an employee leaves a company, they agree not to solicit business from a client or customer of the company and/or not to solicit an employee to leave employment with the company. Non-solicitation agreements generally cannot prevent an employee from informing clients, customers, or other employees that they are going to work for a different company, but can restrict employees from actively asking clients, customers, or other employees to come with them. As to other employees, a former employee can generally not be prevented from publicly listing a job opening but can be prevented from specifically asking a former colleague to come with them to their new employer. Therefore, non-solicitation agreements can also accomplish one of the important goals of a non-compete agreement.
Read the full story at How Employers Can Protect Themselves Without Non-Compete Agreements – Lexology