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FTC Rule and Trade Secrets

FTC’s Noncompete Ban Unleashes Chaos: Trade Secret Law Fills the Gap and Mediation Emerges as the Surprising Savior

As the Federal Trade Commission (FTC) ban on noncompetition agreements is set to go into effect in August 2024, businesses are turning to other avenues to protect their goodwill and their business interests while balancing employee rights:  trade secret laws and agreements.  Litigation of noncompetition agreements might go away for those who are not former owners or senior executives due to the ban, but the underlying issues will still find themselves in litigation.  Mediation is the key to resolving these disputes.

The Defend Trade Secrets Act and the Texas Uniform Trade Secrets Act will be increasingly used by employers as employees, (except those at senior levels of pay, control and ownership), who will not be bound to noncompete agreements.  

The FTC’s move was arguably aimed to promote fair competition and worker mobility.  However, as businesses seek to protect their interests and maintain a competitive edge, they will increasingly rely on trade secret agreements and laws as an alternative to noncompetition clauses.  In this evolving landscape, mediation can play a crucial role in resolving disputes and finding balance between competing interests.

Noncompetition agreements have long been a contentious issue in the business world.  These agreements restrict employees from working for a competitor or starting a competing business for a specified period in a particular geographic market area after leaving their current employer.  Proponents argue that non-competes protect businesses from unfair competition and the loss of valuable trade secrets, while critics contend that they are often overbroad, stifle innovation, limit worker mobility, and depress wages.

Whether the ban is ultimately upheld, businesses will increasingly look for alternative ways to safeguard their confidential information and competitive advantages.  This is where trade secret agreements and laws come into play. 

Trade secrets are a form of intellectual property that encompass confidential business information, such as customer lists, manufacturing processes, and proprietary formulas.  Trade secrets are not registered with the government but are instead protected through a combination of legal and practical measures – often decided through protracted litigation.  

Trade secret agreements require employees to maintain the confidentiality of trade secrets both during and after their employment.  Violations of these agreements can result in legal action, including injunctions and monetary damages.

Moreover, businesses will also rely more heavily on state and federal trade secret laws to protect their interests.  The Defend Trade Secrets Act (DTSA) of 2016, for example, provides a federal cause of action for trade secret misappropriation, allowing businesses to sue in federal court and seek remedies such as injunctions, damages, and attorney’s fees.  The Texas Uniform Trade Secrets Act (TUTSA) provides a state cause of action with similar remedies. 

This is where mediation can play a vital role.  In the context of trade secret disputes, mediation can provide a forum for businesses and employees to openly discuss their concerns, understand each other’s perspectives, and explore creative solutions that balance their competing interests  and reduce the cost of extended litigation.

Mediation can help parties craft customized agreements that protect legitimate business interests while also ensuring that employees have the freedom to pursue their careers and contribute to innovation.  By fostering open communication and mutual understanding, mediation can help prevent costly and time-consuming litigation and allow all parties to make a living for their families.  

Moreover, mediation can also help parties navigate the complex legal and technical issues involved in trade secret disputes.  Mediators with expertise in Employment Law and Business Law can facilitate informed discussions and help parties identify areas of agreement and compromise.

The FTC’s ban on noncompetition agreements will lead to an increased reliance on trade secret agreements and laws as businesses seek to protect their confidential information and competitive advantages.  While this shift may provide a more targeted approach to safeguarding business interests, it also raises concerns about the potential for abuse and the impact on worker mobility and innovation.  In this evolving landscape, mediation can play a crucial role in resolving disputes, promoting open communication, and finding balance between competing interests.  By embracing mediation as a tool for resolving trade secret disputes, businesses and employees can work together to create a more innovative, competitive, and equitable workplace.