On January 5, 2023, the Federal Trade Commission (FTC) proposed a rule that would ban US employers from imposing noncompete clauses on workers.
It is unclear whether, and to what extent, the proposed FTC rule will become final, but the proposed rule should not come as a surprise. Some states already ban noncompetes while others limit their use, and courts have historically ruled against them quite harshly.
Considering these trends and the proposed rule, how else might companies protect their most valuable business interests? Trade secrecy may be the answer.
Have a specific question or want more information? Contact a KPMG tax professional.
Have a specific question or want more information? Contact a KPMG tax professional.
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Companies may consider turning to trade secrets as an alternative to noncompete clauses as a more robust way to protect business assets.
How might a company use trade secrets instead of noncompetes? In general, a company can protect information as a trade secret if it:
- has economic value from not being generally known by others, and
- takes reasonable measures to keep that information secret.
Trade secrecy is a form of Intellectual Property (IP) that is not as well-known as patents but is quickly growing in prominence. Many of a company’s most important intangible assets may not qualify for patent protection or may be better protected as a secret – consider the same categories of assets above. Like noncompetes, trade secrecy aims to protect a company against losing sensitive information to competitors. Given the convergence of objectives, and the fact that trade secrecy is well established as a reliable form of protection, companies might consider using trade secrecy instead of noncompetes to protect themselves.
