‘I Hate This Rule’: The FTC's Controversial Non-Competes Ban

On January 5, the Federal Trade Commission (FTC) released a proposed rule that would prohibit employers from issuing a clause on workers that may deter acts of theft. World Intellectual Property Review interviewed Finnegan partner Rob McCauley for his thoughts on the impact of the rule.

Rob said that as far back as 1872, California has championed the policy of employee mobility and prohibited employers from requiring or enforcing non-compete agreements against former employees. “Advocates of this policy state that employee mobility and robust competition were a bedrock for innovation in, for example, Silicon Valley, and that workers and society have greatly benefited from these laws,” he said.

Rob believes there are concerns with eliminating non-compete clauses.

“Critics point out that innovative companies spend vast sums to research and develop their proprietary technology, which their employees often carry in their heads. Yet laws that prohibit non-compete clauses have allowed competitors to improperly acquire and exploit innovator R&D investments by hiring away employees who use and/or disclose proprietary information at their next job,” he explains.

He adds that the proposed rule will prove challenging for startup companies when its knowledgeable employees are hired away by start-ups that operate in “stealth” mode for significant periods of time.

“The company, now the former employer, has no idea whether or to what extent its proprietary information is being improperly used and/or disclosed at the upstart competitor company, and may not know for years, if ever.”

He explains that these predicaments offer support for non-compete agreements, in the cases of employees “with proprietary knowledge” and/or who “have reached particular levels of responsibility”.

Read “I Hate This Rule’: The FTC’s Controversial Non-competes Ban”