Understanding Trade Secrets and the Information Non-Compete Clauses Protect

Non-compete clauses have been a common topic of conversation at the national level, with President Joe Biden recently signing an executive order calling for the Federal Trade Commission (FTC) to limit non-compete clauses.

While the intention of the executive order is to “promote competition,” it raises interesting questions about what non-compete clauses do. For businesses and businesspeople, the order brings into question the type of information many non-compete clauses are intended to protect. These clauses often explicitly state that trade secrets and other confidential information cannot be taken with you to your new job. So, what is a trade secret, and what is useful, professional information you can freely take with you?

Trade secrets

A trade secret is any operational information or practice within a workplace unknown to the public and that the organization has taken efforts to keep confidential. These “secrets” are part of a company’s intellectual property, and if an effort has been made to explicitly protect them, an individual could face severe legal penalties for disclosing them to another organization.

Examples of trade secrets include any operating system designed by or for one company, source code, methods or processes exclusive to an organization, a business’ finances, inventions, patents (pending or complete), ingredients, and more. The best way to define your company’s trade secrets is to keep a complete list and update when items are added or subtracted.

What can you take with you?

The other end of the spectrum includes information and practices individuals can take with them to new organizations. Many organizations will try to include just about everything employees do on a day-to-day basis on their list of trade secrets, but the law says you can’t really divide up what’s in someone’s mind. This means you can’t expect someone to completely ignore the practices and information that made them successful in a workplace.

The specifics named in the list above are generally protected, but there is a line between anecdotal work material and the actual technology and tools of the trade. If an individual or company could easily come up with a practice on their own, it’s unlikely to be protected.

Freelance and contract work

This information is especially relevant for freelancers and contractors. These individuals are likely taking on several jobs at once and working with many organizations. It’s important for contracts with those employees to define who the author of the work is versus who the owner of the material is. If a company hires a contractor to come up with source code for an internal system, the company will need to protect the code in either a contract or non-compete clause to ensure the contractor doesn’t take the code to the competition.

For the freelancers and contractors working on side hustles: be careful about the work you’re doing on company time. If you’re hired to do a job, your contract should define how the work you do during this time will be handled when you’re finished. If you’re provided with company materials you should only be using them to do the job you were hired to do. If you do a little extra side work using those company materials, you may not be able to claim ownership of the end result if the company you’re being contracted to work with finds out.

Use non-compete clauses to protect your business

As long as you’re legally permitted to use non-compete clauses in your line of work, your business should be using them to protect intellectual property. It’s better to be safe than sorry, so instead of assuming a departing employee will know what they can and can’t share with their new employer, get it in writing. If you need to take someone to court, you won’t want to get into a he-said, she-said battle of wits. Instead, make sure you and your employees know exactly what information and practices you intend to keep in house.

If you find yourself unsure of what trade secrets your own business has, McDermott IP Law can work with you to do a trade secret audit. This is an important step to protect your innovation and keep the competition lagging behind. Contact us today and schedule your audit to protect your future.

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