- within Employment and HR topic(s)
- in North America
During Ward and Smith's annual Employment Law Symposium, several attorneys from the firm provided insightful guidance on recent issues that are top of mind for many employers.
The discussion featured a comprehensive overview on changes related to Immigration and Customs Enforcement (ICE), including strategies and procedures for handling an investigation, the legality of restrictive covenants, how to protect trade secrets, and DEI program compliance. (Ed. Note: See this article for the complete discussion strategies for Employers facing an ICE Investigation.)
Restrictive Covenants
Emily Massey, North Carolina State Bar Board Certified Specialist in Employment Law, noted that in the context of noncompete agreements at the federal level, a surprising recent development was the preservation of the status quo. "To provide some background, the FTC had passed a regulation banning most forms of noncompete agreements in the US. A federal judge in Texas halted the ban," explained Massey.
The FTC appealed that decision under the previous administration. "It's a little puzzling to us why the new administration hasn't withdrawn the appeal and we think that will happen eventually, but we will provide updates through email," commented Massey. Shortly after Massey's talk, the Trump administration did in fact drop the appeal.
"From the perspective of the National Labor Relations Board, we think there will be less scrutiny on non-competes," advised Massey. This is due to the fact that the General Counsel (GC) of the National Labor Relations Board was removed by the new administration. The new GC rescinded numerous memoranda issued by the previous GC.
The trend among states is generally moving toward limiting the use of noncompete agreements, especially noncompete agreements that are overly broad. The only state that made a recent change to its law that's more accommodating toward noncompete agreements is Florida. "Kansas made a recent change I would love to see gain traction elsewhere," noted Massey. "The takeaway is that non-solicitation agreements are enforceable...it also creates a mandate for the courts to modify overly broad restricted covenants, so it's friendlier to companies trying to protect their businesses there."
Virginia recently banned the use of noncompete agreements for non-exempt employees who are eligible for overtime under the Fair Labor Standards Act. Around 10 states have recently passed laws restricting the use of noncompete agreements on physicians and other healthcare professionals.
The media attention surrounding the FTC ban, halt of the ban, and subsequent appeal has resulted in employees gaining awareness about their rights. "This is why we advise you to review any noncompete agreements you have and ensure they're narrowly tailored or to use another avenue to protect your business, such as a non-solicitation agreement," concluded Massey. "You also want to make sure you're protecting your trade secrets."
Theft of Trade Secrets
Gavin Parsons, a litigation attorney, provided insights on trade secrets and how organizations can protect the information that is vital to their business. "I mainly deal with commercial litigation and intellectual property but I want to discuss trade secrets. We collaborate a lot with the Labor and Employment group because of what employees tend to do with confidential information," laughed Parsons.
The definition of what constitutes a trade secret is extremely broad. Generally, it applies to any form of valuable information the business takes reasonable measures to protect from disclosure.
"It's confidential and it needs to have independent economic value to the business, or potentially, to the competitors of the business," said Parsons.
The secret is lost when it is shared with an individual or group that is under no obligation to keep it confidential. "Any employee handling potentially valuable confidential information should have an obligation to keep it confidential," noted Parsons, "and it should be formally spelled out in writing that they cannot share that information."
Unlike patents, trade secrets do not expire. There is no obligation to apply for a trade secret or register it with a governmental entity.
The only basic requirement for information to qualify as a trade secret is that it is valuable to the business. Many employers may not be aware they already have trade secrets, such as:
- Information gathered from research and development
- Client/customer information in a CRM like Salesforce
- Manufacturing processes and quality control procedures
- Product designs and development information
- Sales strategies and market analysis
There has been a recent uptick in the use of agreements aimed at trade secret protection due to restrictions limiting the use, scope and enforceability of noncompete agreements. "Employees can leave more freely now, so employers have to be more proactive about protecting their information," added Parsons.
Technology is another factor driving the increased adoption of trade secret protection. "Technological developments like software are hard to patent, so companies are using trade secrets instead," Parsons explained.
Technology makes it easier to steal information. "Information is a lot easier to download and transmit than it used to be, when you might have had to stand at a copier for 20 minutes," Parsons said.
Remote workers may also feel as if they are under less scrutiny, so they may be more likely to make personal copies of confidential information. "Protection should begin during the onboarding process," mentioned Parsons. "There should be clear policies related to the storage or transfer of confidential information."
Controlling the digital environment is critical. "If you can, keep your data somewhere you can monitor how employees use it, so you can spot unusual activity," advised Parsons.
Most trade secrets are taken during periods at or soon before employee departures. Employers should be particularly vigilant during these periods, by monitoring employees, watching for warning signs of misappropriation, and taking extra precautions.
One of the most common questions Parsons has received relates to the use of AI in the context of trade secret protection. "To prepare for this, I asked three forms of AI to list the formula for Dr. Pepper. The answer was that 'We can't tell you, it's a protected trade secret,'" commented Parsons.
"This is positive because generative AI is not going to unwind the universe of protected information, at least not yet," added Parsons.
Trade secrets are homegrown, so unless an individual or group provides information to the AI program, it will not have access to it. An exception could apply to a private database of public information, as AI could develop a similar record.
To safeguard information, organizations should be cautious and never provide information to an outside AI program. It is also advisable to have policies prohibiting employees from disclosing trade secrets to outside AI programs and to limit use to internal AI programs.
Vendors and contractors can present a risk if they have access to confidential information. "This area is constantly evolving, especially in relation to AI, so you want to keep in contact with your legal counsel so you can stay on top of it," ended Parsons.
Ed. Note: Watch for additional articles from the annual Employment Law Symposium each week in January.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
