23
votes
Noncompete ban abandoned by Donald Trump's US Federal Trade Commission
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- Title
- Under Trump, the Federal Trade Commission is abandoning its ban on noncompetes
- Authors
- Andrea Hsu
- Published
- Sep 5 2025
- Word count
- 1163 words
As an entrepreneur and sometime inventor, while I do agree that many non competes are overbroad, there are many legitimate cases for them. I think there must be some reasonable ground in between outright bans and reasonable protections for trade secrets.
There are separate laws about trade secrets. A noncompete has nothing to do with trade secrets, only making it easier for a company to own a person.
Jimmy John's was having people sign non-competes for any sandwich shop within a radius of any Jimmy John's. My partner's PA was required to sign a non-compete to work for the agency they worked for. Because minimum wage workers don't know they're unenforceable they get pressured and harassed. His PA was yelled at by multiple people at the agency when we hired (via the state) them away from the company.
Those are both illegal in IL now but the agency non-compete was signed this year.
820 ILCS 90/ - Illinois Freedom to Work Act. :: 2024 Illinois Compiled Statutes :: U.S. Codes and Statutes :: U.S. Law :: Justia
IL has a minimum compensation rule and maybe that's the answer. If someone is valuable enough to have your "trade secrets" or to be so valuable that they couldn't work for your competitor, pay them enough to make that non-compete a fair deal. Maybe there's some balance required in those upper levels, I'm not in those fields, but it's definitely bullshit for minimum and other low earning employees.
That’s what NDA’s are for.
NDAs are virtually unenforceable. Who's to say what trade secrets are disclosed when a direct competitor hires an employee?
If the goal is to extract the trade secret, and we are already accepting that laws are being violated, why would the competing company bother hiring the person rather than just paying them to hand over the secrets?
The line of reasoning makes no sense.
I guess you could do that if a trade secret were as simple as a document in a manila envelope that you could surreptitiously exchange for a briefcase full of cash and that were the only factor involved, but I would say that's not a very realistic scenario.
So is the trade secret an employee’s skillset? If so they should be compensated competitively and with benefits to make poaching difficult.
Non-competes are literally anti-competitively and the only function is to weaken labor’s leverage.
Trade secrets are complex things. Some of it is easy to transfer — algorithms, trained models, source code. Some of it is hard — I’ve sold a lot of businesses, and the knowledge transfer process to get a new owner operational and successful can be long and difficult, and some of it is not even transferable per se because it is ongoing development and maintenance.
In some states they are used to limit employees who have nothing to do with developing intellectual property of any kind.
Sure, and that’s what I was getting at with some non-competes being overbroad. That should absolutely be regulated, and non-competes should be strictly tailored to the minimum required to protect a company’s ability to safely reveal their trade secrets to their staff.
What would your approach be to balance that with the hypothetical employee’s right to accept a better offer for their expertise?
I’m asking genuinely, not rhetorically, because I do know what you mean about trade secrets - or perhaps more accurately institutional knowledge in general, which can be a very big deal for a small company just finding its feet - but I just can’t see a way to enforce a non-compete without essentially giving the employer a monopoly over the employee’s choices and radically undermining their bargaining power.
I think it should be similar to how non-competes in finance are handled. Generally the company will pay a considerable premium to the employee during the non-compete period. For example, one of my friends who use to work at citadel had like a year non-compete and was given $768k as part of his compensation for accepting the non-compete. So he just chilled for a year and traveled around. Not a crazy amount or anything but plenty as a consolation for not working for a year.
Maybe require 1.5x prorated comp for the non-compete period.
I feel like there is a difference between an employee’s general expertise and a company’s particular expertise.
I wouldn’t object to a data scientist employee leaving to do data science at another company. I would object to a data scientist at my consumer lending risk analysis company who maintains a risk model that I invented from going to do data science at another consumer lending risk analysis company.
Similarly, I wouldn’t object to an employee going to a competitor two years later with outdated knowledge about my processes. I would definitely object to them going to a competitor tomorrow with a blueprint for a successful business.
I think the right balance is a combination of specificity and time limits.
In the abstract I can see that, but I struggle to see how your scenario could be protected without also catching the employee who was hired straight off their PhD, and then used their niche knowledge and insight to invent a breakthrough consumer lending risk model for the company, was refused a pay rise, and can’t accept an offer from the competitor who’s willing to pay much more for their very specific expertise.
And sure, you can say that you wouldn’t put an employee in that situation, and I’d be happy to believe you - but some companies absolutely would, and I’d struggle to make the limitations on how non-competes can be applied specific enough to allow your case while preventing that kind of abuse.
I think the suggestion above about ensuring the non-compete period is paid out is probably a good starting point, at least. It doesn’t explicitly solve the problem I mentioned, but it does at least compensate the employee with a long paid sabbatical of sorts, which seems much more like fair consideration in exchange for giving up the flexibility to accept competing offers. It makes it a two sided deal rather than a unilateral handicap.