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Noncompete agreements protect costly, time- and brainpower-intensive intellectual property and any effort to end their lawful use “would jeopardize the Trump administration’s efforts to revive manufacturing in America,” the NAM said to the Federal Trade Commission this week.

What’s going on: “We are pleased that the FTC is no longer defending the Biden administration’s sweeping nationwide ban on noncompete agreements, which the NAM strongly opposed,” the NAM told FTC Chairman Andrew Ferguson on Monday in response to a request for information issued by the agency about employer noncompetes.

• But manufacturers remain concerned that recent FTC actions—such as its creation of a labor market task force, warning letters to health care firms and various statements by staffers—suggest that the agency “may be considering an aggressive enforcement campaign against businesses that utilize lawful noncompete clauses and other employment agreements.”
• In September, the FTC dropped its appeal of court rulings that blocked the previous administration’s widescale prohibition of noncompete clauses, which have been used legally for decades by employers to safeguard proprietary company information.
• According to NAM survey data, approximately 93% of manufacturers use noncompete agreements to protect IP, while 72% use them to safeguard industrial processes.

The cost: The vast majority of IP theft at companies is committed either by an employee moving to a competitor or someone known to that party, the NAM told the FTC.

• And the “cost of trade secret misappropriation ranged from 1% to 3% of the U.S. gross domestic product, potentially costing U.S. companies hundreds of billions of dollars per year.”
• Noncompetes are needed, as nondisclosure agreements and trade secret laws are not sufficient to protect a manufacturer fully from a loss of proprietary business information when a highly skilled employee leaves for a competitor, the NAM said.

The consequences: An aggressive campaign by the FTC against noncompete agreements would:

• Discourage investment in critical U.S. infrastructure and research and development;
• Place companies’ trade secrets and other closely guarded in-house information at risk;
• Harm business-to-business relationships and business strategies; and
• Complicate long-standing recruitment and hiring strategies, among other negative consequences.

What should be done: The FTC should seek input from companies and trade associations on how those entities use noncompete agreements to protect their IP and sensitive commercial information, the NAM said.

• After reviewing the comments, “the agency should provide clarity on what types of noncompete agreement terms it views as ‘unreasonable’ or ‘unfair’—so that employers are not surprised by costly enforcement actions.”