New legislation enacted in May 2019 will make noncompetes harder to enforce in Washington state and Oregon.
Washington State Enacts Sweeping Noncompete Legislation
On May 8, 2019, Washington became the latest state to enact comprehensive noncompete legislation. Under the Act Relating to Restraints, Including Noncompetition Covenants, on Persons Engaging in Lawful Professions, Trades or Businesses, noncompetition covenants will be void and unenforceable unless they meet a number of specific requirements. Although the act does not take effect until January 1, 2020, it impacts certain agreements signed and certain claims that arise before the effective date, as explained further below.
The act provides that noncompetition covenants are only enforceable against employees and independent contractors whose annual earnings exceed $100,000 and $250,000, respectively. These amounts will be adjusted annually, on September 30 of each year, to account for inflation…
Oregon Legislation Imposes Additional Notice Requirements on Employers
Modifications to Oregon’s existing Noncompetition Law, ORS 653.295, were signed into law on May 14, 2019, introducing additional restrictions on employers’ already curtailed ability to enforce noncompetition covenants, except with respect to certain “excluded employees” described in ORS 653.010(3). Under the newly amended legislation, employers will not only be required to meet preemployment notice requirements under the Noncompetition Law, they must now give employees postemployment notice of their noncompete obligations…
View the full Alert on the Duane Morris LLP website.
On April 26, 2019, the Third Circuit Court of Appeals vacated and remanded two district court decisions in which the courts had held that a restrictive covenant agreement—offered only to the company’s highest-performing sales employees in exchange for eligibility to participate in a stock-option award program—was unenforceable per se under New Jersey law. ADP, LLC v. Rafferty, 18-1796, 2019 WL 1868701 (3d Cir. Apr. 26, 2019).
ADP utilized two separate layers of agreements containing postemployment restrictive covenants: (1) sales representation agreements (SRAs) and nondisclosure agreements (NDAs) signed by all employees at the time of hire and as a condition of employment; and (2) restrictive covenant agreements (RCAs) with certain high-performing employees as a condition of those employees’ eligibility to participate in the company’s stock-option award program. The RCAs contained more restrictive provisions than the SRAs and NDAs.
View the full Alert on the Duane Morris LLP website.
On January 11, 2019, the Pennsylvania Superior Court, sitting en banc, affirmed a trial court decision that a “no-hire” provision in a commercial contract between two companies—i.e., an agreement by which one company agrees not to solicit or hire the employees of the other for a certain period of time—violated public policy, and was thus unenforceable under Pennsylvania law. Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC and Beemac Logistics, LLC, No. 134 WDA 2017, 2019 Pa. Super. 13 (Jan. 11, 2019).
In Pittsburgh Logistics, Pittsburgh Logistics Systems (PLS), a third-party logistics provider, entered into an agreement with one of its customers, BeeMac Trucking and BeeMac Logistics, for PLS to provide logistics services to BeeMac. The agreement included a no-hire provision prohibiting BeeMac from directly or indirectly hiring, soliciting for employment, inducing or attempting to induce any employee of PLS or any of its affiliates to leave their employment with PLS or the affiliate during the term of the agreement and for a period of two years thereafter. After four PLS employees joined BeeMac, PLS sued BeeMac and its former employees seeking an injunction to enforce, among other things, the no-hire provision. The trial court, noting that a provision such as the one between PLS and BeeMac has never been the subject of litigation in Pennsylvania in any reported case, refused to enforce the no-hire provision, citing cases in other jurisdictions where similar provisions were held to be unenforceable. PLS appealed the trial court’s denial of its preliminary injunction motion seeking to enforce the no-hire provision.
Read the full Duane Morris Alert.
With 2018 well underway, it’s time to look ahead to what are likely to be some of the key issues/stories relating to non-competition agreements and trade secrets this year:
- Continued Push in State Legislatures for Non-Compete Reform
Last year saw the enactment of a number of state laws relating to non-competition agreements. See, e.g., Cal. Lab. Code § 925 (setting conditions on requiring employees who primarily reside and work in California to sign agreements containing a mandatory non-California choice of law clause or a mandatory forum selection clause outside of California); 820 Ill. Comp. Stat. 90/1 through 90/10 (prohibiting covenants not to compete between Illinois employers and their low-wage employees, i.e., those who earn no more than “the greater of (1) the hourly rate equal to the minimum wage required by the applicable federal, State, or local minimum wage law or (2) $13.00 per hour.”); Nev. Rev. Stat. Ann. § AB 276, § 1 (setting forth new standard for Nevada courts to analyze non-competition agreements and reversing Nevada Supreme Court’s 2016 Golden Road decision to restore Nevada to a “blue pencil” state).
This year is likely to see a continued push in state legislatures for the enactment of laws relating to non-competition agreements. Legislators in New Jersey, Pennsylvania, New Hampshire and Vermont have all recently introduced bills that would limit enforcement of non-competition agreements. Pennsylvania’s bill (House Bill No. 1938), if enacted, would ban covenants not to compete entered into after the effective date of the legislation, except those involving the sale of a business or the dissolution or disassociation of a partnership or a limited liability company. If enacted, the bill would also entitle an employee who prevails in a suit against an employer related to the enforcement of a covenant not to compete to recover attorneys’ fees and punitive damages, and would require any dispute arising out of or related to a covenant not to compete involving a Pennsylvania resident to be exclusively decided by a Pennsylvania state court applying Pennsylvania law. Continue reading “2018 Non-Compete and Trade Secrets Law Preview”
Duane Morris partners Lawrence Pockers, Shannon Hampton Sutherland and Daniel Walworth shared their views on the latest trends in trade secret law.
Thomson Reuters: What trends are you seeing in trade secret litigation?
Shannon Hampton Sutherland: Last year, President Barack Obama signed into law the Defend Trade Secrets Act, which gives plaintiffs the ability to file trade secret cases in federal court without diversity jurisdiction. That is fairly significant because in the past, plaintiffs would have to file in state court, and now there is a federal cause of action that allows plaintiffs to go directly to federal court, which generally is a benefit. The second thing is that anecdotally, we are seeing more criminal cases come out of trade secrets theft than we’ve seen in the past. Prosecutors are taking up cases at a rate higher than normal, especially when foreign nationals are involved.
To read the full text of this article, please visit the Duane Morris LLP website.
By Gregory S. Bombard
On June 9, 2017, the Business Litigation Session (BLS) of the Massachusetts Superior Court issued a decision about the extraterritorial application of California’s public policy against non-competition agreements (Full text of the decision: Oxford Global Resources, LLC v. Jeremy Hernandez). The plaintiff, Oxford, is a recruiting and staffing company headquartered in Massachusetts. It hired the defendant to work as an entry-level “account manager” in an office in California. As a condition of his employment, the employee signed a “protective covenants agreement” that included non-solicitation, non-competition, and confidentiality provisions. This agreement contained a Massachusetts choice-of-law provision and a Massachusetts choice-of-venue provision. Continue reading “Massachusetts Court Rules California Law Supersedes Massachusetts Choice-of-Law Provision and Non-Compete Clause in Employment Contract”
The Pennsylvania Superior Court’s recent decision in Metalico Pittsburgh, Inc. v. Douglas Newman, et al., No. 354 WDA 2016, 2017 PA Super. 109 (Apr. 19, 2017), confirms the importance of careful contractual drafting in agreements containing non-compete clauses and other post-employment restrictive covenants. In circumstances where an employee is hired for a term of employment but later becomes an at-will employee, that contractual language may determine the enforceability of the agreement’s non-compete and non-solicitation provisions.
To read the full text of this post by Duane Morris partner Luke McLoughlin, please visit the Duane Morris Appellate Review Blog.
By Shannon Hampton Sutherland and Gregory S. Bombard
Last week, the White House called on states to enact sweeping reforms to their non-compete laws. The White House’s new policy position is that “most workers should not be covered by a non-compete agreement” and that, although “each state faces different circumstances,” many employers have sufficient other targeted remedies to protect their legal interests.
In its policy statement, the White House called on states to enact “non-compete” reforms, including one or more of the following: Continue reading “White House Recommends Non-Compete Reforms”
By Shannon Hampton Sutherland and Julian A. Jackson-Fannin
On September 27, 2016, in Adams Arms, LLC v. Unified Weapon Systems, Inc., et al., the U.S. District Court for the Middle District of Florida issued one of the first substantive opinions concerning claims brought under the new Defend Trade Secrets Act (“DTSA”).
The DTSA, which became effective on May, 11, 2016, expanded the jurisdiction of federal courts by, among other things, creating a new federal civil cause of action for trade secret misappropriation when “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” Although the DTSA has been hailed as the new “national standard for trade secret misappropriation,” with certain exceptions, its provisions are largely consistent with the well-known Uniform Trade Secrets Act (“UTSA”) currently adopted by 48 states, the District of Columbia and the U.S. Virgin Islands. The DTSA prohibits both the improper “acquisition” of a trade secret as well as its “disclosure.” As the DTSA continues to make its first impressions on federal courts around the country, threshold questions have arisen concerning the timing of misappropriations and what theories of recovery apply under the freshly minted law. Continue reading “A Call to Arms: How Timing Matters Under the New Defend Trade Secrets Act”
By Bronwyn L. Roberts
As reported in The Boston Globe, the Massachusetts Senate and House concluded their legislative session on July 31, 2016, without passing noncompete reform legislation. This comes as a bit of a surprise as the House and Senate have in 2016 each passed a noncompete reform bill. Additionally, Governor Charlie Baker has, through a spokesperson, recently indicated support for the House bill that sought to restrict noncompetes by creating “Garden Leave,” consisting of payment during the restricted period of at least 50 percent of the employee’s annualized base salary. However, for those who have followed this process over the years, the fact that neither bill passed is consistent with many other failed attempts over the years to overhaul the Massachusetts noncompete landscape.
Thus, the noncompete reform debate, which has been ongoing in the Massachusetts legislature since at least 2009, continues. We will keep you updated.
Continue reading “The “No Update” Update: Massachusetts Legislature Concludes Session Without Passing Noncompete Reform”