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.
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
Lawrence H. Pockers
, co-chair of Duane Morris’ Non-Compete and Trade Secrets Practice Group
, moderated a panel discussion at the DRI Business Litigation Seminar in Nashville, Tennessee, on May 5, 2016.
The panel was titled “Restrictive Covenants Enforcement Realities Around the Country: The In-House Perspective on Chasing the Departed,” and the panelists were Kelly Grace Huller, Globus Medical Inc.; Jennifer A. McGlinn, Ricoh Americas Corp.; and Stacey N. Schmidt, Fidelity Investments.
By Lawrence H. Pockers, Co-Chair, Duane Morris Non-Compete and Trade Secrets practice
Following passage by the House of Representatives on April 27, 2016, President Obama is expected to sign the Defend Trade Secrets Act of 2016 into law any day. Once signed into law, the Defend Trade Secrets Act will amend Chapter 90, Title 18 of the United State Code (The Economic Espionage Act of 1996) to create a federal, private cause of action for trade secret misappropriation where “the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” The Defend Trade Secrets Act will apply with respect to any misappropriation of a trade secret “for which any act [of misappropriation] occurs on or after the date of the enactment of the Act.” Much of the early commentary surrounding the Defend Trade Secrets Act has focused on the fact that employers will now be able to rely on federal law instead of navigating the sometimes subtle differences in state laws concerning claims for trade secret misappropriation, and the provisions of the Defend Trade Secrets Act which permit the civil seizure “of property necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”
One aspect of the Defend Trade Secrets Act that has received little attention, but that should be top of mind for employers, is a provision buried at the end of the Act that will necessitate a change in the form of employment agreements many employers use in order to maintain maximum leverage over employees and ex-employees who misappropriate trade secrets. More specifically, Section 7 – the very last section – of the Act, amends the Economic Espionage Act to create immunity from liability where an individual (for example, an employee or ex-employee) confidentially discloses a trade secret to a government official, an attorney or in a court filing. This Section of the Act requires that “[a]n employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.” An employer that fails to comply may not be awarded exemplary damages or attorneys’ fees in an action under the Act unless the employee was provided with this form of notice.
Continue reading Federal Defend Trade Secrets Act Necessitates Changes to Form Employment Agreements
Lawrence H. Pockers and Gregory S. Bombard
Trade secret plaintiffs have a bevy of remedies available. On the monetary remedies side, plaintiffs often choose to measure their damages based on the profits realized by their competitor. Focusing on the defendant’s wrongfully-gained profits is in many cases easier than proving that the plaintiff’s profits diminished as a result of the theft. Plaintiffs are often also skittish about revealing the amount of their own losses to their competitors.
But a new case from the Sixth Circuit — Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., Inc., No. 14-3563, 2015 WL 6685380, at *1 (6th Cir. Nov. 3, 2015) — demonstrates why proving the plaintiff’s “actual loss” at trial is an important part of protecting a plaintiff’s business from further harm. Continue reading New Sixth Circuit Decision on Uniform Trade Secrets Act Underscores Importance of Proving Lost Profits In Trade Secrets Cases
On November 18, 2015, a 4-1 majority of the Pennsylvania Supreme Court (Justice Eakin, dissenting) held in Socko v. Mid-Atlantic Systems of CPA, Inc.
, No. 142 MAP 2014, that a post-employment covenant not to compete entered into by an employee after the start of his employment was void for lack of consideration, despite the fact that the agreement containing the non-competition covenant included language that the parties “intend to be legally bound.” In so doing, the Court affirmed the Pennsylvania Superior Court’s May 13, 2014 order which, in turn, had affirmed the trial court’s grant of partial summary judgment to the plaintiff/employee. Socko v. Mid-Atlantic Systems of CPA, Inc.
, 99 A.3d 928 (Pa. Super. 2014). Continue reading “Intent to be Legally Bound” Insufficient Consideration for Non-Compete in Pennsylvania
One of my recent blog posts highlighted how the United States Supreme Court’s dismissal of the petition for writ of certiorari seeking review of the Fourth Circuit’s opinion in WEC Carolina Energy Solutions, LLC v. Miller, 687 F.3d 199 (4th Cir. 2012), dashed the latest hope for the resolution of the Circuit split over the scope of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030. Click here to read prior blog entry. A recent decision out of the United States District Court for the Southern District of New York demonstrates that differing opinions on the scope of the CFAA continue to exist even, in some cases, within the same federal judicial district.
Continue reading The Continuing Split of Authority in the Interpretation of the Computer Fraud and Abuse Act
Duane Morris is pleased to congratulate partner Lawrence Pockers, who has been selected by the Support Center for Child Advocates as a Distinguished Advocate for 2013. The award celebrates the extraordinary efforts of individuals who help children in Philadelphia. Pockers has been a longtime pro bono child advocate, representing many abused and neglected children in Philadelphia in addition to serving on the Child Advocates’ Volunteer Committee. He will receive the award at the Child Advocates 2013 Annual Benefit Reception & Auction on April 10 at the Crystal Tea Room (Wanamaker Building) in Philadelphia.
Click here to read the press release.
Massachusetts made headlines in the area of non-compete law in 2009 when a bill was introduced in the state legislature that would have (had it been signed into law) prohibited employee non-competition agreements. Now, four years later, the same state senator who introduced the 2009 bill has partnered with another legislator to introduce a new bill that, if signed into law, would make non-compete agreements longer than six months presumptively unreasonable in Massachusetts.
Continue reading Massachusetts Proposed Legislation Limiting Employee Non-Compete Agreements
On January 2, 2013, the United States Supreme Court dismissed the petition for writ of certiorari seeking review of the Fourth Circuit’s opinion in WEC Carolina Energy Solutions, LLC v. Miller, 687 F.3d 199 (4th Cir. 2012). With the dismissal of WEC Carolina’s petition, the latest hope for the United States Supreme Court to weigh in on the Circuit split over the scope of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, was dashed.
Continue reading Latest Hope for U.S. Supreme Court to Weigh in on Circuit Split Over Scope of the Computer Fraud and Abuse Act Dashed