On September 1, 2023, California Governor Gavin Newsom signed into law Senate Bill 699, which reinforces the state’s prohibition of employee noncompetition agreements and expands the claims and remedies against California employers for noncompetition agreements that violate state law.
Read the full Alert on the Duane Morris LLP website.
On May 30, 2023, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memorandum asserting that the “proffer, maintenance, and enforcement” of most non-compete provisions in employment contracts violate the National Labor Relations Act (NLRA). This memorandum follows on the heels of other recent efforts to curtail non-compete provisions, including the Federal Trade Commission’s proposed rule that—if enacted and thereafter successful in promised court challenges—would retroactively ban nearly all such provisions in employment agreements; a bipartisan Senate bill that would ban most non-compete provisions going forward; and a slew of recent state legislation making non-compete provisions more difficult for employers to enforce.
Read the full Alert on the Duane Morris LLP website.
Just one day after entering into consent agreements invalidating non-competes with three companies, on January 5, 2023, the Federal Trade Commission (FTC) proposed a new non-compete rule that would prohibit employers from entering into, maintaining, enforcing or threatening enforcement of a non-compete clause with virtually any worker and invalidate existing non-compete clauses with both current and former workers. If the non-compete rule is finalized by the FTC in the same or substantially same form as proposed, and if it survives the legal challenges that are sure to follow, the non-compete rule would make non-compete clauses an unfair method of competition under Section 5 of the FTC Act, regardless of inconsistent state statutes, regulations, orders or interpretations, and would represent a sea change in the law relating to non-compete clauses in the United States.
Rea the full Alert on the Duane Morris LLP website.
A new Colorado law effective August 10, 2022, voids noncompetition and customer nonsolicitation covenants with certain employees who work or live in Colorado, depending on their level of compensation. The new law potentially subjects noncompliant employers to significant penalties and voids any provision in violation of the statute.
HB 22-1317, signed into law on June 8, 2022, amends Colorado’s existing noncompetition statute, C.R.S. § 8-2-113, for agreements entered into or renewed on or after August 10, 2022. The new law comes only months after Colorado enacted a criminal statute making violations of the state’s noncompetition statute a Class 2 misdemeanor punishable by 120 days in jail, a fine up to $750 or both.
Read the full Alert on the Duane Morris LLP website.
A new Colorado law, effective March 1, 2022, will make violations of the state’s noncompetition statute a Class 2 misdemeanor punishable by 120 days in jail, a fine up to $750, or both.
Colorado’s noncompetition statute, C.R.S. § 8-2-113, prohibits the use of “force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit.” Covenants not to compete restricting the right of any person to receive compensation for performance of skilled or unskilled labor for any employer are void under the statute unless they satisfy certain exceptions.
Read the full Alert on the Duane Morris LLP website.
New legislation enacted in May 2019 will make noncompetes harder to enforce in Washington state and Oregon.
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…
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…
By
Shannon Hampton Sutherland, Co-Chair, Duane Morris Non-Compete and Trade Secrets Practice, http://www.duanemorris.com/attorneys/shannonhamptonsutherland.html, and
Corey M. Weideman, Duane Morris Associate, http://www.duanemorris.com/attorneys/coreymweideman.html
On May 20, 2016, in In re: M-I, LLC, d/b/a M-I Swaco, No. 14-1045, 2016 Tex. LEXIS 389 (Tex. May 20, 2016), the Texas Supreme Court issued its much anticipated first decision involving the Texas Uniform Trade Secrets Act (“TUTSA”). TUTSA, which became effective on September 1, 2013, updated Texas law governing trade secret matters by, among other things, providing an unambiguous definition of a “trade secret”, expanding injunctive relief, and authorizing recovery of attorneys’ fees for willful and malicious activity. TUTSA also includes a specific provision requiring trial courts to protect the secrecy of a trade secret through reasonable means. See TEX. CIV. PRAC. & REM. CODE § 134A.006. This section of TUTSA, and the extent to which a trial court must protect the secrecy of an alleged trade secret during an injunction hearing, was the focus of the Court’s attention in In re: M-I, LLC.
In In re: M-I, LLC, the Texas Supreme Court held that the due-process right of a party to have a designated representative present at an injunction hearing involving alleged trade secrets is not absolute, and the trial court abused its discretion when it summarily concluded – without first balancing the competing interests at stake – that excluding the defendant’s corporate witness from portions of the injunction hearing involving trade secrets would violate due process.
The basic facts of the trade secret case underlying the mandamus proceeding in In re: M-I, LLC are typical: an employee with a signed non-compete and confidentiality agreement left his job to work for one of his former employer’s competitors, and a dispute ensued shortly thereafter. The former employer, M-I, filed suit for trade secret misappropriation and sought injunctive relief against its former employee and his new employer, National Oilwell Varco, L.P. (“NOV”). Relying on Section 134A.006 of TUTSA, M-I requested that NOV’s corporate representative be excluded from the courtroom during a portion of the hearing on M-I’s application for temporary injunction. The trial court summarily denied M-I’s request, however, concluding that the exclusion of NOV’s designated representative would be a “total violation of due process.” Instead, the trial court admonished NOV’s representative not to disclose or use anything he heard in the courtroom. Concerned about disclosing testimony regarding its trade secrets to NOV and placing the secrecy of the alleged trade secrets at risk by doing so, M-I postponed the injunction hearing to file a mandamus request with an intermediate appellate court. The intermediate appellate court denied the mandamus request and M-I filed a new mandamus request to the Texas Supreme Court.
Mandamus relief is available, the Court noted, when the trial court abuses its discretion and no adequate appellate remedy exists. The Court first explained that there is no adequate appellate remedy for an erroneous order to disclose a trade secret before examining whether the trial court abused its discretion.
In conditionally granting M-I’s request for mandamus relief, the Texas Supreme Court held that the trial court abused its discretion by summarily refusing M-I’s request to conduct portions of the temporary injunction hearing outside the presence of the NOV’s designated representative. The Court explained that courts have discretion to exclude parties and their representatives in limited circumstances when “countervailing interests overcome [the] presumption” in favor of participation. Rather than summarily denying M-I’s request, the Court explained, the trial court was required, at a minimum, to balance the parties’ competing interests.
Importantly, the Court noted that, “[i]f the trial court conducted the required balancing, it may have been within its discretion to decide that due process required NOV’s designated representative to be present.” The trial court’s error was failing to conduct the balancing at all.
In short, TUTSA plaintiffs should not assume that the court will exclude the other side’s representative when alleged trade secrets are disclosed, and TUTSA defendants should not assume that the court will permit their representatives to participate in all phases of a TUTSA case. The trial court must develop a factual record to balance the parties’ countervailing interests before deciding whether to exclude a witness.
By: Shannon Hampton Sutherland[1]
Experts predicted that strong M&A activity would continue from 2015 into 2016.[2] So far, that prediction appears to hold true, particularly in the biotech sector. If you want to position your company for potential acquisition under attractive terms, either in 2016 or down the road, are you ready? Locking down the company’s “non-compete” and confidentiality agreements and practices early is mission-critical.
These agreements (including confidentiality and invention agreements, non-compete agreements, and non-solicit agreements) help the company protect legitimate business interests, like the benefit of its investment in its technology, confidential information, and trade secrets, goodwill with its customers, and training of its employees. If your company doesn’t have strong programs and agreements in place with its employees, independent contractors, and consultants to protect these important assets, it might lose value in the eyes of a potential acquirer.
This lesson holds especially true in industries that are heavily-reliant on sensitive technological innovation or field-based sales organizations. One of your highest priorities should be making sure that the company has strong and enforceable confidentiality and non-compete agreements (if permissible in your jurisdiction) with these individuals and programs in place to protect the company’s interests.
Bottom line: Early and regular review of the company’s non-compete and confidentiality agreements and practices is an important piece of positioning the company for favorable acquisition. Counsel well-versed in this area can help the company navigate the complex issues that come into play.
Nothing contained in this blog is intended to or does create an attorney-client relationship or provide legal advice.
[1] Shannon Hampton Sutherland is the Co-Chair of the Duane Morris Non-Compete and Trade Secrets practice and a nationally-known non-compete, trade secrets, and litigation attorney. See http://www.duanemorris.com/attorneys/shannonhamptonsutherland.html.
[2] See, e.g., http://www.forbes.com/sites/jeffgolman/2016/01/11/four-reasons-2016-will-be-a-strong-year-for-ma/#27221a634d49 (last accessed Apr. 8, 2016); http://info.kpmg.us/ma-survey/index.html (last accessed Apr. 8, 2016).
Michael R. Gottfried, Shannon Hampton Sutherland, and Gregory S. Bombard
Orthofix, Inc. v. Hunter, —- Fed. Appx. —–, 2015 WL 7252996, at *1 (6th Cir. Nov. 17, 2015).
The Sixth Circuit recently ruled, in an unpublished opinion, that a former employer could recover against a former employee for breach of a confidentiality agreement, even if the information the former employee took, used, or disclosed did not qualify for trade secret protection.
In Orthofix, the plaintiff company was a medical device company that markets bone growth stimulators to health care providers. The defendant employee was a sales person for the plaintiff for twelve years. At the time of his hiring, the defendant employee signed a nondisclosure agreement, which he reviewed with an attorney and on which he specifically underlined the definition of “confidential information.” Continue reading “New Sixth Circuit Case Imposes Liability For Theft Of Confidential Information That Does Not Qualify For Trade Secrets Protection”
