Trade Secrets & Employee Mobility

An employee who joined a corporate employer that was not a competitor with his former employer was still enjoined and restrained by restrictive covenants he signed with his former employer when his new employer merged with his prior employer's competitor.

Forum selection clauses are common in non-compete agreements, particularly when the employer is multi-state or multi-national. One question that often arises, however, is whether a court will actually require an employee to litigate in a distant jurisdiction with which he had minimal contacts. In a recent case from the Eastern District of Missouri, a federal judge enforced just such a forum selection clause.

On December 21, 2012, the Supreme Court of New Hampshire, in Ellis v. Candia Trailers & Snow Equipment, Inc., found that a non-compete agreement was a fundamental component of a purchase and sale transaction which was memorialized in three separate agreements. The Seller began competing with Buyer shortly after the sale. After the Buyer did not follow through on purchasing all required assets of the Seller, the Supreme Court reversed the trial court's decision to partially rescind the non-compete agreement, and instead decided that the non-compete was so essential to the transaction that it required complete rescission of the transaction.

This week, a Wisconsin Court of Appeals issued a decision determining that a non-compete clause does not render an arbitration clause in an employment agreement unenforceable.

In a per curiam opinion issued yesterday, the United States Supreme Court reversed a decision of the Oklahoma Supreme Court that had determined the enforceability of a non-compete agreement arising out of a contract that contained an arbitration provision. Despite the fact that the restraint at issue was found to violate Oklahoma law, the US Supreme Court determined that the Oklahoma Supreme Court overstepped its bounds and that under the Federal Arbitration Act enforceability of the non-compete should have been left to the Arbitrator.

In a recent decision in Pactiv Corporation v. Rupert, the U.S. District Court for the Northern District of Illinois held that under an employer's severance pay plan, the employer could not require a former employee to agree to a restrictive covenant in order to receive severance pay.

Last week, the Ohio Supreme Court reversed its decision of earlier this year in Acordia of Ohio, L.L.C. v. Fishel et al., in which the Court held that when a company that was the original party to a noncompete agreement merges in to another company, unless the noncompete agreement contained a "successors and assigns" clause, the merger was a termination of employment which triggered the running of the restrictive period in the noncompete.

A recent Texas case provides a good lesson about workplace paperwork formalities. In Holloway v. Dekkers and Twin Lakes Golf Course, Inc., a Texas appellate court ruled that a one-year employment agreement that was not signed by the employer fell within the statute of frauds and was therefore unenforceable.

In California, a non compete given in return for the sale of a business' goodwill is one of the few exceptions to the state's broad prohibition against non competes. In Fillpoint, LLC v Maas, a California appellate court narrowly construed the exception and invalidated a non compete/non solicit agreement contained in an employment agreement which was signed in connection with the sale of goodwill.

Addressing an argument frequently encountered in restrictive covenant litigation, an Illinois Appellate Court recently reiterated that only a material breach of a contract containing a restrictive covenant will relieve the other party of its contractual obligation to abide by the restrictive covenant

The Ohio Supreme Court recently held that when a company that was the original party to a noncompete agreement merges in to another company, unless the noncompete agreement contained a "successors and assigns" clause, the merger is a termination of employment which triggers the running of the restrictive period in the noncompete.

We are pleased to announce that "Preparing for Non-Compete Litigation," a guide published by The Practical Law Company and authored by EpsteinBeckerGreen's Peter A. Steinmeyer and Zachary C. Jackson, is now available in PDF format. The guide is a valuable discussion of the primary considerations for employers seeking to initiate legal action to enforce a non-compete agreement.

An increasingly common type of provision found in employment agreements, allowing for extension of an employee's post-employment non-compete restrictions by a period of time that the employee violates the restrictions, was upheld in a recent decision by New York's Appellate Division, First Department.

An updated version of our guide, "Non-Compete Laws: Illinois," is now available. It reflects the recent decision of the Second District of the Appellate Court of Illinois, Hafferkamp v. Llorca, which contains an important holding regarding standards for enforcing non-compete agreements in Illinois.

On January 23, 2012, the Canadian National Railway Company filed suit against its former Chief Executive Officer, E. Hunter Harrison, for allegedly violating certain non-compete and non-disclosure obligations. Peter A. Steinmeyer was interviewed about the lawsuit on the Business News Network's show, "Headline with Howard Green."

A federal judge in Chicago recently refused to issue an injunction based upon either the "inevitable disclosure" of trade secrets doctrine or a geographically broad, 24-month non-compete that did not have a narrowly drawn activity restriction.

An updated version of our guide, "Non-Compete Laws: Illinois," is now available. It reflects the recent decision of the Illinois Supreme Court in Reliable Fire Equipment Company v. Arredondo, et al., which resolved several years of confusion over the appropriate standard for enforcing non-compete agreements in Illinois.

On December 1, 2011, the Illinois Supreme Court issued its opinion in Reliable Fire Equipment Company v. Arredondo, et al., which resolved several years of confusion over the appropriate standard for enforcing non-compete agreements in Illinois.

Several attorneys from the national law firm of EpsteinBeckerGreen contributed to the December 2011 issue of the Practical Law Company's "Labor and Employment."

A recent decision by the Supreme Court of Virginia reaffirmed that a non-compete agreement will likely be enforceable if it is narrowly drawn to protect the employer's legitimate business interest.

A recent decision from the First Circuit Court of Appeals serves as a cautionary tale for companies to make sure that they review the language and structure of restrictive covenants that they may be purchasing as part of an acquisition.

When drafting no-competes, questions about the required level of detail always arise; more detail is generally better than less, but not always. The required level of detail in a no-compete was among the questions addressed in a recent decision by the Ohio Court of Appeals.

The Illinois Supreme Court will soon hear oral argument in a case that could resolve the current confusion with regard to non-compete law among Illinois' appellate districts.

A recent opinion from the United States Court of Appeals for the First Circuit highlights the danger in not including a tolling provision in a restrictive covenant agreement.

Contrary to popular perception, California law does not bar all restrictive covenants in the employment context. Rather, in certain very narrow circumstances (i.e., non-competes arising in connection with the sale or dissolution of certain businesses), non-competes are permissible under California law.

Peter A. Steinmeyer of Epstein Becker & Green, P.C. will be speaking in an upcoming live webinar entitled "Noncompete Agreements: Latest Litigation Developments" scheduled for Thursday, August 11, 1:00pm-2:30pm EDT.

Peter Steinmeyer and I are pleased to announce that our guide, "Non-Compete Laws: Illinois," written with Christie Tate, is now available in PDF format. This guide is part of a series of guides written and published by our firm, EpsteinBeckerGreen, and the Practical Law Company.

Last week, in the case of Lucht's Concrete Pumping, Inc. v. Homer, the Colorado Supreme Court held that the continued employment of an at-will employee is adequate consideration for a noncompetition agreement. The Court explained that if this was not the case, employers would have an incentive to terminate at-will employees and condition their re-hire on the execution of a noncompetition agreement.

Will treating an individual as an employee rather than an independent contractor - when the parties have agreed to an independent contractor arrangement - preclude enforcement of a non-compete agreement? The Third Circuit Court of Appeals recently answered this question affirmatively, affirming a District Court Order denying an employer's application for a preliminary injunction.

For noncompete and trade secret lawyers in the healthcare industry, the recent Michigan Court of Appeals case of Isidore Steiner, DPM v. Bonanni highlights the importance of understanding applicable state privacy laws as well as the federal Health Insurance Portability and Accountability Act (HIPAA).

In an interesting recent decision, the Supreme Court of Arkansas refused to enforce a non-compete in a lease agreement -- which clearly had been violated -- because it did not arise out of a contract of employment or contract for the transfer of goodwill or property.

A recent decision by the Indiana Court of Appeals prolongs a non-compete lawsuit that already has been pending for nine years.

In December 2010, in Reliable Fire Equipment Company v. Arredondo, the Illinois Court of Appeals for the Second District directly addressed Sunbelt Rentals, Inc. v. Ehlers, a troublesome 2009 case from Illinois' Fourth District that rejected Illinois' longstanding requirement that an employer must have a legitimate business interest in order to enforce a non-compete agreement. According to the Court in Reliable Fire, restraints on trade have long been disfavored by the Courts and the "legitimate business interest test" remains an important "threshold question" which allows the Court to analyze "whether the employer has an interest other than suppression of ordinary competition." Thus, depending on the district in which they are located, Illinois employers may be subject to different standards for enforcement of non-compete agreements.

Last year, a bill that sought to codify Massachusetts' non-competition law died in Committee in that state's Legislature. A new bill on the same subject has now been introduced in the Massachusetts Legislature, and it clarifies and modifies the old bill, mostly in an attempt to satisfy businesses that found portions of the bill unacceptable. As modified, the new bill appears to have a good chance of passing this coming spring.

A federal district court in Alabama denied a request for a preliminary injunction from clothing manufacturers Fruit of the Loom, Inc. and Russell Brands, LLC, seeking to prohibit a former employee, on the basis of a non-compete agreement, from continuing to work for a competitor at which he had been employed for two months.

The proposed "Illinois Covenants Not To Compete Act" was re-introduced on January 12, 2011 in the same form as it was introduced last year. This bill has not attracted significant public attention or commentary, but we will monitor it and report on significant developments.

A New York appellate court recently affirmed a lower court's judgment that the statute of frauds precluded enforcement, by a plaintiff ophthalmology practice against a defendant former employee, of a two-year non-compete clause contained in a 1996 written agreement which was allegedly incorporated into a 1998 oral employment agreement.

On November 2, 2010, by a margin of more than two-to-one, Georgia voters ratified a Constitutional amendment which effectuated the total restructuring of Georgia's restrictive covenant law. Thus, upon certification of the election results, Georgia will have a new restrictive covenant law, which will apply on a going-forward basis to all contracts entered into on and after such effective date.

A bill pending in the Massachusetts legislature (House No. H4607) which would have amended the state's laws on non-compete agreements, has died in committee and will not go forward. The bill's sponsor, however, intends to introduce another bill on the same subject at a later date.

In October 2010, in Xplore Technologies Corp. v. Killion, CV10-5013459S, a Connecticut state court examined whether a non-competition clause that had no specified geographic requirement was enforceable. The Court enforced the clause and held that the geographic area was defined by the uniqueness of the product at issue and the limited potential customers for it.

In October 2009, in Sunbelt Rentals, Inc. v. Ehlers, 333 Ill.Dec. 791, 915 N.E.2d 862 (Ill. App. Ct. 2009), an Illinois appellate court reexamined and rejected over thirty years of well-established precedent regarding the enforceability of restrictive covenants. Specifically, it rejected the "legitimate business interest" test long applied as a threshold issue by Illinois courts when deciding the enforceability of a restrictive covenant. Last week, in Steam Sales Corporation v. Brian Summers, the first Illinois Appellate District other than the Fourth District re-visited the issue of whether the "legitimate business interest" still applied.

Applying Missouri law, the United States Court of Appeals for the Eighth Circuit recently affirmed an award of $1,369,921 in liquidated damages stemming from the alleged violation of non-solicitation agreements by four former employees of accounting firm Mayer Hoffman McCann.

On July 30, 2010, in Silguero v. Creteguard, Inc., the California Court of Appeal (2nd District) held that an employee could state a claim for wrongful termination against her subsequent employer when that employer terminated her after having been informed by her former employer that the employee was subject to a non-compete clause. The decision will have important consequences for companies with California employees in industries where non-competition and non-solicitation agreements are common.

In a recent decision issued by the Supreme Court of the State of New York, New York County, a lawsuit brought by Marsh USA Inc. against two former employees and a competitor was sustained in the face of the defendants' challenge to the complaint on grounds of forum non conveniens and failure to state a cause of action. The decision is notable for its application of New York non-competition law to California residents, and Marsh's inclusion of forum selection clauses and choice of law provisions in its agreements with the individual defendants appears to have enabled it to avoid the draconian effect of California law upon those individual's non-compete agreements.

So far, Illinois courts have not followed a 2009 Illinois appellate decision, Sunbelt Rentals, Inc. v. Ehlers, 333 Ill.Dec. 791, 915 N.E.2d 862 (Ill. App. Ct. 2009), which rejected the "legitimate business interest" test long applied as a threshold issue by Illinois courts when deciding the enforceability of a restrictive covenant.

On June 17, 2010, in Ontario v. Quon, the United States Supreme Court decided that the City of Ontario, California could review the non-work-related text messages to and from a City police officer on a City-issued electronic pager. Although the opinion involved a governmental employer and was largely grounded in a 4th Amendment analysis, private employers can take some comfort from Supreme Court's express holding that the review of the officer's personal text messages on the employer-issued pager could be "regarded as reasonable and normal in the private-employer context."

A recent Third Circuit decision, Pharmethod v. Caserta, provides what amounts to a primer on Pennsylvania non-compete law.

Peter A. Steinmeyer and Jake Schmidt recently published an updated and expanded guide to drafting enforceable non-competition agreements in Illinois, addressing the Illinois Appellate Court's Sunbelt Rentals decision and the proposed "Illinois Covenants Not to Compete Act."

There has been a serious push to clarify the way Massachusetts regulates noncompetition agreements, and a bill attempting to reach a compromise between freedom of movement for employees and protection of employers' business interests has been making its way through the legislature.

On February 4, 2010, the United States District Court for the District of Maryland granted summary judgment to Plaintiff TEKsystems, Inc., a leading technical staffing and services company, and enjoined its former Director of Strategic Accounts, Jonathan Bolton, from violating certain restrictive covenants contained in his Employment Agreement

A bill recently introduced in the Illinois House of Representatives, the "Illinois Covenants Not To Compete Act," would substantially alter the law regarding non-competition agreements in Illinois. In most respects, it would limit the enforceability of no-competes and make them easier for individuals to challenge. However, in certain respects, the bill would make no-competes easier to enforce.

An article recently published in the New York Law Journal explores an employee's duty of loyalty and the permissible steps that employee may take, prior to termination of employment, in preparing to compete with the employer.

On January 29, 2010, in an unpublished opinion, Majestic Marketing, Inc. v. Nay, No. E047085 (Fourth District, Division Two), at least one California Court of Appeal appears to have recognized the viability of the trade secret exception to California Business & Professions Code ¶16600 prohibition of employee non-competition agreements.

In Zambelli Fireworks Manufacturing Co., Inc. v. Wood, the U.S. Court of Appeals for the Third Circuit recently held that a stock sale did not invalidate an employee's non-compete agreement.

In Baker v. Tremco Incorporated, a case applying Ohio law, the Indiana Supreme Court recently held that, for purposes of a non-competition agreement, competition with a subsidiary corporation also constituted competition with the parent.

As noted in a blog post in October 2009, in Sunbelt Rentals, Inc. v. Ehlers, 333 Ill.Dec. 791, 915 N.E.2d 862 (Ill. App. Ct. 2009), an Illinois appellate court reexamined and rejected over thirty years of well-established precedent regarding the enforceability of restrictive covenants. To date only one published decision, Aspen Marketing Services, Inc. v. Russell, No. 09 C 2864, 2009 WL 4674061 (N.D. Ill. Dec. 3, 2009), has cited Sunbelt. In that case, the Court noted its awareness of Sunbelt and its rejection of the legitimate business interest test, but applied that test anyway.

A recent decision from the California Court of Appeal questioned the viability of the trade secrets exception to California's broad prohibition against noncompete covenants.

A recent decision from the First Circuit Court of Appeals, Astro-Med, Inc. v. Nihon Kohden America, Inc. and Kevin Plant, which affirmed a jury verdict granting the plaintiff more than $1 million, illustrates that it is important for employers to be familiar with applicable state law with respect to their employees' continuing obligations to previous employers arising from restrictive covenants in employment agreements.

A trial court in Chicago recently held that because a restrictive covenant did not contain a provision extending the restricted period during any time of breach, there was no basis to re-write the contract to extend the restricted period. The court also declined to extend the restricted period on any equitable basis.

The Second Circuit Court of Appeals has rejected applications by IBM to prevent a former employee, David L. Johnson, from continuing to work at rival Dell Inc. IBM sought to enforce a non-compete agreement which Johnson intentionally signed in the wrong place.

From the mid-1970s until a few weeks ago, Illinois law on enforceability of restrictive covenants was clear: employers seeking to enforce a restrictive covenant first had to establish that the covenant was necessary to protect either confidential information or a near permanent customer relationship - the two recognized "legitimate business interests" sufficient to support a restrictive covenant under Illinois law.

In late September 2009, the Illinois Fourth District Court of Appeal, in Sunbelt Rentals, Inc. v. Ehlers, determined that the "legitimate business interest" test was not supported by any decision of the Illinois Supreme Court. Accordingly, the Sunbelt court held that, in determining whether a restrictive covenant is enforceable under Illinois law, a court should evaluate only the time-and-territory restrictions contained therein. In doing so, the Fourth District Court of Appeals departed from the clearly established case law of all appellate courts in Illinois (and also previous decisions of the Fourth District).

A federal judge in Illinois recently held that a contractual requirement that a professional race car driver pay post-employment royalties to his former employer is unenforceable.

A federal judge in Chicago recently held that continued employment for less than one year was not sufficient consideration for a post-employment restrictive covenant.

With pending legislation in Massachusetts seeking to do away with non-compete agreements, both sides are struggling to find the solution to the problem. The question is: How can Massachusetts make itself more attractive to the tech community? Is the answer to do away with non-compete agreements or to simply modify them and restrict their duration and scope?

Florida law, specifically section 542.335, Florida statutes, which generally authorizes courts to enforce non-compete and other post-employment restrictive covenants if reasonable, leaves a number of issues unaddressed. Several of those issues are addressed in an opinion issued recently by the Eleventh Circuit Court of Appeals in Proudfoot Consulting Co. v. Gordon (11th Cir., July 30, 2009). The Eleventh Circuit affirmed the district court's injunction, but reversed the $1.66 million damages award to the former employer.

Not many lawsuits under the Employee Retirement Income Security Act (“ERISA”) turn on whether an employer legitimately insisted that an employee sign a no-compete agreement in order to receive benefits, but a federal court lawsuit currently pending in Chicago presents that very scenario.

Specifically, in a case brought by a former Bank of America employee against Bank of America and others, Charles Corbisiero alleges that he was lured into continuing to work for Bank of America by a promise of certain allegedly vested bonuses and other benefits, only to be told upon his ...

A high-profile no-compete case currently pending in Chicago may turn on whether merely "preparing to compete" constitutes "engaging in" contractually prohibited business activities.

A recent decision of the United States District Court, Southern District of New York, illustrates the importance for employers of making sure non-competition agreements are correctly executed by employees.

A recent article in Lawyer USA discusses how litigation over noncompetition and nonsolicitation agreements has been on the rise in recent years.

In EMC Corp. v. David A. Donatelli, case number 09-1727-BLS2 in the Suffolk County Superior Court in Massachusetts, the Court modified the preliminary injunction it had issued against Donatelli by allowing him to start working for HP in California. The Court issued a narrow order tied to the protectable interest of EMC while at the same time, not depriving Donatelli his opportunity to pursue his livelihood in a competitive business.

On May 4, the Superior Court in Massachusetts ruled that EMC, a Massachusetts corporation, could obtain injunctive relief preventing Mr. Donatelli, who had been President of one of EMC's major divisions, from starting a job at HP in California even though California has a statutory prohibition on covenants not to compete. The Court made some important findings in its decision.

An executive's resignation and intention to begin work for a competitor of his former employer has resulted in a bicoastal battle of lawsuits over the terms of a noncompete clause in his employment agreement.

States vary widely in their willingness to enforce noncompetition agreements. Illinois, for example, will enforce a noncompetition agreement, but only after fairly rigorous judicial scrutiny. Notwithstanding such scrutiny, Illinois employers can draft enforceable noncompetition agreements.

Penthouse Club, the adult nightclub chain, filed a suit seeking a temporary restraining order and other injunctive relief against a former director for violating a noncompete and nondisclosure agreement.

In a recent case, Florida's Third District Court of Appeals reversed the issuance of a temporary injunction because it failed to specify with reasonable particularity the conduct being enjoined.

As the enforcement of non-competition agreements becomes more crucial than ever, some employers are including provisions that require or promise payments to the former employees during the post-employment period of non-competition. If properly crafted, such a payment may act as the additional consideration needed for the promise not to compete and may dissipate the former employee's argument of undue hardship during the non-competition period. Employers promising to make such payments must be prepared to follow through with their promises, as the Eighth Circuit recently held.

The Florida Second District Court of Appeals' recent decision in Fiberglass Coatings v. Interstate Chemical, Inc., Case No. 2DO8-1847 (Fla. 2d DCA, February 27, 2009), illustrates an interesting defense to a tortious interference claim. Absent evidence that the new employer induced the former employee to violate his non-compete agreement, merely hiring an employee whom the employer knows to be in violation of a non-compete agreement may not be sufficient to sustain a tortious interference claim under Florida law.

A Florida trial court should not have entered a temporary injunction enforcing a non-compete agreement against a former employee on an ex parte basis, i.e., without notice to the employee, according to Florida's Fourth District Court of Appeals in a recent decision, Bookall v. Sunbelt Rentals, Case No. 08-26291 (Fla. 4th DCA, December 3, 2008).

Under Florida law, where an employment contract expires by its terms and the parties continue to perform as before, an implication arises that they have mutually assented to a new contract containing the same provisions as the old. But this principle does not apply to non-competes and other restrictive covenants contained in employment contracts, as illustrated by a recent decision by the Third District Court of Appeal, Zupnik v. All Florida Paper, Inc., Case No. 3D08-1371 (Fla. 3d DCA, Dec. 31, 2008).