Trade Secrets & Employee Mobility

As our antitrust colleagues explained recently, on August 26, 2022, the Federal Trade Commission (FTC) published its “Strategic Plan for Fiscal Years 2022–2026,” as required under the GPRA Modernization Act of 2010.  Readers of this blog will be interested in two small, but important, items in the Strategic Plan related to noncompete agreements.

First, under “Objective 2.1: Identify, investigate, and take actions against anticompetitive mergers and business practices,” the FTC opines that “[a]nticompetitive mergers and business practices harm Americans through higher prices, lower wages, or reduced quality, choice, and innovation. Enforcement of antitrust laws provides substantial benefits to the public by helping to ensure that markets are open and competitive.” It then identifies certain “[s]trategies” that the FTC intends to pursue over the next five years, including “[i]ncreas[ing] use of provisions to improve worker mobility including restricting the use of non-compete provisions.” It’s unclear exactly what provisions it intends to increase its use of, but nonetheless the FTC will be focused on the issue.

Thomson Reuters Practical Law has released the 2022 update to “Trade Secret Laws: Illinois,” a Q&A guide to state law on trade secrets and confidentiality for private employers, authored by our colleagues Peter Steinmeyer and David Clark at Epstein Becker Green.

Now on Spilling Secrets, our podcast series on the future of non-compete and trade secrets law:

Two and a half years into the pandemic, it appears that remote work is here to stay, to varying degrees, in virtually all industries. How do restrictive covenants work in this remote work era? In this Spilling Secrets episode, hear how employers are addressing restrictive covenant concerns now that employees may be located anywhere.

As we have previously reported, the Colorado Assembly passed sweeping changes to the state’s noncompete law that, among other things, (1) set compensation floors for enforcement of both noncompetes ($101,250) and customer non-solicitation agreements ($60,750), which will be adjusted annually based on inflation; (2) require a separate, standalone notice to employees before a new or prospective worker accepts an offer of employment, or at least 14 days before the earlier of: (a) the effective date of the restrictions, or (b) the effective date of any additional compensation or changes in the terms or conditions of employment that provide consideration for the restriction, for existing workers; and (3) prohibit the inclusion of out-of-state choice-of-law and venue provisions. Those amendments take effect today, August 10, 2022.

Compliance with these amendments is even more important due to a prior amendment, effective earlier this year, which provides that violations of Colorado’s noncompete law can subject employers to criminal liability (a Class 2 misdemeanor, which carries possible punishment of 120 days in prison, a $750 fine per violation, or both), as well as hefty fines and possible injunctive relief and attorneys’ fees to aggrieved workers.

Our colleagues Peter A. Steinmeyer, Erik W. Weibust, and Angel A. Perez, attorneys at Epstein Becker Green, co-authored a 2022 Thomson Reuters Practical Law Practice Note titled “Ethical Issues for Attorneys Related to Restrictive Covenants.”

Following is an excerpt (see below to download the full version in PDF format):

As readers of this blog likely know, many states have entirely different statutory schemes for noncompetes in the healthcare industry. Indeed, while 47 states generally permit noncompetes, more than a dozen expressly prohibit or limit them in certain sectors of the healthcare industry – typically for patient-facing clinicians.

For example, in Massachusetts, noncompetes are not permissible in “[a]ny contract or agreement which creates or establishes the terms of a partnership, employment, or any other form of professional relationship with a physician registered to practice medicine . . . , which includes any restriction of the right of such physician to practice medicine in any geographic area for any period of time after the termination of such partnership, employment or professional relationship.” The same restriction applies to Massachusetts nurses, psychologists, and social workers.

Despite the Supreme Court’s recent 6-3 ruling in West Virginia v. EPA that regulatory agencies must have “clear congressional authorization” to make rules pertaining to “major questions” that are of “great political significance” and would affect “a significant portion of the American economy,” and the import of that ruling to the area of noncompete regulation (which we addressed in detail in Law360), the Federal Trade Commission (FTC) and National Labor Relations Board (NLRB) announced yesterday that they are teaming up to address certain issues affecting the labor market, including the regulation of noncompetes.

In a Memorandum of Understanding (MOU) issued on July 19, 2022, the FTC and NRLB shared their shared view that:

Welcome to Spilling Secrets, a new monthly podcast series on the future of non-compete and trade secrets law.

If you’re hiring from a competitor amid the Great Resignation, one of your top priorities is not getting sued.

Washington, D.C. employers will not need to scrap all their non-compete agreements after all.  On July 12, 2022, the D.C. Council (the “Council”) passed the Non-Compete Clarification Amendment Act of 2022 (B24-0256) (the “Amendment”), which among other things, tempers the District’s near-universal ban on non-compete provisions to permit restrictions for highly compensated employees.  For further analysis on the original D.C. Ban on Non-Compete Act, please see our previous articles here and here.

The Council delayed the initial ban several times in response to feedback from employer groups.  However, barring an unlikely veto or Congressional action during the mandatory review period, the amended ban will take effect as of October 1, 2022.  We detail the key revisions to the ban below.

Since the Supreme Court’s decision in Dobbs v. Jackson Women’s Health Organization, state legislatures across the country have accelerated their discussion of new laws either restricting or further protecting access to abortions.  A state senate bill in South Carolina, S. 1373 currently pending in the Senate Committee on Medical Affairs, would not only ban almost all abortions in that state, but would also afford novel whistleblower protections. Specifically, S. 1373 imposes criminal penalties, punishable by imprisonment for ten years, for persons who “take any action to impede a whistleblower from communicating about a violation of this article with the Attorney General, a solicitor, or any other person authorized to bring an action in violation of this article.”