Trade Secrets & Employee Mobility

Microsoft Corp. announced last week that it is immediately eliminating noncompetes for all employees below the partner and executive levels, including doing away with all existing noncompetes for covered employees. In a June 8, 2022 blog post, Microsoft’s Deputy General Counsel and Vice President of Human Resources said the following:

Empowering employee mobility: Microsoft believes that all employees should be empowered to work at a company they love and in a role where they thrive. We work hard to retain our world-class talent by making people the priority, and creating a culture that attracts and inspires world-class talent to unlock innovation aligned to our mission. While our existing employee agreements have noncompete obligations, we do not endorse the use of such provisions as a retention tool. We have heard concerns that the noncompetition clauses in some U.S. employee agreements, even when rarely and reasonably enforced, feel at odds with our talent principles. With these concerns in mind, we are announcing that we are removing noncompetition clauses from our U.S. employee agreements, and will not enforce existing noncompetition clauses in the U.S., with the exception of Microsoft’s most senior leadership (Partners and Executives), effective today. In practice, what this means is those U.S. employees will not be restricted by a noncompete clause in seeking employment with another company who may be considered a Microsoft competitor. All employees remain accountable to our standards of business conduct and other obligations to protect Microsoft’s confidential information. (Emphasis added).

According to a report in the Wall Street Journal last week, the Federal Trade Commission is considering new regulations to prohibit the use of noncompetes and to target their use in individual cases through enforcement actions. Although President Biden issued a vague Executive Order early in his administration that “encourage[d]” the FTC to “consider” exercising its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” no concrete action has been taken to date. That is not entirely surprising given that, until last month, the Commission was split 2-2 along partisan lines. What has since changed that may now make federal noncompete regulation a real possibility, however, is the appointment last month of Alvaro Bedoya to the FTC, giving the Democrats a 3-2 majority.

Lina Khan, the 33-year-old Biden-appointed Chair of the FTC, told the Wall Street Journal, “We feel an enormous amount of urgency given how much harm is happening against the workers. This is the type of practice that falls squarely in our wheelhouse.” Other Commissioners disagree. Commissioner Noah Phillips has said the agency doesn’t have legal authority to impose such rules, and Commissioner Christine Wilson said last year it was “premature” to pass a federal rule because many states had taken their own actions to address noncompetes. Indeed, noncompete regulation has been the province of the states for over 200 years.

We have written recently about legislative action in various states concerning their restrictive covenant laws, including Washington state’s prohibitions on nondisclosure and nondisparagement provisions in employment agreements, a proposal in Connecticut to codify limitations on noncompetes, and a law passed in Colorado that would limit the use and enforcement of noncompetes and non-solicitation provisions. Another state that is considering new noncompete legislation is New Hampshire.

On March 24, 2022, Washington State signed into law the Silenced No More Act (the “Act”), greatly restricting the scope of nondisclosure and nondisparagement provisions employers may enter into with employees who either work or reside in Washington State. Effective June 9, 2022, the Act prohibits employers from requiring or requesting that an employment agreement contain a provision:

not to disclose or discuss conduct, or the existence of a settlement involving conduct, that the employee reasonably believed under Washington state, federal or common law to be illegal discrimination, illegal harassment, illegal retaliation, a wage and hour violation, or sexual assault, or that is recognized as against a clear mandate of public policy….

We wrote recently about a proposed bill that was introduced in the New Jersey State Assembly on May 2, 2022, which would limit certain provisions in restrictive covenants, and a bill that was passed the following day by the Colorado Senate and is expected to go into effect in August that would likewise limit the enforceability of noncompetes and other post-employment restrictive covenants. Not to be left out, members of the Connecticut General Assembly recently introduced House Bill 5249, which would limit the applicability of noncompete agreements in that state as well. The bill is very similar in many respects to the noncompete law passed in 2018 in Massachusetts, and likely borrowed heavily from that law. Here are the details:

We wrote in January about a small change in Colorado law that could have large effects because it criminalized the enforcement of noncompete agreements that violate its general noncompete statute, C.R.S. § 8-2-113. Well, the Colorado General Assembly is at it again. Passed by the Colorado Senate on May 3, 2022, and now awaiting Governor Jared Polis’s signature, HB 22-1317 would further amend C.R.S. § 8-2-113 to substantially limit the enforceability of noncompetes and other restrictive covenants for any workers other than those who are “highly compensated,” as well as ...

A California Superior Court Judge in Orange County granted an attorneys’ fees award in the amount of $5.8 million to defendant Landmark Event Staffing Services, Inc. (“Landmark”) in Contemporary Services Corporation v. Landmark Event Staffing Services, Inc., Case No. 30-2009-00123939. This ruling reinforces the importance of carefully calibrating litigation strategy in trade secrets misappropriation cases to focus on vindicating legally protectable interests. Trade secrets litigation should not be used merely as an aggressive tactic to stifle a competitor.

In a pending trial in federal court in Boston in the case U.S. v. Haoyang Yu, et al., prosecutors accuse a design engineer and naturalized citizen from China of stealing microchips (monolithic microwave integrated circuits or “MMICs” used in radio, cellular and satellite communications) from his former employer Analog Devices, Inc. As reported in Law360, during opening statements last week, a federal prosecutor told the jury, “It’s a story of fraud. It’s a story of possession of stolen trade secrets. It’s a story of illegal exports and immigration fraud.” In support ...

On May 2, 2022, a bill “limiting certain provisions in restrictive covenants” was introduced in the New Jersey State Assembly.  In recent years, similar bills have been proposed in various state legislatures.  Some such bills, after much lobbying, haggling and revisions, have even been enacted into law, including, for example, in Massachusetts, Illinois and Washington.

As featured in #WorkforceWednesday:  There has been a wave of legislation restricting non-compete agreements in the states, as well as a focus on such agreements at the federal level.

The continued shift towards remote work has also complicated non-competes.

How do employers maintain compliance? Attorney Erik Weibust tells us more.