Trade Secrets & Employee Mobility

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.

In an article published in the December 22, 2010 New York Law Journal (entitled "Nonhire Agreements as Antitrust Violations"), we discuss a complaint and proposed settlement filed in September 2010 by the Department of Justice against several well-known technology companies, which alleges that those companies entered into various bilateral agreements in which they agreed not to actively solicit each other's highly skilled technical employees, and that those agreements violated Section 1 of the Sherman Act, 15 U.S.C. § 1. The DOJ filed a similar suit on December 21, 2010 against another well-known company. Accordingly, companies who have entered or are considering entering into such agreements should review their practices to avoid unwanted attention from governmental authorities.

Please join me and other attorneys from my firm, EpsteinBeckerGreen, as we present a full-day program covering labor and employment law topics that have increasingly impacted employers over the past two years. In addition, we will offer an outlook of what we should expect in the coming two years.

A former Technical Director for a painting and coating company who pled guilty to downloading trade secrets from a secure computer system and transferring them to external thumb drives recently was sentenced to 15 months in federal prison to be followed by three years of supervised release.

The Iowa Court of Appeals recently affirmed a jury's conclusion that detailed information about insurance policy holders was a protected trade secret.

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.