Trade Secrets & Employee Mobility

The National Labor Relations Board’s top lawyer, Jennifer Abruzzo, issued  a General Counsel memo today instructing the Labor Board’s Regional Directors of her position  that noncompete clauses for employees protected by the National Labor Relations Act (NLRA) (i.e., nonmanagerial and nonsupervisory employees) in employment contracts and severance agreements violate federal labor law except in limited circumstances. The memo, while not law, outlines her legal theory which she will present to the National Labor Relations Board, which makes law primarily through adjudication of unfair labor practice cases.  The memo instructs the agency’s field offices of the position that the General Counsel is instructing them to take when investigating unfair labor practice charges claiming that such clauses interfere with employees’ rights under the NLRA.

For the last decade, one of the biggest issues in Illinois noncompete law has been what constitutes adequate consideration for a post-employment restrictive covenant, apart from employment lasting at least two years after the agreement was signed.  The “24 month rule” set forth in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1^st) 120327 has caused much head-scratching, and the Illinois legislature essentially punted on the issue in the recent amendments to the Illinois Freedom to Work Act, 820 ILCS 90/1, et seq. (effective as of January 1, 2022).  (Full disclosure: One of the authors of this post advised the Illinois Chamber of Commerce in its negotiations with the State legislature over this law and, hence, can speak from personal experience on the legislative history of this “punt.”)

As expected, on May 24, 2023, Governor Tim Walz signed a new law banning noncompete agreements in Minnesota.  The ban will be effective for such agreements entered on or after July 1, 2023.

By enacting the Omnibus Jobs, Economic Development, Labor and Industry appropriations bill (MN SF 30035), Minnesota becomes only the fourth state (along with California, Oklahoma and North Dakota) to ban noncompetes. 

The day after obtaining federal brokerage authority for the logistics company he formed a month earlier, Christopher Johnson, a North Carolina resident, resigned from his employment with Cincinnati-based Total Quality Logistics, LLC (“TQL”). TQL then sued Johnson and his company Patriot Logistics (“Patriot”) in the Clermont County Court of Common Pleas, alleging Johnson breached his employment agreement and misappropriated trade secrets in forming Patriot while still employed by TQL.

Johnson and Patriot removed the case to federal district court based on diversity jurisdiction. TQL moved to remand the case back to state court, arguing the $75,000 amount in controversy requirement was not met. After the federal court denied TQL’s remand motion, TQL voluntarily dismissed the case and refiled in state court. Johnson and Patriot removed the case yet again.

According to Bloomberg, The Federal Trade Commission (“FTC”) is not expected to vote on the final version of a new rule that would ban noncompete clauses in employment contracts until April 2024. The rule defines a “non-compete clause” as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”

As we previously reported, the proposed rule would ban employers from imposing noncompete agreements on their employees. The rule would also require employers to rescind all preexisting noncompete agreements and to notify all employees who had been subject to a noncompete agreement of the recission. Although the proposed rule would not prohibit other kinds of employment restrictions, such as nondisclosure agreements, certain restrictions that are overbroad could be subject to the new rule. For example, a non-disclosure agreement between an employer and an employee that is written so broadly that it effectively precludes the employee from working in the same field would be considered a “de facto” noncompete clause.

Earlier this year, the United States Department of Justice (“DOJ”) announced that it was launching the Disruptive Technology Strike Force (“Strike Force”) in an effort “to target illicit actors, strengthen supply chains and protect critical technological assets from being acquired or used by nation-state adversaries.”  The DOJ’s initial announcement can be found here.  The Strike Force is co-led by the DOJ and Commerce Department with the goal of countering efforts by hostile nation-states seeking to illegally acquire sensitive United States technology.  On May 16, 2023, the DOJ announced criminal charges in five cases from five different U.S. Attorney’s Offices in connection with the Strike Force’s efforts.  Two of the cases involve allegations of trade secret theft from U.S. technology companies with the intent to market the technology in foreign countries. 

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

Human capital often drives the value of merger and acquisition (M&A) deals in the health care industry. Buyers involved in these deals must retain key employees to secure that value.

Epstein Becker Green’s Spilling Secrets hosts Erik W. Weibust and Katherine G. Rigby join forces with the Diagnosing Health Care podcast hosts Daniel L. Fahey and Timothy J. Murphy to talk about strategies to retain these employees.

A Ruling and Order issued on April 28, 2023 by the U.S. District Court for the District of Connecticut in United States v. Patel, et al. ran the government’s losing streak to four failed trials seeking to criminally prosecute alleged wage-fixing and no-poach agreements. 

To review, in 2016 the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) issued Antitrust Guidance for Human Resources Professionals that warned of potential criminal prosecution for so-called “naked” no-poach agreements, i.e., agreements among competing businesses to restrict hiring or compensation of employees, untethered to any legitimate collaborative relationship. 

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

The inevitable disclosure doctrine, expected to be a widely used tool to protect trade secrets after the famous PepsiCo, Inc. v. Redmond case in 1995, has not been as commonly employed as anticipated. But is the legal landscape about to change?

Epstein Becker Green (EBG) is pleased to announce the launch of our 50-State Noncompete Survey, designed to give employers a desktop guide to the great variety and specificity of noncompete laws across the United States.

EBG's 50-State Noncompete Survey is here to help provide key insights on all of the following areas of noncompete law in your state: