Trade Secrets & Employee Mobility

Thomson Reuters Practical Law has released the 2024 update to “Preparing for Non-Compete Litigation,” co-authored by Peter A. Steinmeyer.

The Note describes the steps an employer can take to prepare to successfully litigate a non-compete action, the primary options for enforcing a non-compete agreement, and the strategic decisions involved with each option. It discusses gathering evidence, assessing the enforceability of a non-compete, considerations before initiating legal action, cease and desist letters, seeking declaratory judgments, damages, and ...

On June 21, 2023, the Federal Reserve Bank of Minneapolis issued a report entitled “New data on non-compete contracts and what they mean for workers” that calls into question the assumptions made by the Federal Trade Commission (FTC) in its recent rulemaking efforts.[1]

The report begins by stating what we have been saying for a long time: that “relatively little survey evidence [is] available” about the actual effect of noncompetes on workers. In other words, it is not that there is substantial evidence that noncompetes help workers (although there are studies showing that they can in certain circumstances), but rather that the data is slim and, contrary to what the FTC and the media might lead the public to believe, there is likewise not settled evidence that noncompetes harm workers. As the Minnesota Fed points out, “[t]he recent explosion of public discussion about non-competes has made clear the need for better and more systematic data collection.”

Earlier today (June 20, 2023) the New York State Assembly voted in favor of a noncompete ban that was passed by the New York State Senate on June 7.  In previous posts here and here, we have discussed in detail this bill that would ban noncompete agreements in New York State.  The next stop for the bill is the office of Governor Kathy Hochul, who many believe is likely to sign it into law.  Though it may be difficult to believe, New York is on the precipice of becoming the fifth state (after California, North Dakota, Oklahoma and, as of July 1, 2023, Minnesota) to ban noncompetes.  Stay tuned…

On May 17, 2023, U.S. Senator Rob Wyden (D-OR) announced the release of a long-awaited report on the U.S. Government Accountability Office’s multi-year investigation into the use of noncompete agreements across the U.S. labor market. In announcing the release, Senator Wyden said that the GAO report “highlights the problems of noncompete agreements – particularly their impact on limiting workers’ fundamental freedom to change jobs,” and pledged to “fight tooth and nail for fair labor laws that protect workers and promote the creation of new businesses in Oregon and nationwide.”

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. 

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. 

It is no secret that political winds are blowing against the practice of employers requiring certain employees to sign non-competition agreements, as demonstrated most saliently earlier this year when the Federal Trade Commission (“FTC”) introduced its proposed rule that would ban non-competes nationwide, with retroactive effect.  While thousands of comments have been submitted to the FTC regarding that proposed rule (and the comment period is scheduled to close this week), legislators in many states have been busy introducing legislation that would ban or limit the use of non-competes.

FTC Commissioner Christine Wilson, published an Op-Ed in the Wall Street Journal today in which she announced her resignation from the FTC and explained her reasoning. Readers may recall that Commissioner Wilson was the lone dissenting voice on the FTC’s proposed rule banning noncompetes nationwide.

Thomson Reuters Practical Law has released the 2023 update to “Preparing for Non-Compete Litigation,” co-authored by our colleague Peter A. Steinmeyer.

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

Non-compete litigation is typically fast-paced and expensive. An employer must act quickly when it suspects that an employee or former employee is violating a noncompete agreement (also referred to as a non-competition agreement or non-compete). It is critical to confirm that there is sufficient factual and legal support before initiating ...

The Federal Trade Commission (FTC) has announced that it will be hosting a public forum on February 16, 2022, from 12:00-3:00 p.m. ET, to discuss its proposed nationwide noncompete ban. The forum is intended to supplement the FTC’s request for written comments, which as of today have exceeded 10,000. According to the FTC, “[t]he commission will hear from a series of speakers who have been subjected to noncompete restrictions, as well as business owners who have experience with noncompetes.” It is unclear whether any of the “business owners who have experience with ...

As we predicted, earlier today, 100 industry organizations submitted a request to the Federal Trade Commission (FTC) to extend the comment period for its proposed rule banning noncompetes nationwide by an additional 60 days. According to the letter, “[t]he regulated community should be given sufficient time to assess the potential consequences of the rulemaking and develop insightful comments for the Commission to consider.” The letter further states:

Our colleagues Erik W. Weibust, Peter A. Steinmeyer, and Stuart M. Gerson co-authored an article in the Legal Backgrounder, published by the Washington Legal Foundation, titled “After 200+ Years Under State Law, FTC Proposes to Sweep Away All Noncompetes in Unauthorized Federal Power Grab.”

Following is an excerpt:

“Practices that three unelected bureaucrats find distasteful will be labeled with nefarious adjectives and summarily condemned, with little to no evidence of harm to competition. I fear the consequences for our economy, and for the FTC as an institution”

 – FTC Commissioner Christine S. Wilson

The Federal Trade Commission (“FTC”) started 2023 with a bang. In addition to issuing a proposed Rule that would ban post-employment noncompetes nationwide, the FTC announced that it had settled two previously undisclosed enforcement actions and entered into proposed consent orders with three employers based on a novel legal theory.  According to the Complaints filed in each action, the FTC contends that the defendant employers’ use of broad post-employment non-compete agreements constituted “unfair methods of competition” in violation of Section 5 of the FTC Act. Unfortunately, the timing of the announcement of these enforcement actions—one day before announcing the proposed rule—seems intended to discourage employers from challenging the FTC’s authority to issue rules banning, or otherwise regulating, noncompetes, and to intimidate the business community.

Thomson Reuters Practical Law has released the 2022 update to “Non-Compete Laws: Connecticut,” a Q&A guide to non-compete agreements between employers and employees for private employers in Connecticut, co-authored by our colleagues David S. Poppick and Elizabeth S. Torkelsen, attorneys at Epstein Becker Green.

Thomson Reuters Practical Law has released the 2022 update to “Non-Compete Laws: Illinois,” a Q&A guide to non-compete agreements between employers and employees for private employers in Illinois, co-authored by our colleagues Peter Steinmeyer and David Clark, Members of the Firm in the Employment, Labor & Workforce Management practice.

Perhaps we were wrong. Or perhaps we were just not thinking creatively enough. After President Biden issued his “Executive Order on Promoting Competition in the American Economy,” in which he “encourage[d]” the Federal Trade Commission (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,” we assumed that Lina Khan, the 33-year-old Biden-appointed Chair of the FTC (and a vocal opponent of noncompetes), would take the torch and propose a Rule prohibiting, or at the very least severely limiting, the use of noncompetes. And she may still do so.

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 we previously reported, the Colorado General Assembly passed a bill in May making substantial amendments to Colorado’s noncompete statute, C.R.S. § 8-2-113. Governor Jared Polis signed the bill on June 8, 2022, meaning the amendments will go into effect at 12:01 a.m. on August 10, 2022, which is only four weeks away. That may sound like a long time, but it will go by quickly.

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 ...

The Wyoming Supreme Court recently made an important change to the way restrictive covenant agreements are evaluated by courts in that state.  For many years, courts in Wyoming – as in many other states – have followed the so-called “blue pencil” rule when presented with a non-competition or non-solicitation agreement whose restrictions appear to be unreasonable.

Many employers have granted their white collar workers increased flexibility to work remotely in response to the pandemic. As a result, some employees have moved away from the areas surrounding their offices and into places with lower costs or higher quality of living. In cases where an employee with a non-compete moves to a state such as California, which has a prohibition against any “contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind,” that can present potential problems for a Company. Cal. Bus. & Prof. Code. § 16600.

Colorado statutory law has traditionally limited enforcement of restrictive covenants.  C.R.S. § 8-2-113, entitled “Unlawful to intimidate worker – agreement not to compete,” provides that all contractual restrictions on a person’s post-employment competitive activity are “void” unless they fit into one of four categories: (1) contracts for the purchase and sale of a business or the assets of a business; (2) contracts for the protection of trade secrets; (3) contracts providing for recovery of expenses of educating and training an employee who have served an employer less than two years; and (4) agreements with executives, management personnel, and their professional staff.  This statute applies not only to non-compete agreements, but also to agreements not to solicit customers or employees.  Most companies trying to defend their restrictive covenants do so under the exception to protect trade secrets or the exception for executives/managers/professional staff.

On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy, which encourages the Federal Trade Commission (“FTC”) to employ its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”  Executive Order, Section 5(g).  While the language in the Executive Order refers to the “unfair” use of non-compete clauses, the Administration’s explanatory statement makes clear that “the President encourages the FTC to ban or ...

Oregon’s Senate Bill 169, signed May 21, 2021 strengthens Oregon’s existing restrictions on noncompete agreements.  Unlike Oregon’s 2019 law which imposed new notice requirements on employers seeking to enter into enforceable noncompetes, Senate Bill 169’s changes are more subtle though just as impactful.

Previously, noncompete agreements which failed to comply with Oregon’s statutory requirements were “voidable.”  Senate Bill 169 declares noncompliant noncompetes entered into after January 1, 2022 “void” ab initio.  This seemingly minor change may ...

New Jersey may be poised to become the latest state to adopt strict procedural and substantive requirements on post-employment non-compete agreements. Assembly Bill No. 1650, if passed, would substantially overhaul New Jersey’s laws regarding post-employment non-compete agreements by, among other things, limiting the types of employees against whom a non-compete agreement is enforceable, as well as limiting the time, scope and geographic region of a non-compete agreement. Assembly Bill No. 1650 still permits post-employment non-compete agreements so long as the ...

We’re pleased to present the 2021 update to “Hiring from a Competitor: Practical Tips to Minimize Litigation Risk,” published by Thomson Reuters Practical Law.

Following is an excerpt – see below to download the full version:

A Practice Note describing the steps an employer can take to minimize litigation risk when hiring from a competitor. This Note discusses potential statutory and common law claims when hiring from a competitor, the need to identify any existing contractual restrictions a potential new hire may have, how to avoid potential issues during the ...

On February 25, 2021, the Workforce Mobility Act, a bipartisan bill to limit the use of non-compete agreements, was introduced in the U.S. Senate by Senators Chris Murphy (D-Conn.), Todd Young (R-Ind.), Kevin Cramer (R-N.D.) and Tim Kaine (D-Va.), and in the U.S. House of Representatives by Scott Peters (D-Cal.).

This year’s Workforce Mobility Act is the latest of several attempts in recent years at the federal level to restrict non-compete agreements through legislation.  Despite bipartisan support at times, none has passed either the Senate or the House.  Will there be a ...

A recent report issued by the Trade Secrets Committee of the New York City Bar recommends that New York State’s legislature adopt statutory guidelines governing the use of non-compete agreements for lower-salary employees.

As explained in the report, statutory limitations on the use of non-compete agreements have been a hot issue in many states and even at the federal level in recent years.  New York currently has no statutory law generally concerning trade secrets or non-compete agreements.  The report advocates a limited change to New York’s unique status as a common law ...

The District of Columbia is bracing for a transition.  But while employers across the country wait to see what changes the Biden Administration may bring, Washington, D.C. employers should prepare for a drastic and imminent change in their own backyard.

As we previously reported, last month the District of Columbia Council passed the Ban on Non-Compete Agreements Amendment Act of 2020 (D.C. Act 23-563) (the “Act”).  On January 11, 2021, Mayor Bowser signed the legislation. It will now be sent to Congress for the congressional review period set forth by the Home Rule Act.  Absent ...

Non-compete agreements may all but disappear from the Washington, D.C. employment landscape in 2021.  On December 15, 2020, the District of Columbia Council voted 12-0 to approve the Ban on Non-Compete Agreements Amendment Act of 2020 (B23-0494) (the “Bill”), which would prohibit the use and enforcement of non-compete agreements for all employees except certain highly paid physicians.  If enacted into law, Washington, D.C. will have adopted a much stricter policy than several other states  that have recently restricted the use of non-compete agreements—including its ...

We’re pleased to present the 2020 update to “Hiring from a Competitor: Practical Tips to Minimize Litigation Risk,” published by Thomson Reuters Practical Law.

Following is an excerpt - see below to download the full version:

In most industries, competition is not limited to battles over customers and clients, but also includes efforts to recruit, employ, and retain the most productive and talented workforce. In fact, many employers consider their employees to be their most valuable assets and vigorously work to prevent competitors from taking those assets. For that ...

On April 27, 2020, the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court’s decision to grant a preliminary injunction preventing a real estate agent from working for a competitor, because her non-compete, attached to a grant of restrictive stock units, was likely enforceable despite the agent’s forfeiture of the company stock.

The employee in this case worked for Martha Turner Sotheby’s International Realty (“Martha Turner”) in Houston, Texas for over four years. Approximately nine months before her resignation, Martha Turner’s parent company ...

Joining many other states that in recent years have enacted laws regarding physician non-competition agreements, Indiana recently enacted a statute that will place restrictions on such agreements which are originally entered into on or after July 1, 2020.

Under Pub. L. No. 93-2020 (to be codified in part as Ind. Code § 25-22.5-5.5) (2020), which will take effect on July 1, 2020, for a non-compete to be enforceable against a physician licensed in Indiana, the agreement must contain the following provisions:

1. A provision that requires the employer of the physician to provide the ...

Thomson Reuters Practical Law has released the 2019 update to “Non-Compete Laws: Connecticut,” a Practice Note co-authored with David S. Poppick and Carol J. Faherty.

See below to download it in PDF format—following is an excerpt:

OVERVIEW OF STATE NON-COMPETE LAW

1. If non-competes in your jurisdiction are governed by statute(s) or regulation(s), identify the state statute(s) or regulation(s) governing:

• Non-competes in employment generally.
• Non-competes in employment in specific industries or professions.

GENERAL STATUTE AND REGULATION

Connecticut has no ...

Peter A. Steinmeyer and David J. Clark, Members of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s Chicago and New York offices, respectively, authored a Thomson Reuters Practical Law Q&A guide, "Non-Compete Laws: Illinois."

Following is an excerpt:

A Q&A guide to non-compete agreements between employers and employees for private employers in Illinois. This Q&A addresses enforcement and drafting considerations for restrictive covenants such as post-employment covenants not to compete and non-solicitation of customers and employees ...

The recently passed Act to Promote Keeping Workers in Maine is poised to dramatically alter the status of restrictive covenants in Maine.  The Act accomplishes this by: (1) prohibiting employers from entering into no-poach agreements with one another; (2) barring employers from entering into noncompetes with lower wage employees; (3) limiting employers’ ability to enforce noncompetes; (4) mandating advanced disclosure of noncompete obligations; and (5) imposing a time delay between when an employee agrees to the terms of a noncompete and when the noncompete obligations ...

Effective as of October 1, 2018, Massachusetts will become the 49^th state to adopt a version of the Uniform Trade Secrets Act (leaving New York as the only holdout). Massachusetts did so as part of a large budget bill recently signed into law, which also resulted in the adoption of the Massachusetts Noncompetition Agreement Act. (The text of the Massachusetts version of the Uniform Trade Secrets Act is set out on pages 47-52 of the bill, H. 4868, while the effective date is set out on page 117. Here is a link to the entire budget bill.)

While there are differences from existing Massachusetts ...

So far, the year 2018 has brought an increasing number of labor and employment rules and regulations. To help you stay up to date, we are pleased to invite you to join our Employment, Labor & Workforce Management Webinar Series. Each month, we will focus on a specific industry, topic, or practice area.

Our July webinar will be hosted by Epstein Becker Green’s Health Employment and Labor (HEAL) strategic service team and Trade Secrets and Employee Mobility service team. This webinar will provide an overview of the legal landscape of non-compete agreements in the health care industry ...

Many physicians and other health care workers are familiar with restrictive covenants like non-competition and/or non-solicitation agreements, either as employees who have been asked to sign such covenants as a condition of their employment or as business owners seeking to enforce such covenants to protect their medical practices from competition. These covenants are usually designed to prohibit physicians or other practitioners from leaving and setting up a competing practice nearby using patient contacts, information, and/or training that they received during their ...

Two western states, Utah and Idaho, have recently passed or amended their statutes dealing with post-employment restrictions on competition.  This continues a national trend in which new state law in this area is increasingly the product of legislative action rather than judicial interpretation.  Thus, even if an employer has no current presence in these states, it is worth one’s time to understand these changes because they could soon be coming your way.

In Utah, the legislature amended the two-year old Post-Employment Restrictions Act (which we had written about before) to ...

The Colorado Court of Appeals, in Crocker v. Greater Colorado Anesthesia, P.C., recently examined several unique enforceability considerations with respect to a physician non-compete agreement.  Of particular interest was the Court’s treatment of a liquidated damages provision in the agreement.  Pursuant to a Colorado statute (8-2-113(3), C.R.S. 2017), the Court held that the provision was unenforceable because the liquidated damages were not reasonably related to the injury actually suffered.

Michael Crocker, a former physician-shareholder at Greater Colorado ...

Earlier this week, Illinois Attorney General Lisa Madigan sued payday loan company Check Into Cash of Illinois, LLC for allegedly requiring that all of its employees in Illinois, regardless of position or pay, sign a standard non-compete agreement which broadly limits their employment mobility for one year post-termination.

According to the Complaint, Check Into Cash’s standard non-compete agreement effectively precludes employment with any entity that offers any “consumer lending service,” regardless of whether the entity is an actual competitor; it applies within ...

In a very thorough analysis following a 3 day Preliminary Injunction hearing Judge Jed Rakoff declined to issue injunctive relief to a former employer seeking to enjoin four former employees and their new employer from competing or from soliciting clients or employees. The decision is far ranging in the employee movement context touching upon inadvertent retention of confidential information, the propriety of new employers providing broad indemnifications and large signing bonuses to the recruits,  and the scope of allowable “preparatory conduct” in a one year non-compete ...

While agreements that restrict employees from leaving a job and working for a competitor (commonly known as “non-compete” agreements) are standard in many industries, they are relatively scarce in the media and journalism sectors. Outside of television companies restricting star talent, and media companies restricting executives, it has rarely been common practice for journalists to be subject to non-compete restrictions.  However, it appears that may be changing.

Citing the common reasons that are often put forth for non-compete clauses, two online based news companies ...

In Reed v. Getco, LLC, the Illinois Court of Appeals was recently faced with an interesting situation: under a contractual non-compete agreement, the employer was obligated to pay the employee $1 million during a six month, post-employment non-competition period.  This was, in effect, a form of paid “garden leave” --  where the employee was to be paid $1 million to sit out for six months – perhaps to finally correct his golf slice or even learn the fine art of surfing.  It was a win-win situation that seemingly would be blessed by most courts; it was for a reasonable length of time, and ...

Our colleagues Lauri F. Rasnick and Adriana S. Kosovych, attorneys in the Employment, Labor & Workforce Management practice at Epstein Becker Green, have a post on the Financial Services Employment Law blog that will be of interest to many of our readers: "Implementing and Applying the Employee Choice Doctrine: Employers Focus on Forfeiture to Protect Their Company’s Assets."

Following is an excerpt:

Employers seeking to protect their competitive advantage and find an alternative method of influencing employees to not compete are increasingly relying on ...

[caption id="" align="alignright" width="120"] Barry A. Guryan[/caption]

In a recent case decided by the Massachusetts Superior Court’s Business Litigation Session (which typically handles restrictive covenant cases), Gillette lost its attempt to obtain a broad injunction against a former in-house counsel who became the General Counsel at a competitor, Shavelogic.  In THE GILLETTE COMPANY v. CRAIG PROVOST, ET AL., Civil Action No. 15-0149 BLS 2 (Dec. 22, 2015), the Court found Gillette unlikely to succeed on its claims that  the General Counsel, who left Gillette ten years ...

A recent case out of Ohio offers an instructive lesson for those looking to probe the geographical limits of a non-compete agreement.  A dentist sold his dental practice and also continued to work as an employee there.  As part of the sale, he agreed not to compete for five years and was prohibited from working “within 30 miles” of the practice.  The relationship between the parties deteriorated and the dentist went to work for a competing firm.  The purchaser dentist filed suit claiming a breach of the non-compete.

The trial court ruled against the seller, noting that although the new ...

Last week, Chicago district judge Charles Kocoras dismissed a declaratory judgment action challenging the enforceability of a facially broad form non-compete agreement signed by all employees of the Jimmy John’s sandwich chain.  Judge Kocoras held that the dispute was not judiciable because the plaintiffs lacked the requisite “reasonable apprehension” of litigation against them and because they failed to allege that they had actually engaged in conduct that would violate the non-compete.  (Judge Kocoras’ memorandum opinion also addressed significant joint ...