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 non-compete 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 legal action. Filing a ...
On September 19, 2018, the New York Attorney General (“NYAG”) released a Frequently Asked Questions document (“FAQ”) regarding non-compete agreements in New York. The FAQ posits and answers the following basic questions about non-competes:
What is a non-compete agreement?
Are non-competes legal?
Do I have to sign a non-compete?
How could a non-compete affect me?
How do employers enforce non-competes?
In addition, the FAQ advises employees on specific steps to take before signing a non-compete, as well as actions employees can take if they signed a non-compete and are ...
We just published an article with Thomson Reuters Practical Law discussing garden leave provisions in employment agreements as an alternative or a companion to traditional employee non-compete agreements. With Thomson Reuters Practical Law’s permission, we have attached it here.
On Monday, attorneys general in eleven states, including New York, New Jersey, Massachusetts, California, and Illinois, revealed that they are investigating several prominent fast food franchisors for their potential use of no-poaching or non-compete agreements restricting the ability of low wage workers to obtain a better-paying job with another franchise. To that end, these attorneys general have propounded document and information requests to these restaurants, returnable August 6, 2018.
In the Illinois AG’s press release, Attorney General Madigan stated that ...
Legislative efforts to limit or ban the use of non-compete provisions in employment agreements have proliferated in the early months of 2018.
Perhaps most eye-catching was legislation (titled the “Workforce Mobility Act”) introduced in the U.S. Senate in late April 2018 that would prohibit employers from enforcing or threatening to enforce non-compete agreements with employees and require employers to post prominently a notice that such agreements are illegal. Co-sponsored by Democratic Senators Chris Murphy (CT), Elizabeth Warren (MA) and Ron Wyden (OR), the bill ...
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 ...
We just published an article with Thomson Reuters Practical Law discussing non-compete agreements between employers and employees for private employers in Illinois. With Thomson Reuters Practical Law's permission, we have attached it here.
In managing workforces, particularly when addressing employee turnover, employers often find themselves facing issues regarding how best to safeguard their confidential business information and how to protect their relationships with clients and employees. In recent years, the legal landscape underlying these issues has been evolving, as lawmakers and judges grapple with the tension in these matters between protection and free competition.
In this Take 5, we examine recent developments, both in the courts and legislative bodies, concerning trade secrets and employee ...
This webinar will provide insights into recent developments and expected trends in the evolving legal landscape of trade secrets and non-competition agreements. This webinar will focus on how to navigate this continually developing area and effectively protect client relationships and proprietary ...
In this age of social media, a frequently asked question is whether social media activity can violate a non-compete or non-solicit. Although the case law is evolving, courts which have addressed the issue have focused on the content of the communication, rather than the medium used to convey it. In so doing, they have distinguished between mere passive social media activity (e.g., posting an update about a new job) as opposed to more targeted, active actions (e.g., not merely posting about a new job, but also actively recruiting former co-workers or clients).
Peter A. Steinmeyer and Lauri F. Rasnick, Members of the Firm in the Employment, Labor & Workforce Management practice, in the firm’s Chicago and New York offices, respectively, co-authored an article in Thomson Reuters Practical Law, titled “Garden Leave Provisions in Employment Agreements.”
Following is an excerpt (see below to download the full article in PDF format):
In recent years, traditional non-compete agreements have come under increasing judicial scrutiny, with courts focusing on issues such as the adequacy of consideration, the propriety of ...
The year-end episode of Employment Law This Week looks back at the biggest employment, workforce, and management issues in 2016.
Our colleague Jonathan Shapiro discusses the impact of the Defend Trade Secrets Act (DTSA)—which opened federal courts to trade secrets claims, regardless of the dollar value—and the White House's call to action encouraging states to ban non-compete agreements in some circumstances.
Whether you are a young child missing teeth, or a grown-up taking account of her life, or Santa Claus himself checking up on everyone else’s life, many of us make lists at holiday time. They can be lists of gifts we want, or those we need to get, or people we wish to see or write to, or things we need or want to do before the end of the year. Sometimes they are just lists of things that happened this year or that we want to happen next year. Certainly there are lots of “Top Ten” holiday lists. This one may be neither an exception nor exceptional, but here is a “Top Ten List of Holiday-Related Trade ...
Political winds disfavoring non-compete agreements for low wage and rank-and-file workers continue to blow, and appear to be picking up speed.
On October 25, 2016, the White House took the unusual step of issuing a “Call to Action” to states regarding non-compete agreements, as part of the President’s initiative to stoke competition across the economy. Calling non-competes an “institutional factor that has the potential to hold back wages and entrepreneurship,” the Call to Action seeks to reduce the misuse of non-compete agreements nationwide.
Illinois recently became one of the first states to ban non-compete agreements for low wage workers when it passed the Illinois Freedom to Work Act. The law, which takes effect on January 1, 2017 and applies to agreements signed after that date, bars non-compete agreements for workers who earn the greater of 1) the Federal, State, or local minimum wage or 2) $13.00 an hour. At present, because the State minimum wage is below $13.00 per hour, $13.00 an hour is the operative figure in Illinois.
While Illinois is one of the first states to enact this type of blanket ban on non-competes based on ...
This summer, New York Attorney General Eric T. Schneiderman has reached agreements with a number of companies curtailing their use of non-competition agreements with respect to non-executive and low-wage employees in New York. The issue appears to have caught the attention of Mr. Schneiderman, who stated recently that “restricting rank-and-file workers from being able to find other jobs is unjust and inappropriate” and “workers should be able to change jobs without fear of being sued.”
For example, on August 4, 2016, Examination Management Services, Inc ...
[caption id="attachment_1673" align="alignright" width="115"] David J. Clark[/caption]
The Massachusetts legislature ended its 2015-2106 session on July 31, 2016, and lawmakers did not pass new legislation regarding non-compete agreements before doing so.
For the last few years, numerous efforts have been made in the Commonwealth to limit the use of non-compete agreements, resulting in several bills introduced in the Statehouse. The latest bills, introduced in the House in June and the Senate in mid-July, would have set clear boundaries on the use of non-compete agreements ...
The 8th Circuit’s recent decision in Symphony Diagnostic Servs. No. 1 v. Greenbaum, No. 15-2294, __ F.3d __ (8th Cir. July 6, 2016), upheld the enforceability of non-compete and confidentiality agreements assigned by Ozark Mobile Imaging to Mobilex as part of Mobilex’s purchase of Ozark’s assets. Although the 8th Circuit is careful to ground its analysis in that case’s specific factual and legal framework, this decision is helpful in providing some guidance to those dealing with the assignability of rights under non-compete and confidentiality agreements.
[caption id="attachment_2177" align="alignright" width="113"] Matthew Savage Aibel[/caption]
On May 6, the White House released a report entitled: “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses” (the “White House Report”). This report comes on the heels of the United States Department of Treasury’s Office of Economic Policy releasing a similar report about non-competes in March 2016 (the “Treasury Report”). While the U.S. economy has recovered since the last recession, the Obama Administration has identified a ...
As the story explains, the U.S. Court of Appeals for the Sixth Circuit has upheld a ruling that a group of workers at a fastener company used confidential drawings from the company to design, manufacture, and sell competing parts for their new business venture. On appeal, the former workers argued that they were “filling a gap” for customers, not competing with the original company. But the Sixth Circuit found that this argument ignored undisputed evidence in the case.
Weighing in on an issue that is drawing attention nationwide, the Pennsylvania Supreme Court recently held, inSocko v. Mid-Atlantic Systems of CPA, Inc., that the mere continuation of employment is not sufficient consideration to support a restrictive covenant. Rather, for there to be sufficient consideration, the Court held that the employee must receive “some corresponding benefit or a favorable change in employment status.” As examples of such sufficient additional consideration, the Court cited “a promotion, a change from part-time to full-time employment, or ...
In a decision issued in late October, AssuredPartners, Inc. et al. v. William Schmitt, 2015 IL App. (1st) 141863 (Ill. App. 2015), the Illinois Appellate Court struck down as overbroad and unreasonable, the noncompete, nonsolicit and confidentiality provisions in an employment agreement. The Court then refused to judicially modify or “blue pencil” these provisions because the Court deemed their deficiencies “too great to permit modification.” This decision is essentially a primer on current Illinois law regarding restrictive covenants and confidentiality ...
The United States Court of Appeals for the Fifth Circuit opened its October 29th opinion in Cardoni v. Prosperity Bank by noting that “[i]n addition to their well-known disagreements over boundaries and football” known as the Red River Rivalry, “Texas and Oklahoma do not see eye to eye on a less prominent issue: covenants not to compete.” As the Court went on to note, “Texas generally allows them so long as they are limited both geographically and temporally… Oklahoma generally does not.” “These different policy choices—Texas's view which prioritizes parties ...
If you are an employer with employees in New York (or elsewhere) who have signed an agreement containing a Florida choice of law clause and non-compete and/or non-solicit restrictive covenants, it may be time to revise your agreement.
We blogged last year regarding a decision of the New York Appellate Division, Fourth Department in Brown & Brown, Inc. v. Johnson, holding that a Florida choice of law provision in an employment agreement among a Florida corporation, its New York subsidiary, and a New York based and resident employee containing restrictive covenants is unenforceable ...
Alabama has a new restrictive covenant statute. A few weeks ago, Alabama Governor Bentley signed new legislation which will repeal the 1975 version of Alabama Code Section 8-1-1 titled “Contracts restraining business void; exceptions” and replace it with a new version effective January 1, 2016.
The new law stakes out the permissible scope and purpose of restrictive covenants such as non-compete and non-solicitation agreements. Unlike some other states with restrictive covenant statutes, Alabama’s new law codifies a middle-of-the-road approach to restrictive ...
Readers of this blog know that long settled understandings regarding what constitutes adequate consideration for a restrictive covenant in Illinois were turned upside down when the First District Appellate Court in Illinois held in Fifield v. Premier Dealer Services, 2013 IL App. (1st) 120327 that, absent other consideration, two years of employment are required for a restrictive covenant to be supported by adequate consideration, regardless of whether the covenant was signed at the outset of employment or after, and regardless of whether the employee quit or was fired.
California Business & Professions Code § 16600 contains a strong public policy against non-competition agreements. To address this prohibition, some employers have included choice of forum provisions in their employment contracts to give them the option of initiating an action in a more non-compete friendly jurisdiction and obtain leverage in the litigation. Some federal district courts have enforced those forum selection clauses. Marcelo v. Ivy Ventures, LLC, No. C 10-04609, 2010 U.S. Dist. LEXIS 134333 (N.D. Cal. Dec. 9, 2010); Google, Inc. v. Microsoft Corp., 415 F. Supp ...
Over the past 24 months, one of the hottest issues in non-compete law has been whether continued at-will employment, by itself, is sufficient consideration for a non-compete.
Last week, in Runzheimer International v. Friedlen and Corporate Reimbursement Services, Inc., the Wisconsin Supreme weighed in on this issue, holding that continued employment is sufficient consideration for a non-compete signed by a current at-will employee. However, the Court expressly qualified this holding by explaining that if an at-will employee is fired “shortly after signing” a ...
In a recent case in Massachusetts, a Superior Court Judge denied a former employer’s motion for a restraining order in a case alleging a violation of a non-compete agreement and granted the cross motion of the former employee and current employer to compel arbitration even though the current employer was not a party to the arbitration clause which was included in the former employee’s Employment Agreement.
Readers of this blog know that in the summer of 2013, long held beliefs about the required consideration for a restrictive covenant under Illinois law were thrown a curve when the Illinois Appellate Court for the First District (i.e., Cook County) held in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327, that, absent other consideration, two years of employment is required for a restrictive covenant to be deemed supported by adequate consideration—even where the employee signed the restrictive covenant as a condition to his employment offer and even where the ...
This webinar will discuss recent developments and what to expect in the evolving legal landscape of trade secrets and non-competition agreements. With some businesses progressively feeling that their trade secrets are at risk for attack by competitors – and perhaps, by their own employees – this session will focus on how to navigate this developing area and ...
The size of an injunction bond is not a common topic in appellate cases. Accordingly, a recent decision by the Indiana Appellate Court reversing the trial court’s setting of an injunction bond at only $100 in a non-compete case is noteworthy.
In Donald Moss v. Progressive Design Apparel, Inc., the Indiana Appellate Court affirmed a preliminary injunction which restricted a salesman’s ability to call upon customers of his former employer or disclose confidential information. As part of the trial court’s order granting injunctive relief, the trial court found that the ...
When recruiting an executive, or when being recruited, it is best practice for the future employer, the employee and any executive recruiting firm involved in the placement to address head-on the existence of any restrictive covenant limiting the future activities of the employee. The New York State Supreme Court - First Department Appellate Division - yesterday upheld a claim that by not clearly disclosing the existence of a non-solicitation restriction in an executive recruit’s employment agreement, the head hunter involved in the placement could potentially be held liable ...
The "material change" defense to enforcement of a non-compete agreement in Massachusetts recently has been gaining traction, but there are still unanswered questions.
Most lawyers learn during their first year in law school that courts won't inquire into the adequacy of consideration for a contract and that, as a result, a "mere peppercorn" can constitute consideration. It's important to remember, though, that in many states, restrictive covenants are an exception to that rule.
Federal district judges in Chicago are now split over whether to follow the Illinois appellate court's landmark non-compete decision, Fifield v. Premier Dealer Services, Inc., 373 Ill. Dec. 379, 993 N.E. 2d 938 (Ill. App. 1st Dist. 2013).
A threshold tactical decision in virtually every non-compete and trade secret case is where to file the suit. This decision is particularly important when a non-compete dispute has a California angle, because non-compete agreements are generally void as against public policy in California.
Judge Ruben Castillo, the Chief Judge for the United States District Court for the Northern District of Illinois, recently declined to follow a widely publicized Illinois Appellate Court decision in which the Appellate Court held that, absent other consideration, two years of employment is required consideration for a restrictive covenant in Illinois.
The New York Appellate Division, Fourth Department, recently held in Brown & Brown v. Johnson, 1109 CA 13-00340 (February 6, 2014) that a Florida choice-of-law provision in an employment agreement among a Florida corporation, its New York subsidiary and a New York based and resident employee containing restrictive covenants is unenforceable because it is "truly obnoxious" to New York public policy.
A federal judge in Chicago recently held that when a corporation enters into a contract with another corporation under which it agrees not to engage in certain competitive activities, that agreement not to compete should not be analyzed like an employer/employee non-compete.
A recent decision from the United States District Court for the Southern District of New York, Reed Elsevier Inc. v. Transitions Holding Co., Inc., provides a useful overview of New York law on restrictive covenants.
A recent decision by one district of the Illinois Court of Appeals (Fifield v. Premier Dealer Services) significantly altered long-settled understandings regarding the consideration required for an enforceable restrictive covenant in Illinois. In light of that decision, Illinois employers hoping to enforce restrictive covenants within two years after the signing date should be prepared to distinguish Fifield factually or legally. Employers that are concerned about their ability to do so, or that want to err on the side of caution, should act now to address the implications of Fifield.
A recent decision by the Supreme Court, New York County, was remarkable for several reasons, not the least of which was that it completely dismissed a non-compete case at the pleading stage.
The Illinois Supreme Court recently announced that it was not going to review an Illinois Appellate Court decision, Fifield v. Premier Dealer Services, Inc., which held that, absent other consideration, two years of employment is required for a restrictive covenant to be deemed supported by adequate consideration - even where the employee signed the restrictive covenant as a condition to his employment offer - and even where the employee voluntarily resigned.
A recent lawsuit filed by nationwide fitness club, Equinox, demonstrates the importance of maintaining enforceable restrictive covenants in employment agreements.
The Indiana Court of Appeals recently affirmed a preliminary injunction enforcing a five-year non-compete agreement against a former employee of a printing business. Why was a restriction of that length found to be reasonable?
In Fifield v. Premier Dealer Services, Inc., an Illinois Appellate Court recently held that, absent other consideration, two years of employment is required for a restrictive covenant to be deemed supported by adequate consideration - even where the employee signed the restrictive covenant as a condition to his employment offer - and even where the employee voluntarily resigned.
A bill proposed in the Connecticut House of Representatives to regulate non-compete agreements and codify the common law has been modified to be applied only under circumstances of companies involved in mergers and acquisitions.
A recent federal case provides an example of how companies will be stuck with the terms of the restrictive covenants they implement, and may not be able later to interpret those covenants broadly.
A bill entitled, "Employer Use of Non-Compete Agreements," pending before the Connecticut House of Representatives, proposes to regulate all Connecticut non-compete agreements entered into, renewed or extended on or after October 1, 2013, and codify the common law.
Saylavee, LLC v. Hunt demonstrates the willingness of Connecticut courts to enforce restrictive covenants that are reasonable in length of time and geographic scope.
Earlier this month, the New Jersey Assembly introduced a new bill that proposes to invalidate non-competition, non-solicitation and confidentiality covenants of individuals who qualify for unemployment compensation.
A recent court decision affirms that companies and their counsel are shielded, pursuant to the absolute privilege protection, from liability for defamation that may arise from the publication of letters to former employees reminding the employees about post-employment contractual obligations to the company.
Although California has a strong public policy, based on Cal. Bus. & Prof. Code § 16600, against the enforcement of employer/employee non-compete agreements, employers might get some traction in this area by including a choice of venue or forum selection provision in their employment contracts and - through that provision - having the case transferred to a jurisdiction that will be more likely to enforce a restrictive covenant.
An employee who joined a corporate employer that was not a competitor with his former employer was still enjoined and restrained by restrictive covenants he signed with his former employer when his new employer merged with his prior employer's competitor.
Forum selection clauses are common in non-compete agreements, particularly when the employer is multi-state or multi-national. One question that often arises, however, is whether a court will actually require an employee to litigate in a distant jurisdiction with which he had minimal contacts. In a recent case from the Eastern District of Missouri, a federal judge enforced just such a forum selection clause.
On December 21, 2012, the Supreme Court of New Hampshire, in Ellis v. Candia Trailers & Snow Equipment, Inc., found that a non-compete agreement was a fundamental component of a purchase and sale transaction which was memorialized in three separate agreements. The Seller began competing with Buyer shortly after the sale. After the Buyer did not follow through on purchasing all required assets of the Seller, the Supreme Court reversed the trial court's decision to partially rescind the non-compete agreement, and instead decided that the non-compete was so essential to the transaction that it required complete rescission of the transaction.
This week, a Wisconsin Court of Appeals issued a decision determining that a non-compete clause does not render an arbitration clause in an employment agreement unenforceable.
In a per curiam opinion issued yesterday, the United States Supreme Court reversed a decision of the Oklahoma Supreme Court that had determined the enforceability of a non-compete agreement arising out of a contract that contained an arbitration provision. Despite the fact that the restraint at issue was found to violate Oklahoma law, the US Supreme Court determined that the Oklahoma Supreme Court overstepped its bounds and that under the Federal Arbitration Act enforceability of the non-compete should have been left to the Arbitrator.
In a recent decision in Pactiv Corporation v. Rupert, the U.S. District Court for the Northern District of Illinois held that under an employer's severance pay plan, the employer could not require a former employee to agree to a restrictive covenant in order to receive severance pay.
Last week, the Ohio Supreme Court reversed its decision of earlier this year in Acordia of Ohio, L.L.C. v. Fishel et al., in which the Court held that when a company that was the original party to a noncompete agreement merges in to another company, unless the noncompete agreement contained a "successors and assigns" clause, the merger was a termination of employment which triggered the running of the restrictive period in the noncompete.
A recent Texas case provides a good lesson about workplace paperwork formalities. In Holloway v. Dekkers and Twin Lakes Golf Course, Inc., a Texas appellate court ruled that a one-year employment agreement that was not signed by the employer fell within the statute of frauds and was therefore unenforceable.
In California, a non compete given in return for the sale of a business' goodwill is one of the few exceptions to the state's broad prohibition against non competes. In Fillpoint, LLC v Maas, a California appellate court narrowly construed the exception and invalidated a non compete/non solicit agreement contained in an employment agreement which was signed in connection with the sale of goodwill.
Addressing an argument frequently encountered in restrictive covenant litigation, an Illinois Appellate Court recently reiterated that only a material breach of a contract containing a restrictive covenant will relieve the other party of its contractual obligation to abide by the restrictive covenant
The Ohio Supreme Court recently held that when a company that was the original party to a noncompete agreement merges in to another company, unless the noncompete agreement contained a "successors and assigns" clause, the merger is a termination of employment which triggers the running of the restrictive period in the noncompete.
We are pleased to announce that "Preparing for Non-Compete Litigation," a guide published by The Practical Law Company and authored by EpsteinBeckerGreen's Peter A. Steinmeyer and Zachary C. Jackson, is now available in PDF format. The guide is a valuable discussion of the primary considerations for employers seeking to initiate legal action to enforce a non-compete agreement.
An increasingly common type of provision found in employment agreements, allowing for extension of an employee's post-employment non-compete restrictions by a period of time that the employee violates the restrictions, was upheld in a recent decision by New York's Appellate Division, First Department.
An updated version of our guide, "Non-Compete Laws: Illinois," is now available. It reflects the recent decision of the Second District of the Appellate Court of Illinois, Hafferkamp v. Llorca, which contains an important holding regarding standards for enforcing non-compete agreements in Illinois.
On January 23, 2012, the Canadian National Railway Company filed suit against its former Chief Executive Officer, E. Hunter Harrison, for allegedly violating certain non-compete and non-disclosure obligations. Peter A. Steinmeyer was interviewed about the lawsuit on the Business News Network's show, "Headline with Howard Green."
A federal judge in Chicago recently refused to issue an injunction based upon either the "inevitable disclosure" of trade secrets doctrine or a geographically broad, 24-month non-compete that did not have a narrowly drawn activity restriction.
An updated version of our guide, "Non-Compete Laws: Illinois," is now available. It reflects the recent decision of the Illinois Supreme Court in Reliable Fire Equipment Company v. Arredondo, et al., which resolved several years of confusion over the appropriate standard for enforcing non-compete agreements in Illinois.
On December 1, 2011, the Illinois Supreme Court issued its opinion in Reliable Fire Equipment Company v. Arredondo, et al., which resolved several years of confusion over the appropriate standard for enforcing non-compete agreements in Illinois.
Several attorneys from the national law firm of EpsteinBeckerGreen contributed to the December 2011 issue of the Practical Law Company's "Labor and Employment."
A recent decision by the Supreme Court of Virginia reaffirmed that a non-compete agreement will likely be enforceable if it is narrowly drawn to protect the employer's legitimate business interest.
A recent decision from the First Circuit Court of Appeals serves as a cautionary tale for companies to make sure that they review the language and structure of restrictive covenants that they may be purchasing as part of an acquisition.
When drafting no-competes, questions about the required level of detail always arise; more detail is generally better than less, but not always. The required level of detail in a no-compete was among the questions addressed in a recent decision by the Ohio Court of Appeals.
The Illinois Supreme Court will soon hear oral argument in a case that could resolve the current confusion with regard to non-compete law among Illinois' appellate districts.
A recent opinion from the United States Court of Appeals for the First Circuit highlights the danger in not including a tolling provision in a restrictive covenant agreement.
Contrary to popular perception, California law does not bar all restrictive covenants in the employment context. Rather, in certain very narrow circumstances (i.e., non-competes arising in connection with the sale or dissolution of certain businesses), non-competes are permissible under California law.
Peter A. Steinmeyer of Epstein Becker & Green, P.C. will be speaking in an upcoming live webinar entitled "Noncompete Agreements: Latest Litigation Developments" scheduled for Thursday, August 11, 1:00pm-2:30pm EDT.
Peter Steinmeyer and I are pleased to announce that our guide, "Non-Compete Laws: Illinois," written with Christie Tate, is now available in PDF format. This guide is part of a series of guides written and published by our firm, EpsteinBeckerGreen, and the Practical Law Company.
Last week, in the case of Lucht's Concrete Pumping, Inc. v. Homer, the Colorado Supreme Court held that the continued employment of an at-will employee is adequate consideration for a noncompetition agreement. The Court explained that if this was not the case, employers would have an incentive to terminate at-will employees and condition their re-hire on the execution of a noncompetition agreement.
Will treating an individual as an employee rather than an independent contractor - when the parties have agreed to an independent contractor arrangement - preclude enforcement of a non-compete agreement? The Third Circuit Court of Appeals recently answered this question affirmatively, affirming a District Court Order denying an employer's application for a preliminary injunction.
For noncompete and trade secret lawyers in the healthcare industry, the recent Michigan Court of Appeals case of Isidore Steiner, DPM v. Bonanni highlights the importance of understanding applicable state privacy laws as well as the federal Health Insurance Portability and Accountability Act (HIPAA).
In an interesting recent decision, the Supreme Court of Arkansas refused to enforce a non-compete in a lease agreement -- which clearly had been violated -- because it did not arise out of a contract of employment or contract for the transfer of goodwill or property.
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.
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.
A bill pending in the Massachusetts legislature (House No. H4607) which would have amended the state's laws on non-compete agreements, has died in committee and will not go forward. The bill's sponsor, however, intends to introduce another bill on the same subject at a later date.
In October 2010, in Xplore Technologies Corp. v. Killion, CV10-5013459S, a Connecticut state court examined whether a non-competition clause that had no specified geographic requirement was enforceable. The Court enforced the clause and held that the geographic area was defined by the uniqueness of the product at issue and the limited potential customers for it.
In October 2009, in Sunbelt Rentals, Inc. v. Ehlers, 333 Ill.Dec. 791, 915 N.E.2d 862 (Ill. App. Ct. 2009), an Illinois appellate court reexamined and rejected over thirty years of well-established precedent regarding the enforceability of restrictive covenants. Specifically, it rejected the "legitimate business interest" test long applied as a threshold issue by Illinois courts when deciding the enforceability of a restrictive covenant. Last week, in Steam Sales Corporation v. Brian Summers, the first Illinois Appellate District other than the Fourth District re-visited the issue of whether the "legitimate business interest" still applied.
Applying Missouri law, the United States Court of Appeals for the Eighth Circuit recently affirmed an award of $1,369,921 in liquidated damages stemming from the alleged violation of non-solicitation agreements by four former employees of accounting firm Mayer Hoffman McCann.
On July 30, 2010, in Silguero v. Creteguard, Inc., the California Court of Appeal (2nd District) held that an employee could state a claim for wrongful termination against her subsequent employer when that employer terminated her after having been informed by her former employer that the employee was subject to a non-compete clause. The decision will have important consequences for companies with California employees in industries where non-competition and non-solicitation agreements are common.
In a recent decision issued by the Supreme Court of the State of New York, New York County, a lawsuit brought by Marsh USA Inc. against two former employees and a competitor was sustained in the face of the defendants' challenge to the complaint on grounds of forum non conveniens and failure to state a cause of action. The decision is notable for its application of New York non-competition law to California residents, and Marsh's inclusion of forum selection clauses and choice of law provisions in its agreements with the individual defendants appears to have enabled it to avoid the draconian effect of California law upon those individual's non-compete agreements.
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