Trade Secrets & Employee Mobility

On September 12, 2024, the Regional Director of the National Labor Relations Board’s (“NLRB”) Region 22 in Newark, New Jersey, issued an unfair labor practice complaint against a New Jersey building services company, alleging that employee non-hire (or “no poach”) provisions in the company’s contracts with its building clients violate the National Labor Relations Act (the “Act”).

According to the NLRB’s news release, the complaint alleges that Planned Companies D/B/A Planned Building Services, which is a janitorial, building maintenance, and concierge services provider, “has maintained provisions in its contracts with its client buildings that interfere with, and are inherently destructive of, workers’ rights under Sections 8(a)(1) and (3) of the National Labor Relations Act.”  It further alleges that “Planned Companies restricts its client buildings from soliciting its employees to work for them in a similar job classification for a period of six months after the agreement is terminated, or from hiring employees after they leave Planned Companies’ employment. Any entity retained by the client building to replace Planned Companies is also bound by the hiring restriction.” 

A hearing before an NLRB Administrative Law Judge has been set for November 12, 2024.

Ten days ahead of her self-imposed deadline, Judge Ada Brown of the Northern District of Texas issued a memorandum opinion and order granting the plaintiffs’ motions for summary judgment, setting aside the Federal Trade Commission’s forthcoming Noncompete Ban nationwide, which was set to go into effect on September 4, 2024. In other words, as we predicted, the FTC’s Noncompete Ban is dead nationwide unless and until a Circuit Court of Appeals or the Supreme Court of the United States revives it.  

Judge Brown granted plaintiffs’ summary judgment motion as to every claim under the Administrative Procedures Act (APA) and the Declaratory Judgment Act (DJA), ruling that the FTC exceeded its statutory authority when it issued the Noncompete Ban and that the Noncompete Ban is arbitrary and capricious.

Judge Brown set the tone for her decision by quoting the Supreme Court’s recent opinion in Loper Bright Enters. v. Raimondo, 144 S.Ct. 2244, 2261 (2024), where the Court overruled the principle of Chevron deference established in Chevron U.S.A., Inc. v. Nat’l Res. Def. Council, Inc. (1984), stating: “Congress in 1946 enacted the APA as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in legislation creating their offices.”

We previously reported that the U.S. District Court for the Northern District of Texas in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granted a preliminary injunction staying the Federal Trade Commission’s (“FTC”) final rule banning almost all post-employment noncompetes (the “Noncompete Rule”), but limited the scope of its ruling to only those parties in that case. Following that ruling, on July 10, 2024, the Plaintiff and Plaintiff-intervenors (“Plaintiffs”) filed an Expedited Motion for Limited Reconsideration of the Scope of Preliminary Relief on the issue of associational standing.

On July 11, the court promptly denied Plaintiffs’ motion. In a one-paragraph order, the court held that Plaintiffs had “not shown themselves entitled to the respective relief requested.” Separately, the court entered an “amended briefing schedule for the merits disposition” (the “Briefing Schedule”) that will likely address many of the issues argued in Plaintiffs’ motion for reconsideration. The Briefing Schedule requires that the matter be fully briefed by August 16, 2024, and the court is scheduled to issue a disposition on the merits by August 30, 2024.     

Our colleagues Peter Steinmeyer and Erik Weibust at Epstein Becker Green co-authored an article in Thomson Reuters Practical Law, titled “Expert Q&A on the FTC's Final Rule Banning Post-Employment Non-Competes.”

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

On April 24, 2024, the Federal Trade Commission (FTC) announced the issuance of a final rule banning employers from entering into, enforcing, or attempting to enforce post-employment non-compete clauses with workers, subject to limited exceptions, and invalidating all ...

[Update: On April 23, 2024, the Federal Trade Commission voted 3-2 to issue its final noncompete rule, with only a few changes from the proposed rule. Analysis of the final rule, the changes, and what may come next are discussed in this blog post.]

On April 16, 2024, the FTC announced that it will hold a special Open Commission Meeting on April 23, 2024 to vote on its proposed rule to ban the use of non-compete clauses in employment contracts, which has been pending since January 2023.  

As we reported then, the proposed rule, as drafted, would prohibit employers throughout the United States ...

As we predicted when the New York legislature passed a bill that would ban noncompetes in the state without even an exception for the sale of a business, Governor Kathy Hochul has said that she wants changes to the bill – called chapter amendments – before she will sign it. According to Bloomberg, Governor Hochul told reporters, “What I’m looking at right now is striking the right balance between protecting low and middle-income workers, giving them flexibility to have mobility to go from job to job as they continue up the ladder of success. But those who are successful have a lot ...

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.

As previously reported, the Federal Trade Commission (FTC) proposed a rule on January 5, 2023, that would ban noncompetes nationwide. There are serious questions about the FTC’s authority to promulgate such a rule and many practical reasons why such a sweeping approach is unwarranted—in particular at the federal level. The period for submitting formal comments to the proposed rule lasts 60 days following publication of the proposed rule in the Federal Register. The FTC did not file the proposed rule with the Federal Register until January 18, 2023, and it will not be published until January 19, 2023, meaning that the comment period will end on March 20, 2023—not March 10, 2023, as the FTC initially announced. We are told that there will be a formal request to extend the comment period for an additional 60 days, or until May 19, 2023, and that the FTC is likely to grant the request.

You don’t hear much positive news these days about noncompete agreements. Instead, most national media outlets take cases of extreme abuse and frame them as the norm instead of the outliers that they are. And the national media also often portrays employers in a negative light for allegedly forcing noncompetes on employees who purportedly have no choice in the matter and receive no benefit from the transaction. The data does not bear this out—indeed, according to reputable studies, workers who are presented with noncompetes before accepting jobs receive higher wages and more training, and are more satisfied in their jobs than those who are not bound by noncompetes—but that is beside the point when there is an attention-grabbing story to be written.

Governor Steve Sisolak recently signed Assembly Bill 47, which amends Nevada’s statute governing noncompetition agreements (Nevada Revised Statutes 613.195).  Employers should be aware of the following changes to the law, which will go into effect on October 1, 2021.

First, under the amended Nevada statute, employers are explicitly prohibited from bringing an action to restrict a former employee from providing service to a former customer or client if:

1. the former employee did not solicit the former customer or client;
2. the customer or client voluntarily chose to leave and seek ...

Pursuant to a recently passed Oregon state law (HB 2992), noncompete agreements entered into on or after January 1, 2020 will only be enforceable against Oregon employees if the employer provides the departing employee with a signed copy of the agreement within 30 days after the employee’s date of termination.  Though at first blush, this law merely codifies the best practice of reminding departing employees of their continuing obligations to their former employer, it contains a few nuances Oregon employers should keep in mind.

The law requires employers to provide departing ...

On October 20, 2016—just about three weeks before the presidential election won by Donald Trump—the Department of Justice and the Federal Trade Commission issued a remarkable document, entitled “Antitrust Guidance for Human Resources Professionals,” which outlined an aggressive policy promising to investigate and punish employers, and even individual Human Resources employees, who enter into unlawful agreements concerning recruitment or retention of employees.  As stated in that document, “[a]n agreement among competing employers to limit or fix the terms of ...

The top story on Employment Law This Week: The DOJ intends to investigate anti-competitive trade practices.

The Department of Justice and the Federal Trade Commission released joint guidance for HR professionals on how antitrust laws apply to employment. The guidance explains that agreements among employers not to recruit certain employees—or not to compete on terms of compensation—are illegal. Notably, the DOJ announced that they plan to criminally investigate “naked no-poaching or wage fixing agreements” that are unrelated to legitimate collaboration between ...

Following up on a string of civil enforcement actions and employee antitrust suits, regarding no-poaching agreements in the technology industry, on October 20, 2016 the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) issued Antitrust Guidance for Human Resources Professionals (the “Guidance”). The Guidance outlines an aggressive policy to investigate and punish employers, and individual human resources employees who enter into unlawful agreements concerning employee recruitment or retention.

The Guidance focuses on three types of ...