Trade Secrets & Employee Mobility

Last week, employers who use noncompetes got more good news with respect to the Federal Trade Commission’s proposed noncompete ban.

As readers of this blog are probably aware, back in August, the FTC’s noncompete ban was blocked when the United States District Court for the Northern District of Texas issued a memorandum opinion and order in Ryan LLC v. Federal Trade Comm’n, Case No. 3:24-cv-00986-E, granting the plaintiff’s motion for summary judgment and setting aside nationwide the FTC’s noncompete ban that was scheduled to go into effect on September 4, 2024.

Employers who use noncompetes may have breathed a sigh of relief with the Texas Court’s ruling, but a small doubt of uncertainty lingered.  Could another court reach the opposite decision and rule that the FTC noncompete ban may go into effect?

Two other federal lawsuits (one in Pennsylvania and one in Florida) challenging the FTC noncompete ban remained pending, and each had ruled upon a motion for a preliminary injunction regarding the FTC noncompete ban.  Like the Court in Texas, in Properties of the Villages, Inc. v. Federal Trade Commission, Case No. 5:24-cv-316 (M.D. Fla.), the Florida Court granted the plaintiff’s motion for a preliminary injunction (although limited in scope only to the plaintiff), and seemed likely to reach a final decision on the merits in line with the Texas Court. 

As reported here and here, in December 2019 and January 2020, the United States Department of Justice brought its first criminal charges against employers who entered into “naked” wage fixing agreements and no-poach (e.g., non-solicitation and/or non-hire)  agreements with competitors. According to DOJ’s 2016 Antitrust Guidance for HR Professionals, such agreements are “naked,” and, therefore, illegal per se, because they are “separate from or not reasonably related to a larger legitimate collaboration between competitors.”  Although DOJ recognized that ...

Several states in recent years have enacted laws that have been designed, in varying degrees, to limit non-competes, including California, Illinois, and Nevada. Which states and cities are most likely to do the same in 2018?

The New Hampshire and New York City legislatures have introduced bills that seek to prohibit the use of non-compete agreements with regard to low-wage employees. Under New Hampshire’s Bill (SB 423), a “low-wage employee” is defined as one who earns $15.00 per hour or less.  The New Hampshire Bill was introduced on January 24, 2018 and is scheduled for a ...

With the law’s first anniversary in the rear view mirror, defendants have established a viable defense to claims arising under the Defend Trade Secrets Act (“DTSA”) – a plaintiff may be precluded from bringing a claim under DTSA if it only alleges facts that show acts of misappropriation occurring prior to May 11, 2016 (the date of DTSA’s enactment).   In the last few months, four different courts have tackled this “timing defense,” and defendants raising it in motions to dismiss DTSA claims have encountered mixed results.

In Brand Energy & Infrastructure Servs. v. Irex ...

Before the Defend Trade Secrets Act (“DTSA”) became federal law in the spring of 2016, Supreme Court watchers would likely care little about prospective justices’ approach to trade secrets matters.  Such matters were the province of state law, and the phrase “trade secret” might be avoided, even in passing, in the opinions of the Supreme Court for entire terms or more.  But with DTSA cases being reported with increasing regularity, differences in interpretation are beginning to emerge.  Supreme Court attention may follow.

Because DTSA says that “misappropriation of a trade secret” can involve unlawful acquisition of a trade secret, or improper disclosure of a trade secret, or unauthorized use of a trade secret, the impact of the statute’s May 11, 2016 “effective date” has been the subject of some debate.  For instance, should the act apply to a trade secret unlawfully acquired on May 10, 2016 but improperly used or disclosed on May 12, 2016 or thereafter?  Likewise, what if a trade secret unlawfully acquired and used before May 10^, 2016 is used again after May 11, 2016?  These issues have come up in cases in March and January 2017 in the Northern District of California, in March 2017 in the Eastern District of Pennsylvania, and earlier in the Middle District of Florida.  The answers and analysis found in these opinions is not always entirely consistent, which suggests that this issue under DTSA  as well as others will continue to be litigated.

Should differences arise between circuits, the Supreme Court might be called upon to interpret the reach of DTSA. In that vein, one might wish to look at the Court’s newest member, Neil Gorsuch, and his opinions while a 10^th Circuit judge in Storagecraft Technology Corp. v. Kirby, 744 F. 3d 1183 (10th Circuit 2014), and in Russo v. Ballard Medical Products, 550 F. 3d 1004 (10th Circuit 2008). Each reveal interesting elements of Judge — now Justice — Gorsuch’s approach to trade secrets matters.

Storagecraft proves interesting opinion on several levels.  That case involved the Utah trade secrets act in a case coming to the 10^th Circuit after being brought in the federal district court as a matter of diversity jurisdiction.  In addressing one of the appealing defendant’s arguments, the Gorsuch opinion rejected the notion that one need show that a defendant facilitated another’s commercial gain to recover under the statute:

Weighing in on an issue that is drawing attention nationwide, the Pennsylvania Supreme Court recently held, in Socko 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 ...