On August 23, 2019, the United States Court of Appeals for the Fifth Circuit issued its long-awaited opinion in Klocke v. Watson, 17-11320, 2019 WL 3977545, at *1 (5th Cir. Aug. 23, 2019), holding that the Texas Citizens Participation Act (“TCPA”) does not apply to diversity cases in federal court. This decision settles a split manifested across dozens of cases at the district courts.

By ruling that the TCPA does not apply to diversity cases in federal court, the Fifth Circuit foreclosed an otherwise potent weapon used by defendants throughout Texas in trade secrets litigation. Because of the TCPA’s extremely broad application, defendants in trade secrets cases, for example, often asserted that claims alleging the misappropriation of trade secrets and related causes of action were based on and related to the defendant’s freedom to speak freely on all topics, including the trade secrets at issue, and its freedom to associate with competitors, and therefore such claims should be dismissed under the TCPA. Such arguments are now foreclosed by this ruling, at least in federal court. Continue Reading Fifth Circuit Holds the TCPA Does Not Apply to Federal Court Diversity Cases

Seyfarth Synopsis: On Friday, August 9, 2019, Governor J. B. Pritzker signed a wide-ranging bill that, among other things, encompasses the Workplace Transparency Act. The Act, which will impact nearly every employer in Illinois: significantly restricts inclusion of non-disclosure and non-disparagement provisions in employment agreements, separation agreements, and settlement agreements; limits an employer’s ability to “unilaterally” require certain terms (including mandatory arbitration) as a condition of employment; creates annual training and disclosure requirements to the Illinois Department of Human Rights, and establishes new civil penalties for non-compliance. The new law includes additional requirements specific to restaurants, bars, hotels, and casinos. Those requirements take effect immediately, whereas the broader employment law changes take effect January 1, 2020. Continue Reading Newly Enacted Workplace Transparency Act to Change Illinois Employment Law Landscape

Joining the wave of jurisdictions limiting the competitive restraints employers may place on low-wage employees is Maryland.  Maryland’s Noncompete and Conflict of Interest Clauses Act (the “Act”)―which passed without Governor Larry Hogan’s signature on May 28, 2019―will take effect on October 1, 2019. Recognizing that certain non-compete and conflict-of-interest clauses violate Maryland’s public policy and are therefore null and void, the Act prohibits employers from mandating that certain employees not join another employer or become self-employed in a same or similar business area. The covered employees are those who earn equal to or less than $15 per hour or $31,200 annually. This prohibition applies even if the parties entered into the employment agreement outside of Maryland and is not restricted to only post-employment actions.  That is, a qualified employee may work for a competitor even during the term of employment. Continue Reading Maryland Low-Wage Workers Are Exempt from Non-Compete Clauses

In Seyfarth’s fourth installment in its 2019 Trade Secrets Webinar Series, Seyfarth attorneys Kristine Argentine, Eric Barton, and Katelyn Miller focused on the enforcement of non-competes and how the difficulty of enforcement of these restrictive covenants vary by state, especially based on recent legislation in various states.

As a conclusion to this webinar, we compiled a summary of takeaways:

  • While restrictive covenants are an important piece of many employment agreements in order to protect the company’s relationships and proprietary information, the restrictions should be narrowly constructed in time, geography, and activity or customers limitations to the extent possible. Requirements for the enforceability of restrictive covenants varies greatly by state and sometimes industry, so be sure to carefully consider the laws of any states where employees work when crafting restrictive covenants or looking into whether to enforce restrictive covenants against a particular employee.
  • Effective January 1, 2020, in order for a non-compete to be valid in Oregon, an employer must provide a terminated employee with a signed, written copy of their non-compete agreement within 30-days of their termination.
  • Extensive revisions to Washington’s non-compete law will be going into effect January 1, 2020, including, but not limited to, penalties for overbroad restrictions, income thresholds, and mandatory “garden leave” payments. While non-competes will still be allowed in Washington, these substantial changes will greatly curtail how and when they can be used.
  • North Dakota, which generally prohibits non-competes, recently modified its law to expand situations in which a non-compete can be used in the sale (or partial sale) of limited liability companies, corporations, and partnerships.
  • Effective January 15, 2020, non-compete provisions in Rhode Island will no longer be effective against low-wage earners, undergraduate or graduate students in an internship or short-term employment relationship, non-exempt employees, or employees 18 years old or younger.
  • Massachusetts recently passed legislation regulating non-compete agreements by limiting enforceability and codifying express requirements that must be met, including but not limited to, time, geography and activity restrictions, notice requirements, and either “garden leave” or other mutually-agreed upon consideration provisions. Further, non-compete agreements are not enforceable against certain types of employees. While non-competes are still allowed in Massachusetts, this new law curtails how and when such agreements may be used.
  • Maine recently passed legislation barring employers from entering into non-compete agreements with lower wage employees, limiting an employer’s ability to enforce non-compete agreements, mandating advanced disclosure obligations, and imposing a time delay between when an employee agrees to the terms of a non-compete agreement and when the non-compete goes into effect.
  • Maryland and New Hampshire recently joined a growing number of states by restricting enforceability of non-compete agreements against lower wage employees.
  • Minor changes to non-compete laws have also been made in Utah, Idaho, and Colorado. Utah has placed specific limitations on non-compete provisions in the broadcasting industry and imposes a one-year limit on all non-compete provisions except in limited circumstances. Idaho repealed its rebuttable presumption of irreparable harm, placing the burden back on the employer to establish irreparable harm in order to obtain an injunction. Colorado law provides that irrespective of a non-compete provision, physicians may continue to treat patients with rare disorders without liability.

Seyfarth Partner Jesse Coleman is presenting the “Recent Trends in Protecting and Exploiting Trade Secrets” program at an LES Houston event on August 28 at The Briar Club in Houston.

Trade secrets may variously include technologies, processes, formulas, and sensitive customer information. Accordingly, trade secrets often confer significant profit and competitive advantage to their owner. For this reason, companies are increasingly enforcing their legal rights related to unauthorized usage of their trade secrets under state and/or federal laws. At the same time, it is of strategic interest to consider how best to protect and commercially exploit trade secrets; in particular in the era of cybersecurity threats.

This panel discussion will provide viewpoints and guidance from the perspective of outside legal counsel, internal legal counsel, and damages/valuation expertise as to best practices in protecting, enforcing, and exploiting trade secrets.

For more information or to register for this in-person program, click here.

 

On June 28, 2019, Governor Mills signed LD 733, An Act To Promote Keeping Workers in Maine, into law.  The Act places limits on non-compete agreements and bans restrictive employment agreements.

Non-Compete Agreements

The Act defines a non-compete agreement as one restricting the employee “from working in the same or similar profession or in a specified geographic area for a certain period of time following termination of employment.” Continue Reading Maine Governor Restricts Restrictive Covenants

A group of 18 state attorneys general (the “AGs”) recently filed comments with the Federal Trade Commission (“FTC”) in advance of a series of hearings centered on changes to antitrust and consumer protection enforcement in the 21st century. The letter identifies four major areas where recent antitrust activity involving labor issues have occurred: (1) horizontal no-poach agreements between employers; (2) vertical no-poach agreements, particularly franchise agreements; (3) non-compete agreements between employers and employees; and (4) mergers impacting labor markets. Although it may reveal the enforcement priorities of its signatories, the letter’s arguments are mostly unsupported by any case law and in some respects are contrary to the Department of Justice’s positions on the matters. Continue Reading State Attorneys General Urge FTC to Consider Labor Issues in Antitrust Enforcement

On Tuesday, August 20, 2019, at 12:00 p.m. Central Time, in Seyfarth’s fourth installment of its 2019 Trade Secrets Webinar Series, Seyfarth attorneys will focus on the enforcement of non-competes and how the difficulty of enforcement of these restrictive covenants vary by state. Any company that seeks to use non-compete and non-solicitation agreements to protect its trade secrets, confidential information, client relationships, goodwill, or work forces needs to stay informed of the varied and ever-evolving standards in each state.

Seyfarth attorneys Kristine Argentine, Eric Barton, and Kate Miller will address the following topics:

  • Recent state law changes related to restrictive covenants and non-competes and potential impact of these changes
  • Proposed restrictive covenant and non-compete legislation in various states

As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Donal O’Connell, Managing Director of Chawton Innovation Services Ltd.

The Neglected Step-Child of IP

Trade secrets have, up until recently, been somewhat ignored. When I started to pay attention to trade secrets, some of my colleagues and contacts probably thought that I was mad.

After all, trade secrets were not included in many IP educational sessions. The subject rarely came up at IP conferences and seminars. This form of IP was not addressed by most IP Law Firms, even so called full service IP Law Firms. It clearly was not in the ‘job spec’ of many in-house IP Managers or Chief IP Officers. Continue Reading The Increasing Importance of Trade Secrets and Trade Secret Asset Management Explained

The Supreme Court in the UK, the highest court in the country, last week ruled on a restrictive covenant case for the first time in 100 years [Tillman v Egon Zehnder Ltd [2019] UKSC 32 (3 July 2019)].  It has clarified important points on interpretation, the key takeaway being it will now be easier for employers to enforce covenants against departing employees.

Covenants Must Be Necessary to Protect Employer’s Interests

It has long been established in the UK, that restrictive covenants are an unlawful restraint of trade unless they go no further than is necessary to protect the employer’s legitimate proprietary interests. The Supreme Court recognized as such in quoting the colorful language of a court decision from the 15th century criticizing a plaintiff employer looking to enforce a covenant:    Continue Reading First UK Supreme Court Decision on Restrictive Covenants for 100 years