In 2023, Seyfarth’s Trade Secrets, Computer Fraud & Non-Compete practice group presented a series of dynamic and insightful CLE webinars, addressing pivotal challenges confronting businesses head-on. The breadth of our discussions encompassed a spectrum of critical topics:
- FTC Proposes Rule Banning Use of Non-Competes. Now What?
- 2022 Trade Secrets & Non-Competes Year in Review
- Commercial Litigation Outlook: Insights and Predictions for Litigation Trends in 2023
- NLRB and Restrictive Covenants: Trends in Employment Confidentiality
- Managing Trade Secrets in a Remote Work Environment
- What Employers Need to Know Regarding Non-Compete Changes in 2023
To conclude our impactful 2023 webinar series, we’ve carefully compiled key takeaways from each session. If you missed any sessions, recordings are available on our blog or through the provided links. We’re excited to share that Continuing Legal Education (CLE) credit is attainable by watching the webinar recordings. For CLE credit inquiries, please email firstname.lastname@example.org after viewing the webinar.
FTC Proposes Rule Banning Use of Non-Competes. Now What?
View the Recording – CLE Credit for this recording expires on January 11, 2024.
Seyfarth partners Kate Perrelli, Michael Wexler, Robert Milligan, Dan Hart, and Dawn Mertineit discussed the new Federal Trade Commission’s (“FTC”) proposed rule banning the use of non-competes with employees and workers. The panel addressed what the proposed rule would do and what employers need to know to respond.
- The FTC’s attempted regulation of employment non-competes as part of its rulemaking powers is unprecedented in the 109 years since its creation in 1914. The FTC bases its rulemaking authority on Section 5 of the Federal Trade Commission Act, which provides: “The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations . .. from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.” 15 USC § 45(2).
- On November 10, 2022, the majority of the FTC issued a new policy statement that outlined an expansive definition of “unfair methods of competition” and indicated that it would engage in aggressive enforcement of actions that it regards as “unfair methods of competition,” even if those actions do not constitute violations of federal antitrust law. The proposed Rule is the FTC’s first test of the broader powers that it claimed in its November statement, and the proposed Rule is much broader than anything that the Biden Administration had previously hinted at, including in then-candidate Biden’s platform campaign statement or the 2021 executive order. A day before the FTC issued its proposed rulemaking, the FTC issued a press release that it had sued, and reached a settlement with, three employers in the security and manufacturing sector that the FTC alleged had “illegally imposed noncompete restrictions on workers.” Thus, the FTC is not waiting for a final rule before flexing its muscle and employers should examine their existing non-competes to determine whether they are overly broad and may invite FTC scrutiny.
- The proposed rule impacts not just typical employee non-compete agreements but also non-compete agreements that are made in connection with the sale of business entities. While there is an exception for a substantial owner of, or substantial member or substantial partner in, the business entity at the time the person enters into the non-compete clause defined as an owner, member, or partner holding at least a 25 percent ownership interest in a business entity, the 25% interest threshold is arbitrary and ignores the business realities, complexity, and individuality of such transactions. Moreover, it applies retroactively to such transactions so parties to the transaction may not get the benefit of their bargain.
- The proposed rule is only a proposal at this point, as the FTC has solicited public comment on the proposed rule before it issues a final rule.
- It’s unclear whether the final rule will be as sweeping as the current proposal. Regardless of the final form of the rule, we expect legal challenges to the FTC’s rulemaking, including significant constitutional challenges to whether the FTC has the power to issue rules at all on worker non-competes.
- In the interim, employers should take a close look at their restrictive covenant agreements to ensure that they are reasonable and compliant with ever-evolving state law.
2022 Trade Secrets & Non-Competes Year in Review
View the Recording – CLE credit for this recording expires on January 23, 2024.
Seyfarth attorneys Michael Wexler, Robert Milligan, and Joshua Salinas reviewed noteworthy legislation, cases, and legal developments from across the nation over the last year in the areas of trade secrets and data theft, non-competes and other restrictive covenants, and computer fraud. Plus, they provided predictions for what to expect in 2023.
- The FTC’s push to regulate employment non-competes through its rule-making powers should be closely followed by all employers.
- There were several significant trade secret jury awards in 2022 in Virginia ($2 billion), Ohio ($65 million), and Michigan ($105 million). We expect to see even more large jury results in 2023. Courts continue to recognize combination trade secrets where a plaintiff can demonstrate a unique combination of processes and information that aid company processes, including research and development. Courts also continue to allow creative damage theories based upon avoided development costs or unjust enrichment even where there may only be disclosure rather than use or no competing market product embodying the misappropriated secrets.
- The Protecting American Intellectual Property Act signed on January 5, 2023, is designed to help American businesses from trade secret theft by foreign actors. The President is required to report annually to Congress foreign entities and individuals who engage in trade secret theft that pose a threat to the country and sanction such entities and individuals.
- We saw some notable non-compete court decisions coming from Hawaii (must have legitimate business interest for employee non-compete, including protection of trade secrets), Wyoming (blue-penciling overly broad employee non-competes not permitted), California (upholding customer non-solicit covenant in employment agreement that was part of business transaction accomplished to further joint venture), Delaware (Chancery court refuses to blue pencil overly broad non-compete in business transaction), and Louisiana (court refuses to enforce non-compete where individual executes non-compete merely as an applicant rather than employee).
- We saw Colorado, the District of Columbia, Illinois, and Oregon enact new state laws governing restrictive covenants, and New Jersey, Connecticut, and New York introduced their respective bills on employee mobility.
- California and Washington have new laws prohibiting employers from using employee agreements that prohibit the disclosure of certain conduct the employee believes is unlawful, such as illegal harassment or discrimination.
- The DOJ has revised its policy for charging CFAA cases after the Supreme Court Van Buren’s ruling that adopted a narrower interpretation of the statute’s “exceeding authorized access” in Van Buren. And we expect combating ransomware to remain a top priority for the DOJ in 2023.
Commercial Litigation Outlook: Insights and Predictions for Litigation Trends in 2023
View the Recording – CLE for this recording expires on February 6, 2024.
Seyfarth partners Dawn Mertineit, Kristine Argentine, Jay Carle, and Christopher Robertson delivered focused insights on the prevailing landscape of consumer class actions, eDiscovery, trials outlook, trade Secrets, computer fraud, and non-competes. The discussion encompassed a deep dive into the tidal wave of ESG demands, reports, and conflicts, along with significant trends, predictions, and recommendations within these critical areas. Here are the key takeaways specifically tailored to Trade Secrets and Non-Competes, led by Dawn Mertineit.
- Remote and hybrid work reshaped business practices in the past three years. Companies adapt with restrictive covenants to safeguard trade secrets in the evolving work landscape.
- FTC proposes a rule to ban non-compete agreements with workers, affecting various agreement types.
- Federal agencies actively enforce restrictions on non-competes, leading to criminal indictments in specific industries. Bipartisan efforts in Congress aim for a unified approach to non-compete covenants.
- Evolving state legislation introduces challenges, including penalties, wage thresholds, and venue restrictions. Multistate employers must stay updated on state laws to ensure agreement compliance.
- Recent events highlight the crucial role of identifying and protecting trade secrets for companies. Judges and juries are increasingly intolerant of theft, emphasizing the value of trade secrets.
- 2023 trends forecast more remote work, heightened global competition, and aggressive damage modeling in trade secret cases.
The NLRB and Restrictive Covenants: Trends in Employment Confidentiality
View the Recording – CLE credit for this recording expires on July 19, 2024.
Seyfarth attorneys Alex Meier, Sul Ah Kim, and Cary Reid Burke, provided in-depth insights into two key areas of concern: (1) carveouts to employment confidentiality obligations and (2) the intersection between the NLRB and restrictive covenants, including the NLRB’s recent attacks on confidentiality provisions and non-compete agreements.
- Companies should be mindful of state-specific restrictions in employment confidentiality obligations to avoid potential conflicts. At the state and federal level, legislatures and governments are examining how confidentiality restrictions may chill or prohibit disclosures of potential unlawful conduct. Review and update agreements to address state-specific restrictions and ensure that confidentiality restrictions cannot be read to prohibit disclosures of unlawful activity to the government.
- The NLRB’s General Counsel suggests certain non-competes may violate the NLRA, impacting workers’ rights. Risk of non-competes being viewed as unfair labor practices, affecting enforceability. Employers should stay informed on NLRB positions and potential challenges to confidentiality and non-compete agreements.
- Ensure agreements include clear language on carveouts for protected activities. Seek legal counsel to navigate the evolving intersection between NLRB decisions and restrictive covenants for employees who do not qualify as statutory supervisors under the NLRA. Stay proactive in reviewing and adapting policies to align with legal developments and potential NLRB challenges.
Managing Trade Secrets in a Remote Work Environment
View the Recording – CLE credit for this recording expires on June 21, 2024.
Seyfarth attorneys Kate Perrelli, Dawn Mertineit, and Cat Johns provided valuable insights into navigating the evolving landscape of remote work environments. The panel covered a range of topics, including the latest technology threats, the importance of communication and training, revisiting confidentiality policies, alternative trade secret protections, and updating restrictive covenant agreements.
- Staying Informed about Technology Threats: Employers must stay up to date with the latest technology employees can use to misappropriate sensitive data. This includes being aware of potential tools and methods that could compromise trade secrets. Equally important is keeping abreast of advancements in technology that can help detect and prevent such misappropriation. By staying informed, organizations can proactively address emerging threats to their trade secrets.
- Communication and Training for Trade Secret Protection: Regular communication and training are critical in ensuring that employees understand the significance of treating proprietary information with extreme care. The webinar emphasized the need for clear and consistent messaging about the value of trade secrets and the consequences of mishandling them. By fostering a culture of awareness, organizations can strengthen their employees’ commitment to protecting trade secrets.
- Revisiting Confidentiality Policies for Remote Work: The shift to remote work necessitates revisiting confidentiality policies and practices. Organizations must ensure that their policies address the unique circumstances of virtual and hybrid work environments. This includes reviewing remote access protocols, data encryption methods, and guidelines for secure information sharing. Adapting confidentiality policies to the remote work setting helps safeguard trade secrets effectively.
- Implementing Alternative Trade Secret Protections: Given the current legislative and regulatory activity surrounding non-compete agreements, organizations should explore additional trade secret protections. The webinar emphasized the importance of implementing confidentiality training, policies, and agreements. Regular audits to track trade secrets and limiting access to only those who need it for their job responsibilities were highlighted as crucial measures to mitigate risk.
- Updating Restrictive Covenant Agreements: To comply with evolving state and federal laws, organizations should review and update all restrictive covenant agreements. Ensuring that these agreements are narrowly tailored and legally compliant is essential. By keeping restrictive covenants in line with the latest legal requirements, organizations can strengthen their trade secret protections while mitigating potential legal risks.
This webinar shed light on the critical aspects of safeguarding trade secrets in the evolving remote work landscape. By staying informed about technology threats, fostering communication and training, revisiting confidentiality policies, implementing alternative trade secret protections, and updating restrictive covenant agreements, organizations can effectively protect their valuable intellectual property. These takeaways provide a roadmap for organizations to navigate the unique challenges of managing trade secrets in a remote work environment while staying compliant with legal obligations.
What Employers Need to Know Regarding Non-Compete Changes in 2023
View the Recording – CLE Credit for this recording expires on November 29, 2024.
In our final installment of the 2023 series, our leading partners in non-compete law, Dawn Mertineit, Robert Milligan, Marcus Mintz, and Dan Hart, skillfully guided our listeners through the intricacies of non-compete agreements in the United States, focusing on the latest updates in 2023. This essential webinar provided exclusive insights from our 2023-2024 edition of the 50-State Desktop Reference.
- Nationwide employers are strongly recommended to review their restrictive covenant agreements. Many states have undergone substantial changes to their laws and substantial liability exists for non-conformance, and federal agencies are increasingly taking the position that overbroad restrictive covenants chill statutorily protected activities.
- Minnesota joins California, Oklahoma, and North Dakota as the 4th state to ban employee non-compete agreements.
- California recently enacted two new non-compete laws. The first specifies that any contract that is void under California law is unenforceable regardless of where and when the employee signed the contract. The likely impact is that companies may use the new law to attempt to cleanse an out-of-state employee from an otherwise valid non-compete agreement under another state’s law by having the employee move to California to work. The second requires employers to notify current employees, and former employees who were employed after January 1, 2022, whose contracts include a noncompete clause, or who were required to enter a noncompete agreement, that does not satisfy an exception to this chapter, by February 14, 2024 that the noncompete clause or noncompete agreement is void. A legal challenge to the two new laws is expected.
- Beware of the income threshold increases in several states necessary to enforce restrictive covenant agreements.
- Stay tuned for updates on the enforceability of forfeiture-for-competition and claw-back agreements under Delaware law.
2024 Trade Secret Webinar Series
As we step into the new year, our commitment to providing valuable insights continues with the 2024 Trade Secret Webinar Series. Kicking off the series in January is our first webinar, “2023 Year in Review: What You Need to Know About Recent Cases and Developments in Trade Secrets, Non-Compete, and Computer Fraud Law.”
To ensure you don’t miss out on this informative session and future webinars, subscribe to our Litigation – Trade Secrets & Non-Competes mailing list for exclusive invitations.
For a tailored approach, our attorneys are available to discuss presenting personalized presentations to your company. Stay well-informed on non-compete laws with our recently updated 50 State Non-Compete Desktop Reference. Additionally, stay connected on our Trading Secrets blog, where we delve into topics and issues related to trade secrets and non-competes. Elevate your understanding and stay ahead in the ever-evolving landscape of trade secret law.