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The Board sent shockwaves through employment law in its February 21, 2023, decision in McLaren Macomb, which held that simply offering a draft settlement agreement with broad confidentiality and non-disparagement provisions violated the National Labor Relations Act (“NLRA”). We previously blogged about the McLaren decision and encourage you to read that post for a summary of the decision.

McLaren left unanswered a host of critical questions and, in the month following the decision, employers have not received any further clarity from the Board regarding how this decision will play out in practice. But some clarity—welcome or unwelcome—is coming. At some point this week, General Counsel Jennifer Abruzzo plans to release a guidance memo that will elaborate on the Board’s position.

Continue Reading NLRB to Release Memo Clarifying Impact of McLaren Macombs on Confidentiality and Non-Disparagement Restrictions
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The FTC announced yesterday that it was extending the deadline to submit public comments on its proposed rule banning employment non-competes.

With the extension, the FTC will now be accepting comments on the proposed rule until April 19. Originally, the deadline for submitting comments was March 20.

Information on how to submit comments can be found in the Federal Register notice.

Continue Reading FTC Extends Public Comment Deadline on Proposed Rule Banning Employment Non-Competes Until April 19th
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On February 21, 2023, the National Labor Relations Board (“NLRB” or “Board”) once again issued new precedent when holding that the mere proffer of a draft severance agreement containing broad confidentiality and non-disparagement provisions violated the National Labor Relations Act (“NLRA” or “Act”). The severance agreement provisions before the Board contained extremely broad restrictions and arose in the context of underlying unfair labor practices (“ULPs”) that included circumventing a certified bargaining representative.  It remains to be seen, therefore, whether the Board will seek to invalidate more narrowly-tailored confidentiality and non-disparagement provisions.

Continue Reading NLRB Targets Confidentiality and Non-Disparagement Provisions
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The District of Maryland recently awarded a software developer a mere $1.00 in nominal damages for contract and trade secret claims against a former employee, citing the immateriality of defendant’s breach and plaintiff’s failure to prove a fair licensing price for its misappropriation damages.

In AirFacts, Inc. v. de Amezaga, AirFacts, a developer of accounting software for airlines, filed suit against Diego de Amezaga, its former director of product development, alleging that de Amezaga’s subsequent employment violated his employment agreement with AirFacts and that de Amezaga had misappropriated various trade secrets.

Continue Reading Federal Court Awards Company Only $1.00 in Damages in Misappropriation Case against Former Employee
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A recent motion for preliminary approval of a class action settlement filed in federal court in Georgia will bring to a close claims asserted on behalf of a class of Porsche owners for a purportedly botched over-the-air (“OTA”) software update sent to their vehicles. But a recent decision by a California federal court suggests that manufacturers may be able to avoid claims for violation of the Computer Fraud and Abuse Act (“CFAA”) so long as they do not “blatantly misdescribe” the OTA updates they transmit to vehicle owners. Taken together, these cases signal the challenges automakers will face in defending software malfunction cases and the benefits of robust disclosure when transmitting OTA software updates.

Continue Reading Computers on Wheels: One OEM Settles Claims While Another Scores a Win in Cases Involving Allegedly Botched OTA Updates
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On Wednesday, March 8 at 12 p.m. Pacific, Robert Milligan—Seyfarth partner and co-chair of the firm’s Trade Secrets, Computer Fraud & Non-Competes practice—is presenting the “What Does the FTC’s Crackdown on Non-Competes Mean for Trade Secrets?” webinar for the California Lawyers Association.

The panel will discuss:

  • The FTC’s recent non-compete enforcement activities and proposed rule banning non-competes
  • The FTC’s discussion and treatment of trade secrets in its supporting rule materials
  • Policy and practical implications related to trade secrets, including guidance concerning reasonable non-disclosure agreements
  • Effective strategies for companies to employ in current regulatory climate

For more information or to register for the webinar, visit the California Lawyers Association website.

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On February 16, 2023, the FTC hosted a public forum for the purpose of examining the proposed rule banning non-compete agreements. The agenda included, among other things, opening remarks from Chair Kahn, an overview of the rulemaking process by the FTC’s general counsel, a panel discussion, and comments from the public. A recording of the forum is available here.

In her preliminary remarks, Chair Kahn claimed that the proposed rule would increase workers’ earnings significantly and non-competes are an unfair method of competition. She claimed that the FTC has deep expertise on non-competes based upon enforcement, analysis, and addressing public comments. During the explanatory session, FTC staff explained that the comment period ends March 20th and encouraged the submission of additional comments. Staff also explained the functional test in the proposed rule and indicated that the ban applies to any agreement that functionally operates as a non-compete, which could be an overly broad non-disclosure agreement or training repayment agreement. FTC staff stated that the proposed rule does not apply to “run of the mill non-disclosures.”

Continue Reading FTC Holds Public Forum Examining Proposed Rule to Ban Noncompete Clauses and Business Organizations Sharply Criticize It
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As earlier reported on this blog, Commissioner Christine Wilson, the sole dissenter in the Federal Trade Commission’s proposed rule banning non-competes, announced yesterday that she is resigning from the agency over her fierce opposition to progressive FTC Chair Lina Khan’s methods of advancing her agenda. In a Wall Street Journal OpEd, Commissioner Wilson took aim at Ms. Khan’s “disregard for the rule of law and due process.” She cited several examples of this alleged disregard for the rule of law and due process, including the FTC’s launch of the rulemaking process to ban nearly all non-compete clauses in employee contracts, affecting roughly one-fifth of employment contracts in the US. As Commissioner Wilson noted in her vigorous dissenting statement to the FTC’s Notice of Proposed Rulemaking (“NPR”), the proposed rule defies the Supreme Court’s decision in West Virginia v. EPA (2022), which held that an agency can’t claim “to discover in a long-extant statute an unheralded power representing a transformative expansion in its regulatory authority.” As Commission Wilson noted in her dissent, and as we have pointed out here and here, the FTC’s NPR purports to undo hundreds of years of state legal precedent—dating from even before the American Revolution—that employs a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope, given the business justification for the restriction.

Continue Reading “Noisy Exit” of FTC Commissioner Christine Wilson Signals Increasingly Contentious Efforts to Regulate Non-Compete Clauses at Federal Level for Foreseeable Future
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There have been some significant developments since the FTC announced its proposed rule banning non-competes in early January.

First, the FTC will be hosting a virtual public forum on its proposed rule on February 16th from 12 p.m. to 3 p.m. Eastern.

The forum is open to the public (see agenda for the forum here). The commission will hear from a “series of speakers who have been subjected to noncompete restrictions, as well as business owners who have experience with noncompetes.” After, members of the public will have an opportunity to comment via livestream. People can sign up to speak through a webform and will be heard on a first-come first-served basis during the time available.

According to the FTC, the forum will examine the “FTC’s proposed rule to prohibit employers from imposing noncompetes on their workers, and providing an opportunity for people to directly share their experiences with noncompetes.”

The FTC indicated that the forum will supplement the FTC’s request for members of the public to submit written comments on the proposed rule, which is based on the FTC’s preliminary finding that non-competes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act. At this point, the written public comment period ends March 20th, despite 100 business organizations requesting a 60 day extension on the deadline.

The FTC’s proposed rule generally would prohibit employers from using non-compete clauses, including independent contractors and anyone who works for an employer, whether paid or unpaid. The rule would also require employers to rescind existing non-competes and actively inform workers that they are no longer in effect.

Next, during President Biden’s State of the Union speech last week, he made several critical comments about non-compete agreements and he supports the FTC’s proposed ban on non-competes. He stated, “30 million workers had to sign non-compete agreements when they took a job. So a cashier at a burger place can’t cross the street to take the same job at another burger place to make a couple bucks more. Not anymore. We’re banning those agreements so companies have to compete for workers and pay them what they’re worth.”

Lastly, Christine S. Wilson, the FTC’s only Republican member, indicated in an op-ed in the Wall Street Journal Tuesday, that she plans to leave the agency, citing Chair Lina Khan’s “disregard for the rule of law and due process.” She accused FTC leaders of abusing government power and questioned their honesty and integrity. “I have failed repeatedly to persuade Ms. Khan and her enablers to do the right thing, and I refuse to give their endeavor any further hint of legitimacy by remaining,” Wilson wrote. “Accordingly, I will soon resign as an FTC commissioner.”

The fever charged climate concerning the FTC’s proposed non-compete ban continues to heat up.

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In this episode, Scott Mallery, Dan Hart, and Robert Milligan discuss the FTC’s authority to issue such a broad proposed regulation, and what constitutional challenges to that authority will likely look like. In addition, we discuss legislation that has been introduced in Congress that would not only do essentially the same thing the FTC’s proposed rule would do, but it would also increase the FTC’s ability to regulate in this space. In a less certain exercise, we pontificate on the likelihood this measure will actually see the President’s desk.

Click here to listen to the full episode.

Click here to listen to Part 1.