Non-Compete Enforceability

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Within the last five months, the two executive arms responsible for enforcing antitrust laws—the US Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”)—held public workshops to examine the effect of non-compete clauses in employment contracts on the labor market. The DOJ held its workshop on September 23, 2019, while the FTC recently held its own at the top of the year, on January 9, 2020. The purpose of the FTC workshop was “to examine whether there is a sufficient legal basis and empirical economic support to promulgate a Commission Rule that would restrict the use of non-compete clauses in employer-employee employment contracts.”

Why the FTC now wants to regulate in the employment space is not readily apparent apart from attempting to capitalize on a low-hanging fruit populist issue concerning the overreporting of some companies allegedly using non-competes with low-wage workers.…
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On Tuesday, January 28 at 12:00 p.m. Central, in the first installment of the 2020 Trade Secrets Webinar Series, Seyfarth attorneys will review noteworthy legislation, cases and other legal developments from across the nation over the last year in the area of trade secrets and data theft, non-competes and other restrictive covenants, and computer fraud.…

On January 31, 2020, Boston partner Erik Weibust will be speaking at the Practicing Law Institute’s program “Noncompetes and Restrictive Covenants 2020: What Every Lawyer, Human Resources Professional, and Key Strategic Decisionmaker Should Know” in San Francisco. Erik will be speaking a part of a roundtable discussion entitled “Advanced Issues in Noncompete Matters,” which will…

Last summer, after a decade of fits and starts, and just minutes before the end of the 2018 legislative session, the Massachusetts legislature finally passed comprehensive non-compete reform, which went into effect on October 1, 2018. It had become almost a sport watching what the legislature would do at the end of each year with that current year’s version of non-compete reform, which ranged from all out bans to merely codifying the common law. (For a recap of the many twists and turns over the years, here is just a smattering of blog posts on the topic)

If you assumed that we would get 2019 off, you would be mistaken. As we pointed out in the pages of Massachusetts Lawyers Weekly and Law360, the 2018 law caused as much confusion as it did clarity, and we predicted that amendments and clarifications would be necessary. And it didn’t take long for the first such clarification to be proposed. …
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As we previously covered, a group of 18 state attorneys general in July filed comments with the Federal Trade Commission (“FTC”), asking the FTC to incorporate labor concerns when reviewing corporate mergers and to use its enforcement powers under the Sherman Act to stop the use of non-compete, non-solicit, and no-poach agreements in many situations. Many of those same attorneys general recently sent another letter to the FTC, this time urging it to use its rulemaking authority “to bring an end to the abusive use of non-compete clauses in employment contracts.”

In the most recent letter, the attorneys general endorsed the arguments presented in a March 20, 2019, petition submitted to the FTC by various labor unions, public interest groups, and legal advocates, requesting that the FTC initiate rulemaking to classify abusive worker non-compete clauses as an unfair method of competition and per se illegal under the FTC Act for low wage workers or where the clause is not explicitly negotiated. As they did in their previous letter, the attorneys general contend that non-competes “deprive workers of the right to pursue their ambitions and can lock them into hostile or unsafe working environments.” The attorneys general also argue that the arguments in support of non-compete clauses are unpersuasive and that employers can use other “less draconian” ways to recoup their investment in job training, methods of business, and other intangibles. The attorneys general further argued that non-competes burden businesses seeking to hire new employees, which in turn inhibits innovation and drives up consumer costs by suppressing competition.…
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Manhattan restaurant Sottolio, Inc., d/b/a Norma Gastronomia Siciliana hired Giuseppe Manco—“a noted  Italian pizza chef, or pizzaiolo”—to consult on its menu. At the same time, Manco and his wife purchased a 9% interest in the restaurant, becoming co-owners of the business. Manco signed a non-compete and non-disclosure agreement in connection with his hiring, under which Manco agreed, for ten years, to not replicate, copy, or duplicate Plaintiff’s confidential information, including its “signature recipes” for arancine, pasta alla norma, caponata, anelletti al forno, and carbonara di mare, or to use the signature recipes within a ten mile radius of Sottolio’s Manhattan restaurant. …
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Seyfarth’s Trade Secrets, Computer Fraud & Non-Competes practice group is pleased to provide the 2019-2020 edition of our 50 State Desktop Reference, which surveys the most-asked questions related to restrictive covenants and trade secrets in all 50 states, including the recent updates in non-compete law in Washington, California, Maine, Illinois, Rhode Island, Maryland, and New …

Following in the footsteps of its neighbors Maine, Massachusetts, and New Hampshire, Rhode Island recently enacted legislation that restricts the use of non-competition agreements with certain types of employees. The Rhode Island Noncompetition Agreement Act, which becomes effective on January 15, 2020, prohibits non-competes without regard to geographic location and duration for the following types of employees:

  • Non-exempt employees under the FLSA;
  • Undergraduate or graduate students participating in an internship or short-term employment;
  • Employees aged 18 or younger; and
  • Low-wage workers (defined as earning 250% or less of the federal poverty level ($31,225 per year under current data).

…
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This is the third blog by our Trade Secrets , Computer Fraud & Non-Competes team dealing with Washington state’s House Bill 1450, which dramatically alters non-compete agreements within the state. This blog discusses retroactive application of the statute and potential challenges the statute may face as it rolls out in January 2020.

What’s The Law?

As our team previously detailed, Washington state’s new House Bill 1450, which goes into effect January 1, 2020, will eliminate non-compete agreements for employees earning less than $100,000 a year and independent contractors earning less than $250,000 a year. The law requires advance notice of non-competes “no later than the time of acceptance of the offer of employment” and “independent consideration” for non-competes entered into after employment.

In addition, among other changes, the new law:…
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Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.) have introduced legislation entitled the Workforce Mobility Act (“WMA”). The WMA, like its prior incarnation from last year, seeks to ban non-compete agreements outside of the sale of a business or dissolution of a partnership. The WMA also follows a similar, unsuccessful, attempt by the federal government to limit non-compete agreements on a national scale earlier this year.…
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