Search results for: preemption

By Carolyn Sieve and summer associate Rina Wang

A California federal court has added to the body of decisional law on preemption under the California Uniform Trade Secrets Act, Cal. Civ. Code §§ 3426, et seq. (“CUTSA”). In Aversan v. Jones, No. 2:09-cv-00132-MCE-KJM, 2009 WL 1810010 (E.D. Cal. June 24, 2009), the Court denied defendants’ motion to dismiss plaintiff’s claims for interference with contractual relations, interference with prospective economic advantage, breach of duty of loyalty, and unfair competition, finding that plaintiff had sufficiently pled facts supporting these claims without relying on the same nucleus of facts as its CUTSA misappropriation of trade secrets claim.

Civil Code section 3426.7 provides that CUTSA “does not affect (1) contractual remedies, whether or not based upon misappropriation of a trade secret, (2) other civil remedies that are not based upon misappropriation of a trade secret, or (3) criminal remedies, whether or not based upon misappropriation of a trade secret.” (Emphasis added.) This provision has been interpreted to mean that CUTSA preempts common law claims that are based on the same nucleus of facts as the CUTSA claim. Thus, preemption is not triggered where the facts in an independent claim are similar to, but distinct from, those underlying the misappropriation claim.

Defendants Jones and Mellse were employees of plaintiff Aversan, which recruits and trains engineers to perform services for Aversan’s customers and clients of its customers. They later quit to work for one of Aversan’s clients, Ambire, which had retained Aversan to provide engineers to one of Ambire’s clients, CalPERS.  Defendants had been assigned by Aversan to work on the CalPERS project. While assigned to CalPERS, defendants wrote custom software programs using Aversan’s proprietary software script. 

Aversan’s complaint alleged that defendants violated CUTSA by using Aversan’s proprietary and confidential information to continue performing work for Ambire and CalPERS. Defendants also allegedly used Aversan’s confidential information to solicit employees, contractors and recruits. In addition, Aversan sought damages for Jones’ alleged interference with a residential lease agreement, and defendants’ supposed interference with Aversan’s customer relationships.

Defendants moved to dismiss plaintiff’s claims for interference with contractual relations, interference with prospective economic advantage, breach of duty of loyalty, and unfair competition. The district court denied the motion, holding that the facts supporting these tort claims were sufficiently independent of the CUTSA claim. Under these causes of action, Aversan claimed that defendants prevented Aversan from participating in and profiting from its agreements with Ambire by working directly for Ambire and that defendants allegedly interfered by usurping Aversan’s position with CalPERS.  Aversan also claimed that Jones encouraged and convinced an apartment lessor to terminate its lease with Aversan. Aversan had already paid for that month’s rent as an employee benefit to Jones and re-let the same apartment unit to Jones directly. These claims survived dismissal because they did not rely on the same nucleus of facts as Aversan’s CUTSA claim and they sufficiently stated an independent claim for relief.  

Aversan thus provides some guidance as to what allegations will overcome dismissal of tort claims in a case alleging CUTSA violations. If a party in a trade secrets case is faced with a possible preemption argument, it is worth comparing this decision with the recent California Court of Appeal decision in K.C. Multimedia, Inc. v. Bank of America Technology & Operations, Inc., 171 Cal.App.4th 939 (2009).

On April 23, 2024, the FTC announced its Final Non-Compete Clause Rule (“Final Rule”), which bans post-employment non-compete clauses between employers and their workers. The Final Rule becomes effective 120 days after being published in the Federal Register (Effective Date).[1] As of the date of this paper, the Final Rule has not been published in the Federal Register.

Key Provisions

  • Scope:
    • The Final Rule prohibits an employer from entering into, or attempting to enter into, a non-compete clause with a “worker” (including, e.g., employees and independent contractors) or representing that a worker is subject to a non-compete clause.[2] The Final Rule allows employers to maintain existing non-compete agreements with “senior executives,”[3] (those with over $151,164 annual compensation and in a policy making position for the business) but bars an employer from entering into, or attempting to enter into, a non-compete clause with a senior executive after the Effective Date of the Final Rule.[4]
    • The Final Rule does not apply to non-competes entered into by a person pursuant to a bona fide sale of a business entity.[5]
    • The Final Rule does not prohibit employers from enforcing non-compete clauses where the cause of action related to the non-compete clause accrued prior to the Effective Date of the Final Rule.[6]
    • The Final Rule further provides that it is not an unfair method of competition to enforce or attempt to enforce a non-compete or to make representations about a non-compete where a person has a good-faith basis to believe that the final rule is inapplicable.[7]
    • The Final Rule supersedes all state laws to the extent, and only to the extent, that a state’s laws permit or authorize conduct prohibited under the Final Rule or conflict with the Final Rule’s notice requirements.[8]
  • Notice of Non-Enforcement:
    • The Final Rule requires an employer to provide clear and conspicuous notice to workers subject to a prohibited non-compete, in an individualized communication, that the worker’s non-compete clause will not be, and cannot be legally be, enforced against the worker.[9]
    • The employer must provide by the Final Rule’s Effective Date by hand-delivery, by mail at the worker’s last known street address, by email, or by text message.[10]

Analysis

The Final Rule bans almost all non-competes between employers and workers, but does not explicitly ban non-disclosure agreements, customer non-solicitation agreements, or employee non-solicit  agreements.

Nevertheless, the Final Rule makes clear that it bans these other forms of restrictive covenants when they have the same functional effects as non-compete clauses.[12]  The Final Rule provides that a non-disclosure clause operates as a non-compete, for example, “where they span such a large scope of information that they function to prevent workers from seeking or accepting other work or starting a business after they leave their job.” Such non-disclosure agreements are so broadly written, the FTC states, that for practical purposes, “they function to prevent a worker from working for another employer in the same field and are therefore non-competes under [the Final Rule.]”[13] Similarly, non-solicitation agreements can satisfy the definition of non-compete clause “where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends.”[14]

The Final Rule becomes effective 120 days after being published in the Federal Register. During that time, we expect trade associations and businesses across the country to challenge the Final Rule and seek an injunction against it.[15] In fact, two lawsuits have already been filed. We expect at least some of the challenges to be successful, because any final rule in which the FTC claims authority to ban restrictive covenants is not likely to withstand constitutional scrutiny, for the reasons set out below.

First, the banning of non-competes is squarely within the Major Questions Doctrine, which is a rule of constitutional interpretation holding that, when delegating rulemaking authority to agencies on questions of vast economic and political significance, Congress must provide clear and direct authority to the agency to do so, and the court will not defer to agency interpretations of its own enabling statutes.[16] The Court has previously applied the major questions doctrine when agencies have claimed substantial new regulatory power over important economic areas,[17] or when the regulation will have a substantial aggregate economic impact.[18] It is likely undisputed that the FTC’s Final Rule involves a claim of substantial new regulatory power, particularly given the long history of state regulation regarding non-competes and the near-complete absence of FTC challenges to non-competes prior to issuance of the proposed rule. And by the FTC’s own estimation, the Final Rule will effect 1 in 5 U.S. workers and have an estimated economic impact of $400bn-$488bn in increased wages for workers over the next 10 years.[19] Accordingly, the Final Rule raises a “Major Question.”

Second, this rule-making is likely an impermissible delegation of authority under the Non-Delegation Doctrine. Article I of the Constitution provides that “[a]ll legislative Powers herein granted shall be vested in a Congress of the United States.” Based on that provision, the Supreme Court holds that Congress may not transfer to another branch “powers which are strictly and exclusively legislative.” Congress may confer substantial discretion on executive agencies to implement and enforce the laws, but Congress must still “lay down by legislative act an intelligible principle to which the person or body authorized to [exercise that authority] is directed to conform.”[20] Here, even if Congress had intended to delegate to the FTC the power to make rules regarding employee non-competes, the vague reference to “unfair methods of competition” in Section 5 of the FTC Act is arguably far too broad to meet this standard.

Third, the doctrine of “Chevron deference” is unlikely to save the FTC’s rule-making. The 40-year-old doctrine, which requires that federal courts defer to an agency’s reasonable interpretations of gaps and ambiguities in statutes they implement, has been under significant challenge in recent years. In January 2024, the Supreme Court heard oral arguments in two companion cases, Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce, which seek to completely overrule Chevron. It is widely expected that the majority of Supreme Court Justices will soon vote to end, if not severly limit, Chevron deference once and for all.

While it is very likely the FTC Final Rule will be successfully challenged under these doctrines, the appeals process may take 12-18 months before the Supreme Court issues a final ruling. A final decision may take less time if there are expedited appeals.

Below are some answers to some frequently asked questions about the FTC Final Rule.

Frequently Asked Questions

What happened?

The SEC voted 3-2 to ban most non-competes for U.S. workers. The final rule and discussion is over 500 pages long, but it is intentionally broad and captures most non-competes for both employees and independent contractors.

Are non-compete agreements void right now?

No. The rule, assuming it is not enjoined, is not effective until 120 days from publication in the Federal Register (which as of April 24th has not happened but will happen soon). The rule also does not apply to breach of contract actions where the action accrues before the effective date.

Why did the FTC do this?

The FTC concluded that non-competes unlawfully stifle competition and depress wages for U.S. workers, and that banning them would encourage competition, innovation, and increased wages. More to the point, the current administration issued an executive order in 2021 directing the FTC to curtail non-competes in some fashion, so this rule was long in the making.

What does the ban cover?

The ban covers all non-competes for U.S. workers (including employees and independent contractors) with limited carve-outs, and subject to certain exceptions based on the FTC’s statutory authority. For example, the rule notes that the FTC has no authority over not-for-profit enterprises, so those entities are not subject to the new rule. There are exceptions for existing agreements with “senior executives” (discussed below) and for non-competes entered into as part of the bona fide sale of a business.

Is the rule retroactive?

In most instances, yes – the rule bans new non-competes after the effective date, but also invalidates existing non-competes subject to few exceptions.  

Does it only apply to non-competes?

On its face, the rule only applies to non-competes and does not ban other restrictions like confidentiality or non-solicitation provisions. The rule makes clear that it bans these other forms of restrictive covenants when they have the same functional effects as non-compete clauses. The rule provides that a non-disclosure clause operates as a non-compete, for example, “where they span such a large scope of information that they function to prevent workers from seeking or accepting other work or starting a business after they leave their job.” Such non-disclosure agreements are so broadly written, the FTC states, that for practical purposes, “they function to prevent a worker from working for another employer in the same field and are therefore non-competes under [the Final Rule.]” Similarly, non-solicitation agreements can satisfy the definition of non-compete clause “where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends.”

How is non-compete defined?

The final rule defines “non-compete clause” as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.” Again those terms should be construed broadly.

What are the exceptions?

There are industry-specific exceptions based on certain industries excepted from the Federal Trade Commission Act (“the FTC Act”). Specifically, the rule does not apply to banks, savings and loan institutions, federal credit unions, common carriers, air carriers and foreign air carriers, and persons and businesses subject to the Packers and Stockyards Act. Outside of those industries, the major exceptions include (1) existing agreements for “senior executives” (defined below), (2) non-competes entered into in connection with the bona fide sale of a business, and (3) non-compete enforcement where the cause of action accrued prior to the rule’s effective date.

Who are qualified senior executives under the exception?

The rule largely adopts the SEC’s existing definitions for “executive officers, “ but also includes an income threshold of $151,164 in the preceding year. Put differently, a “senior executive” includes someone making in excess of that threshold who also meets a “job duties test” set forth in the rule. Who falls under that exception leaves room for interpretation, but it is intended to be narrow and requires the individual to have “policy-making” authority for the entire organization, and would closely align with the SEC’s definition of an executive officer. Again, this exception only allows for existing non-competes prior to the effective date. It does not allow for new non-competes with senior executives that are entered into after the effective date.

Does this rule replace state laws regarding non-competes?

The rule preempts states laws only where they conflict with the final rule. Put differently, the rule allows for customer non-solicits but California state law does not. If the rule remains in place, customer non-solicits will continue to be void in California. The patchwork of state-level income and notice requirements for non-competes would also remain in effect.

Are non-profits covered by the ban?

No. By statute, the FTC only has authority over for-profit enterprises, so the rule does not apply to those organizations. This is in addition to the industries noted above which are specifically excluded from the FTC’s purview by statute: banks, savings and loan institutions, federal credit unions, common carriers, air carriers and foreign air carriers, and persons and businesses subject to the Packers and Stockyards Act.

Will the rule be challenged?

Yes. There are already two pending lawsuits (one in the Northern District of Texas and one in the Eastern District of Texas) against the FTC, and we expect a request for a nationwide injunction along with potentially more lawsuits.

What is the outlook for a challenge to the rule?

The challenges are largely focused on the lack of statutory authority for the FTC to enact these kind of substantive rules, and particularly for a sweeping rule that affects millions of agreements nationwide. See discussion above. While there are no guarantees, based on recent Supreme Court decisions regarding the major questions and non-delegation doctrines, there is a significant chance of the rule being enjoined before it goes into effect.

If the post-employment non-compete covenant is void, could post-employment vesting of equity compensation stop?

This will depend on the terms of the equity compensation plan and agreements and the scope of the applicable restrictive covenants.  The ban may affect some, but not all, of the validity of the post-employment restrictive covenants.  The non-compete covenants may be severable from the remainder of the equity compensation agreement.

Will the ban affect current rights to severance pay?

Generally, no. The ban does not become effective until 120 days after the rules are published in the Federal Register. For any severance payments scheduled to be paid after that date, and which are conditioned on compliance with specific restrictive covenants, the ban only affects restrictive covenants relating to non-competition (as discussed above) and the payee may still be required to comply with any remaining valid restrictive covenants such as protection of trade secrets.

What type of notice do employers need to provide to employees under the rule?

Prior to the effective date of the Rule, employers will need to provide notice to each worker who is subject to a non-compete in violation of the Rule so long as the employer has either a mailing address, email address, or cell phone number for the affected worker. The notice must: (i) identify the person who entered into the non-compete clause with the worker; (ii) be provided via mail, email or text message to the worker.

Are Forfeiture for Competition Provisions Covered By the Ban?

Yes.  The ban applies to a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from:

(i) seeking or accepting work in the United States . . . where such work would begin after the conclusion of the employment . . . ;

(ii) operating a business in the United States after the conclusion of the employment . . .

In the discussion section for the rule, the FTC indicates that  forfeiture-for-competition provisions as penalizing employees, and also states that a “severance arrangement in which the worker is paid only if they refrain from competing” would be a penalty. Additionally, the FTC also notes that  “that a payment to a prospective competitor to stay out of the market may also violate the antitrust laws even if it is not a non-compete under this rule.”

Is Garden Leave Covered by the Ban?

No. The FTC acknowledged that “garden leave” provisions – where a worker is still employed and receiving the same total annual compensation and benefits on a pro rata basis – are not non-competes because they are not a post-employment restriction.

Are Fixed Term Agreements covered by the Ban?

No. Fixed-term employment agreements with non-competes during the employment term are not covered by the ban.

What About Non-Solicit, Non-Disclosure, and Training Repayment Provisions?

Covered by the ban only if they are “so broad or onerous that it has the same functional effect as a term or condition prohibiting or penalizing a worker from seeking or accepting other work or starting a business after their employment ends, such a term is a non-compete clause under the final rule.”

The FTC references nondisclosure agreements (NDAs), training repayment agreements, nonsolicitation agreements, no-hire agreements, and “no-business” agreements as examples to evaluate whether the functional effect is applicable, that is “where they function to prevent a worker from seeking or accepting other work or starting a business after their employment ends.”

Would the ban apply to non-compete provisions in ERISA-covered employee benefit plans?

ERISA preempts state laws that “relate” to any employee benefit plan.  Based on this preemption, regardless of any state law prohibition, employers could add a non-compete restrictive covenant to an ERISA-cover employee benefit plan.  This type of provisions is usually seen in a “top hat” nonqualified deferred compensation plan or an ERISA-covered severance plan. However, ERISA does not preempt federal laws.  The FTC rule and comments do not address if the ban would have any effect on the validity or enforcement of non-compete restrictions in an ERISA-covered employee benefit plan. 

Would the ban apply to non-compete restrictive covenants in a 457(f) deferred compensation plan?

Under the proposed regulations for 457(f) of the Internal Revenue Code, the right to payment of nonqualified deferred compensation can vest, or not, based on compliance with a bona fide post-termination non-compete period.  As noted above, the FTC’s jurisdiction does not apply to non-profit organizations.  Therefore, the ban should not affect a bona fide non-compete restrictive covenant in a 457(f) plan that is sponsored by a non-profit organization.

What Should Employers Do in the Meantime?

Carefully follow whether the Rule is enjoined and the deadline for compliance should the rule remain intact. It may also be prudent to prepare to send notices should the rule become effective by compiling a list of impacted current and former employees, with relevant contact information. Determine whether any of the impacted employees qualify for the “senior executive” exception described above.  Evaluate whether there are “senior executives” who should sign non-competes prior to the rule’s effective date. Model notice language is included in the rule and can be delivered by email or test message, or by delivering a paper notice by hand or mail. The notices must be sent before the effective date of the rule. DO NOT send notices right away; monitor the progress of the legal challenges.

We will continue to enhance and expand our FAQ section as new developments arise.

[1] 16 C.F.R. § 910.6.

[2] 16 C.F.R. § 910.2(a) (proposed).

[3] 16 C.F.R. § 910.1.

[4] 16 C.F.R. § 910.2(a)(2).

[5] 16 C.F.R. § 910.3(a).

[6] 16 C.F.R. § 910.3(b).

[7] 16 C.F.R. § 910.3(c).

[8] 16 C.F.R. § 910.4.

[9] 16 C.F.R. § 910.2(b)(1).

[10] 16 C.F.R. § 910.2(b)(2).

[12] See 16 C.F.R. § 910.1.

[13] See Draft Final Rule 78 n.341; Id. at 81, n. 346.

[14] Draft Final Rule 84.

[15] For example, at least one business filed suit against the FTC on the same day that the Final Rule was published. The US Chamber of Commerce has filed suit on April 24, 2024 in the Northern District of Texas.

[16] See West Virginia v. Environmental Protection Agency, 142 S. Ct. 2587, 2622 (2022) (striking down EPA Affordable Clean Energy rules); National Federation of Independent Business v. Department of Labor, Occupational Safety and Health Administration, 142 S. Ct. 661, 669 (U.S. 2022) (striking down OSHA emergency temporary standard mandating COVID-19 vaccine or testing for private sector workers).

[17] West Virginia v. EPA, 597 U.S. 697 (2022).

[18] See, e.g. Texas v. United States, 809 F.3d 134, 181 (5th Cir. 2015).

[19] https://www.ftc.gov/legal-library/browse/rules/noncompete-rule

[20] See Gundy v. United States, 139 S.Ct. 2116, 2123 (U.S. 2019) (“Congress does not usually ‘hide elephants in mouseholes.’”) (citing Mistretta v. United States, 488 U.S. 361, 372 (1989).

legal-g3a78d2a6e_1280

Over last week, two seemingly unconnected events happened that impact restrictive covenant and labor law. First, the National Labor Relations Board’s General Counsel, Jennifer Abruzzo, issued a memorandum opining that certain non-compete agreements may violate the National Labor Relation Act by suppressing workers’ ability to engage in protected concerted activity. Second, the Supreme Court issued the Glacier Northwest, Inc. v. Teamsters decision, where it held that allegedly intentional property destruction by a union was not covered by Garmon preemption, a preemption rule that restricts state courts from adjudicating state law claims that actually or arguably constitute an unfair labor practice. But in that ruling, a majority of the justices confirmed Garmon remains good law.

So putting the two together, does this mean that all non-compete litigation is preempted? After all, if a non-compete “reasonably chills” an employee’s ability to engage in protected concerted activity, and Garmon still operates to prevent state law claims that actually or arguably impede on the NLRB’s jurisdiction to adjudicate unfair labor practices, then a lawsuit to enforce a non-compete should be preempted, right?

Well, probably not. The reasoning in the General Counsel’s memo would not extend to statutory supervisors, and there is minimal existing legal support for the NLRB’s continued annexation of matters traditionally within state jurisdiction.

The General Counsel’s Memo

My colleagues previously posted about the General Counsel’s memo here. In short, the NLRB’s General Counsel released a memo theorizing that non-competes could impair an employee’s right to engage in concerted activity protected by Section 7 of the National Labor Relations Act. While the General Counsel seems intent on creating penumbra Section 7 rights that remain after employment ends, that position exists only in theory at this point. But even potential action by the NLRB creates potential preemption challenges to restrictive covenants. 

A Brief Overview on Garmon

The NLRB is meant to be the first and primary forum to adjudicate matters invoking federal labor policy. To provide the Board with space to cultivate labor law free from state interference, Garmon preemption carves out from state regulation activity that is both actually and arguably prohibited by the NLRA.

Section 7 of the NLRA guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Section 8, in turn, makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in” Section 7.

When a controversy is actually or arguably preempted by Garmon, a reviewing court should instead defer to the NLRB’s primary jurisdiction to avoid “the specter that state law will say one thing about the conduct underlying the dispute while the NLRA says another.” The animating rationale for preemption is that the NRLB—not states—should set federal labor policy and define the contours for what qualifies as an unfair labor practice and collective activity.

The Potential Impact on Restrictive Covenant Litigation

The General Counsel’s position, if it were actually adopted, threatens to create a procedural mess in restrictive covenant litigation. If the General Counsel got her wish and a non-compete agreement could, in fact, constitute an unfair labor practice by unduly restricting an employee’s ability to engage in protected concerted activity, then a court would arguably be unable to enforce the agreement or even determine whether it was enforceable. That question would first go to the Board. Employees could potentially complicate an action to enforce the agreement further by preemptively filing an unfair labor practice charge against the employer, thus creating a potential retaliation claim against the employer if the employer proceeded with filing a lawsuit.

Of course, this risk is theoretical without further evidence that the NLRB would adopt the position taken by the General Counsel. And the General Counsel’s memo, even if adopted, would only cover statutory “employees” under the NLRA, because generally only statutory employees under the NLRA have a right to exercise Section 7 rights. A statutory “supervisor” under the NLRA—meaning an employee who acts in the interest of an employer and whose position involves the exercise of independent judgment[1]—does not have the right to engage in concerted action. Without some theoretical impingement on Section 7 rights, the NLRB lacks any arguable basis to take action involving a statutory supervisor’s restrictive covenants.

But seasoned restrictive covenant litigators should understand this memo has the potential to create a lot of mischief in employee departure litigation. It will be critical to have counsel experienced in both restrictive covenant litigation and NLRB proceedings. Fortunately, Seyfarth fits the bill on both fronts.

[1] A statutory supervisor is “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.” 29 U.S.C. § 152(11).

federal-trade-commission-seal-36081_1280

100 business organizations submitted a letter today requesting a 60 day extension on the March 20, 2023, comment period deadline on the FTC’s proposed rule banning non-competes with employees and workers. The business organizations include organizations in manufacturing, commerce, retail, insurance, franchise, health care, technology, financial services, construction, and staffing.

Continue Reading Business Organizations Seek Extension on Comment Period Deadline on FTC’s Proposed Rule Banning Non-Competes
massachusetts-trade-secrets-act-four-years-on

This article was originally published in the Boston Bar Association’s Fall 2022 Boston Bar Journal.

Just over four years ago, the Massachusetts legislature finally passed a bill long in the works addressing non-compete agreements and replacing the Commonwealth’s trade secret misappropriation statute with a version of the Uniform Trade Secrets Act (the “UTSA”), referred to herein as “MUTSA.” See M. G. L. c. 93, § 42-42G. While the Commonwealth’s “new” non-compete law has received the most attention, the adoption of the UTSA was also notable. Even though Massachusetts is the 49th state to adopt the UTSA, MUTSA differs from other states’ versions of the UTSA. This piece will discuss the differences in pre- and post-MUTSA jurisprudence and what issues may be implicated by the law.

Continue Reading The Massachusetts Trade Secrets Act, Four Years On: What to know

As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Hon. Elizabeth D. Laporte (Ret.). 

Trade secret litigation in California is growing, in both volume and impact. The second-largest plaintiffs’ verdict in 2019 was $845 million, as reported by the Daily Journal, which was awarded to ASML, a Dutch semiconductor chip processing software company, in its case against XTAL, a company founded by two ex-employees of the plaintiff’s subsidiary in Santa Clara who allegedly worked in secret for XTAL using stolen trade secrets to get a head start in development and siphon off a major customer contract (ASML US Inc. v. XTAL Inc.). Another large verdict was a $66 million jury award, including a worldwide injunction, given to a San Jose LED manufacturer that sued a company for allegedly poaching its top scientist so that it could transfer its technology to China (Lumileds LLC v. Elec-Tech International Co. Ltd.). In these types of cases, plaintiffs have the advantage of being able to craft a compelling narrative of theft—most commonly, former employees surreptitiously appropriating the plaintiff company’s trade secrets for their own benefit in a rival venture—and to overcome employees’ general freedom to switch employers under California law, which voids almost all non-compete agreements (Bus. & Prof. Code Sec. 16600) and does not recognize the doctrine of inevitable disclosure (Schlage Lock Company v. Whyte, 101 Cal.App.4th 1443 (2002)). Moreover, trade secrets do not expire automatically; they allow broad protection without disclosure, unlike copyrights and patents. Continue Reading Trade Secret Litigation on the Rise in California: How ADR Can Help

Even before the California Supreme Court decided Edwards in 2008, employers knew all too well the woes of attempting to enforce non-competes against California employees.  Edwards simply reaffirmed California’s long-standing policy in favor of employee mobility, finding that employee non-competition agreements are typically void in California unless they fall within one of the exceptions to Business and Professions Code section 16600.  But this need not become the fate of every non-compete; notwithstanding Edwards and recent California decisions applying the state’s notorious statute, section 16600, it may be possible for employers to enforce non-competition forfeiture provisions by including them in deferred compensation top hat plans subject to the Employee Retirement Income Security Act of 1974 (ERISA). Continue Reading Not All Is Lost for California Employers: Enforce Non-Compete Forfeiture Provisions through ERISA Top Hat Plans?

Cross-Posted from The Global Privacy Watch Blog

In Part 1 of our ‘Texas Joins the Privacy Fray’ series, we focused on the Texas Consumer Privacy Act. Here, we shine the light on the Texas Privacy Protection Act (HB 4390).

The TXPPA is distinguishable from both the TXCPA and the CCPA because the applicability threasholds are different. For the TXPPA to apply, a business must 1) be doing business in Texas; 2) have more than 50 employees; 3) collect personally identifiable information (“PII”) of more than 5,000 individuals, households, or devices (or has it collected on the business’s behalf); and 4) meet one of the following two criteria—the business’ annual gross revenue exceeds $25 million; or the business derives 50% or more of its annual revenue from processing PII. Continue Reading And Texas Joins the Privacy Fray – Part 2 (or, Everything is Bigger in Texas…)

On Tuesday, February 26, 2019, at 12 p.m. to 2:00 p.m. Eastern, Seyfarth Partner and Trade Secrets, Computer Fraud & Non-Compete Practice Group Co-Chair Robert Milligan is presenting a webinar for myLawCLE, a partner of the Federal Bar Association. The “Latest Developments in Trade Secrets Law and Non-Compete and Non-Solicitation Agreements” webinar covers some of the recent developments in trade secret law and recent legislative and case law trends regarding non-compete and non-solicitation agreements and offers best practices for structuring permissible contracts.

Key topics include:

  • Impact of the federal Defend Trade Secrets Act on trade secrets law
  • Overview of key trade secret cases involving preemption, damages, and identification
  • Current Plaintiff and Defense trade strategies in trade secret litigation
  • What are the recent legislative changes and case law decisions affecting restrictive covenants?
  • How can employers structure restrictive covenants to comply with new laws and decisions
  • Emerging areas in restrictive covenants

For more information and to register, click here.