As changes in restrictive covenants laws sweep the nation, Nevada is one of the latest jurisdictions to update its non-compete statute. Last month, the state legislature amended the Nevada Unfair Trade Practices Act to add new requirements for enforceability of non-competes.

The amendment makes the following changes in Nevada law: Continue Reading Nevada Amends Non-Compete Statute Protecting Low-Wage Workers and Imposing Award of Attorneys’ Fees for Certain Violations

The Sedona Conference’s working group on trade secrets has created a draft Commentary on Protecting Trade Secrets throughout the Employment Life Cycle. The draft Commentary explains:

Employees are at the center of most aspects of trade secrets: Trade secrets cannot exist without the work of employees, cannot be protected without the efforts of employees, and would rarely be compromised or lost without the conduct of employees. This Commentary on Protecting Trade Secrets throughout the Employment Life Cycle focuses on the inherent potential tensions this creates in the employer-employee relationship.

While in most circumstances, employers and employees will be aligned in protecting trade secrets for their mutual benefit at the beginning and during the employment relationship, at the end of the relationship, there is an inherent tension between an employer’s interest in protecting its trade secrets and an employee’s interest in engaging in future employment. This tension is further complicated by the fact that, although the departing employee is at the end of one employment life cycle, they are typically simultaneously at the beginning of the next, where the former employer’s risk of loss of its trade secrets corresponds directly to the new employer’s risk of infiltration of those same trade secrets.

This Commentary addresses these issues through a chronological view of the employment relationship, from the recruiting and on-boarding, to the period of employment, to the off-boarding, and back to the on-boarding.

If you are interested in this important issue, you can download the Commentary here. Comments can be submitted through September 30, 2021, to comments@sedonaconference.org.

Robert Milligan serves as a member of the Sedona Conference Working Group 12 Trade Secrets Advisory Working Committee, co-leads the Employee Life Cycle subgroup, and is a Senior Editor for the Commentary on Protecting Trade Secrets throughout the Employment Life Cycle.

In the fourth installment of our 2021 Trade Secrets Webinar Series, Seyfarth attorneys Jesse Coleman, Matt Simmons, and Kevin Green outlined recent legal developments in Texas trade secret and non-compete law and how it is similar to and diverse from other jurisdictions. The webinar also covered how these latest developments impact counseling, litigation, and deals involving companies with employees based in Texas.

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

  • A restrictive covenant is a legal term for a clause in an employment contract (or a standalone agreement) that prevents an employee from doing something. Most often, restrictive covenants are designed to prevent a departing employee from competing with his/her former employer for clients or business.
  • There are four types of restrictive covenants: 1) non-competition; 2) non-solicitation of customers; 3) non-solicitation of employees; and 4) non-disclosure. Common limitations relate to time, geographic or customer restrictions, and the departing employee’s scope of activity in their new employment.
  • Trade secret can be elusive to define, but generally consists of: 1) identifiable information 2) not generally known to others (i.e. secret) 3) that is economically valuable and 4) subject to reasonable efforts to maintain secrecy. Famous example is Coca-Cola recipe, but trade secrets are not limited to products alone and can also be processes, confidential information such as business plans, and other know how.
  • In over 90% of trade secret cases, the misappropriator is someone the trade secret owner knew (former employee or business partner). Vast majority of cases involve misappropriation by electronic means.
  • Texas believes in the freedom to contract with certain statutory safeguards on the reasonableness of the restrictive covenant (non-compete, non-solicitation) as it relates to time, geographical area, and scope of activity restrained.
  • Unlike other States, Texas does not have a minimum salary for the restrictive covenant to be enforceable or differentiate enforceability of the covenant based on whether the employee was terminated or resigned.
  • Generally, Texas employee and customer non-solicitation covenants are adjudged based on the same reasonableness requirements as non-competes pursuant to Tex. Bus. & Com. Code Section 15.50(a).
  • Generally, reformation of a restrictive covenant is required under Texas law; however, the timing of the reformation (during the initial stages of litigation or upon a final trial on the merits) is still an open question.
  • In order to later revise restrictive covenant agreements, employer must provide additional consideration in Texas and it is highly recommended that such consideration is provided close in time to the employee’s execution of the new agreement.
  • Texas enacted its own trade secret statute – the Texas Uniform Trade Secrets Act- in 2013, modeled on the Uniform Trade Secrets Act (UTSA), and amended in 2017 to align more closely to the federal Defend Trade Secrets Act (DTSA) and controlling case law.
  • Minor differences exist in the definition of “trade secret” between TUTSA and DTSA, TUTSA lacks whistleblower immunity provisions and a specific mechanism for ex parte seizures, and TUTSA preempts related common law claims while the DTSA does not.
  • TUTSA provides greater scope of injunctive relief to employers in cases of trade secret theft than DTSA but will not enjoin a departing employee from using general knowledge, skill, and experience acquired during the employment relationship.
  • Texas appellate courts vary in applying the inevitable disclosure doctrine when granting injunctive relief under TUTSA, while the Texas Supreme Court recognizes that a competitive decision maker may not be able to resist acting on what they learn of a competitor’s trade secrets, even when acting in good faith.
  • TUTSA provides similar monetary relief to both DTSA and UTSA, including actual losses, unjust enrichment, reasonable royalties, exemplary damages, and attorneys’ fees, under specific circumstances.

In the third installment of our 2021 Trade Secrets Webinar Series, Seyfarth attorneys Dan Hart, Kevin Young, and Cary Burke outlined the connection between wage and hour law and restrictive covenant law. We addressed how these important and impactful areas of employment law intersect and can, if not managed appropriately, create layered and compounding risks for employers. We also addressed practical tips for managing those risks, such as conducting proactive audits and considering arbitration clauses.

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

  • Wage and hour lawsuits continue to be one of most common types of employment lawsuits that employers face.
  • Meanwhile, with data being more important, and more accessible to employees, than ever before, restrictive covenants remain one of the most important tools in an employer’s toolkit.
  • Even if not obvious, these two forces—wage and hour lawsuits on the one hand and restrictive covenants on the other—can converge and feed one another. Many states, for example, expressly or implicitly look to statutory overtime exemptions to define which types of workers may be bound by a non-compete promise. Other states limit non-compete covenants to employees who earn compensation above a certain level or perform duties that are typically associated with exempt employees.
  • Given the potential for a restrictive covenant action to feed an exempt misclassification claim, or vice versa, it is important for employers to take proactive steps to ensure proper classification of employees. In addition, multi-state employers relying on restrictive covenant agreements are well-served to periodically assess their standard restrictive covenant agreements to ensure consistency with state-specific laws, including laws restricting the types of employees who may be bound by such an agreement.

Because of the ever-evolving nature of restrictive covenants and wage and hour law, it is more important than ever for employers to stay abreast of the latest legal developments to ensure that the company’s template restrictive covenant agreements are compliant with applicable laws and meet business needs without posing unintended risks. If your company has not recently reviewed and revised its template restrictive covenant agreements, please contact a member of Seyfarth’s Trade Secrets, Computer Fraud & Non-Competes practice group for help.

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Next Thursday, June 24, at 12:00 a.m. Eastern/9:00 a.m. Pacific, Seyfarth partner Dawn Mertineit will present a live webcast discussing Lex Machina’s Trade Secret Litigation Report for 2021. Dawn will join Morgan Lewis’s Seth Gerber and one of Lex Machina’s legal content associates and co-author of the report, Gloria Huang, to discuss the key trends in the report, including the number of trade secrets case filings, average timing for various stages of litigation, most active law firms and parties, and more. And stay tuned for a follow-up blog discussing the report’s key findings.

More details and a registration link can be found here.

With unemployment levels reaching a new high during the global pandemic, courts across the country have become increasingly reluctant to enforce non-compete agreements in employment contracts. As an example, a recent district court case, Robert Garcia v. USA Industries, Inc., demonstrates what may be a shift in Texas’ formerly lenient approach to non-competes. There, the court granted the plaintiff’s request for a temporary restraining order against the non-compete clause in his severance agreement, finding not only that there was inadequate consideration to enforce the non-compete provision, but that the provision itself was unreasonable. While this is only one case, in light of this shift in the interpretation of non-compete agreements as reflected in this decision, companies should ensure that their non-competes are reasonable as to scope and time, supported by adequate consideration, and narrowly tailored to protect the company’s legitimate business interests so as to increase the chances of the agreement being upheld. This will only become more important as more and more states pass restrictive covenants legislation limiting what is permissible. Continue Reading Texas Decision Highlights Concerns Regarding Limiting Enforceability of Non-Compete Agreements During COVID-19 Pandemic

The 2021 edition of The Legal 500 United States recommends Seyfarth Shaw’s Trade Secrets group as one of the best in the country. Nationally, for the sixth consecutive year, our Trade Secrets practice earned Top Tier.

Based on feedback from corporate counsel, Seyfarth partners Michael Wexler, Robert Milligan, and Kate Perrelli are ranked in the editorial’s “Leading Lawyers,” Joshua Salinas is ranked in the editorial’s “Rising Starts,” and Erik Weibust and Dawn Mertineit were also recommended in the editorial.

The Legal 500 United States is an independent guide providing comprehensive coverage on legal services and is widely referenced for its definitive judgment of law firm capabilities. The Legal 500 United States recognizes and rewards the best in-house and private practice teams and individuals over the past 12 months. The awards are given to the elite legal practitioners, based on comprehensive research into the US legal market.

Wednesday, June 22, 2021
1:00 p.m. to 2:00 p.m. Eastern
12:00 p.m. to 1:00 p.m. Central
11:00 a.m. to 12:00 p.m. Mountain
10:00 a.m. to 11:00 a.m. Pacific

REGISTER HERE

In this fourth installment of our 2021 Trade Secrets Webinar Series, our team will cover recent legal developments in Texas trade secret and non-compete law and how it is similar to and diverse from other jurisdictions. The webinar will also cover how these latest developments impact counseling, litigation, and deals involving companies with employees based in Texas.

The panel will discuss:

  • How to define and understand trade secrets in Texas, including recent legal developments regarding the protection of ideas and confidential information
  • Texas’s policy on employee non-compete provisions and recent cases addressing non-compete, non-solicitation, and no hire agreements
  • How to effectively protect trade secrets and conduct trade secret investigations
  • Recent cases regarding alleged bad faith prosecution of trade secret claims
  • How forum selection, choice of law and arbitration clauses may affect non-compete and non-disclosure agreements
  • Effectively utilizing non-compete and other restrictive covenants in business deals in Texas

Speakers
Jesse Coleman, Partner, Seyfarth Shaw LLP
Matthew Simmons, Senior Counsel, Seyfarth Shaw LLP
Kevin Green, Associate, Seyfarth Shaw LLP

If you have any questions, please contact Colleen Vest at cvest@seyfarth.com and reference this event.

This webinar is accredited for CLE in CA, IL, NJ, and NY. Credit will be applied for as requested for TX, GA, WA, NC, FL and VA.  The following jurisdictions accept reciprocal credit with these accredited states, and individuals can use the certificate they receive to gain CLE credit therein: AZ, CT, ME, NH.  The following jurisdictions do not require CLE, but attendees will receive general certificates of attendance: DC, MA, MD, MI, SD.  For all other jurisdictions, a general certificate of attendance and the necessary materials will be issued that can be used in other jurisdictions for self-application. If you have questions about jurisdictions, please email CLE@seyfarth.com. 

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This coming Wednesday, June 9, 2021, Seyfarth partners Kate Perrelli and Dawn Mertineit will participate in panel discussions at the Boston Bar Association’s 2021 Virtual Trade Secrets & Restrictive Covenants Conference. At 9:00 AM Eastern, Dawn will be a panelist in the session regarding “The Implications of the Massachusetts Noncompetition Agreement Act and Other State and Federal Legislative Developments,” along with C. Max Perlman and moderator Russell Beck. Then at 10:30 AM Eastern, Kate (who was on the Advisory Committee planning the conference) will be a panelist on the “Life Cycle of a Key Employee Departure” session, where she will be joined by panelists Barbara Robb, Michael Rosen, and Jacquelyn White, Assistant General Counsel, Global Labor & Employment at Vertex Pharmaceuticals, along with moderator Erik Winton.

Other panels at the conference include “Trade Secrets and Restrictive Covenants: A View from the Bench,” featuring 4 federal and state court judges, as well as “Trade Secret Protection Programs: What Companies and their Advisors Need to Know Now.”

More details on the program can be found here, including a link to register for the conference.

In a long-awaited decision, the Supreme Court resolved a circuit split about whether an individual with access to a computer system violates the Computer Fraud and Abuse Act (“CFAA”) by accessing information for an improper purpose. By a 6-3 decision authored by Justice Barrett, the Court held that an individual does not “exceed authorized access” within the meaning of the CFAA by misusing access to obtain information that is otherwise available to that person. While the case heard by the high court was a criminal case involving a former law enforcement officer’s criminal conviction, the decision nonetheless has broad ramifications for trade secrets and restrictive covenant litigation, as CFAA claims were often brought against employees who misused access rights to misappropriate information. The CFAA is a criminal statute that also provides a civil remedy, and CFAA claims were commonly raised to acquire federal subject matter jurisdiction, especially prior to the enactment of the Defend Trade Secrets Act in 2016, which provided an independent private cause of action in federal court for trade secret misappropriation. Continue Reading Supreme Court Resolves Circuit Split on Access Under Computer Fraud and Abuse Act