- Posts by Robin MorseAssociate
Robin Morse is an associate in Nutter’s Litigation Department and a member of the firm’s Business Litigation and Labor, Employment and Benefits practice groups. Her practice focuses on civil litigation and employment law ...
Co-editor Robin Morse provided an update on non-competes after the recent presidential election in the America Bar Association’s (ABA) Business Torts & Unfair Competition newsletter. In the article, “Post-Election Non-Compete Update,” Robin provides a brief overview of the Obama administration’s efforts on non-compete reform and analyzes non-compete developments since the recent presidential election.
As we previously reported, the Massachusetts House and Senate passed contrasting versions of non-compete reform bills in 2016 but were unable to come to an agreement by the end of the legislative session. Efforts began anew last month as Senator William Brownsberger and Representative Lori Ehrlich filed a new non-compete bill on January 20: An Act relative to the judicial enforcement of noncompetition agreements (Bill SD.1578). The bill builds on previous versions of legislation introduced in Massachusetts and would make significant changes to the landscape of both non-competes and trade secrets in the state.
In the first half of 2016, we have already seen significant changes to a number of state non-compete laws. In this post, we provide a compilation of recently enacted legislation in Alabama, Connecticut, Idaho, Oregon, and Utah, as well as several important developments at the federal level.
Last week, the Illinois Attorney General filed suit against Jimmy John’s, alleging that the company’s non-competes violate state law. These non-competes prohibit all employees, including sandwich makers, from working during their employment and for two years afterward at businesses within several miles of any Jimmy John’s nationwide that earn more than 10% of their revenue from submarine or similar sandwiches. The complaint alleges that the non-competes do not protect a legitimate business interest such as trade secrets or customer relationships, and it seeks a declaratory judgment that the agreements are unenforceable.
As states continue to struggle with the pros and cons of non-competes, the White House has recently weighed in, siding largely with critics of non-competes. In Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses, the Obama Administration draws on a recent report from the U.S. Treasury Office of Economic Policy to provide an overview of research on the effects of non-competes as well as states’ efforts to limit their negative effects.
The White House Report acknowledges that non-competes have economically and socially beneficial uses such as protecting trade secrets and incentivizing investment in worker training. However, the Report notes that these agreements also may have detrimental effects by limiting worker mobility and inhibiting innovation. Specifically, the Report highlights ways in which workers may be disadvantaged by non-competes, including:
- Low-wage workers and others unlikely to possess trade secrets may be forced to sign non-competes;
- Workers may be asked to sign a non-compete only after accepting a job offer, when their bargaining power is reduced;
- The implications and enforceability of non-competes are often unclear to workers;
- Employers requiring non-competes often do not provide consideration beyond continued employment; and
- Non-competes may be enforceable even against workers fired without cause.
The Report concludes that although non-competes may play an important role in protecting businesses and encouraging innovation and investment in employees, they can also impose significant costs on workers, consumers, and the economy.
The Report marks the Obama Administration’s second recent foray into the realm of non-competes and trade secrets. The President recently signed into law the Defend Trade Secrets Act of 2016 (DTSA), which provides for the first time a federal civil remedy for the misappropriation of trade secrets, as discussed in detail by our IP colleagues. Although state legislators primarily hold the power to adopt non-compete reform, the Report indicates that the Obama Administration plans to continue to offer guidance in this area.
In the last few weeks, Utah and Idaho have each passed bills changing the landscape of non-compete enforceability in strikingly different ways. Utah’s law places further limitations on the use of non-competes. In contrast, the Idaho bill (expected to be signed by the governor shortly) permits greater enforceability of non-competes.
This morning, House Speaker Robert DeLeo announced at a Greater Boston Chamber of Commerce breakfast that the House will be releasing a bill this session that imposes some limitations on non-competes. Although the language of the proposed bill is not yet available, Speaker DeLeo described two key elements:
- Time Limit: The proposed bill would limit non-competes to 12 months in length.
- Notice Requirement: The proposed bill would require that employers inform employees in advance that they will be asked to sign a non-compete, and advise them of their right to seek legal counsel.
In American Well Corporation v. Obourn, Civil No. 15-12265-LTS, 2015 WL 7737328 (D. Mass. Dec. 1, 2015), Judge Sorokin of the United States District Court for the District of Massachusetts upheld a non-compete entered into seven months after the employee’s start date. The Court explained that as to whether continued employment constitutes sufficient consideration for a non-compete:
“[T]he SJC has squarely addressed this question. Decades ago, it held that a non-competition agreement signed during employment was not void for lack of consideration because it contained a promise by the plaintiff thereafter to employ the defendant and by the defendant to work for the plaintiff.”
The Pennsylvania Supreme Court recently held in Socko v. Mid-Atlantic Systems of CPA, Inc. that a non-compete is enforceable only if a current employee receives new consideration beyond continued employment. The Court held that this is the case even if a non-compete provides that the parties “intend to be legally bound,” which typically obviates the need for consideration under the Pennsylvania Uniform Written Obligations Act (UWOA). After considering the historical background regarding non-competes and general principles of statutory construction, the Court concluded that “a construction of the UWOA which would vitiate the need for new and valuable consideration when entering into an agreement containing a restrictive covenant after the initiation of employment would be unreasonable.”
In Pegasystems Inc. v. Appian Corp., Judge Mitchell Kaplan of the Massachusetts Business Litigation Session enjoined a sales employee from working for a competitor for three months. This recent opinion highlights some common issues in Massachusetts non-compete law and illustrates judges’ broad discretion to fashion relief.
In the rapidly changing business world, protecting a company's human capital and proprietary information is critical to maintaining a competitive edge. On this blog, Nutter's experienced Business Litigation and Labor, Employment & Benefits attorneys offer news and insights on all aspects of restrictive covenants and trade secrets—from analyzing a rapidly evolving body of case law, to summarizing new legislation and legislative efforts, to providing other need-to-know updates and more.