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.
Once again, the Massachusetts legislature took on non-compete reform, and once again, came up empty-handed. On July 31, 2016, the legislature adjourned without reaching a compromise to alter the state’s non-compete landscape. Earlier this summer, both the House and the Senate passed contrasting versions of non-compete reform bills, but ultimately could not come to agreement on several important provisions. Their inability to reach a compromise reveals once again that this is a complex issue with many stakeholders, and not one susceptible to end-of-the-session compromise.
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.
Earlier this week, the Joint Committee on Labor and Workforce Development released proposed amendments to the Uniform Trade Secrets Act, which would include the creation of the Massachusetts Noncompetition Agreement Act. The legislation, if enacted, would significantly alter the non-compete landscape, rendering unenforceable or practically unworkable most Massachusetts employers’ non-competition agreements. Here are some of the highlights:
In Meschino v. Frazier Industrial Co., Civil No. 15-10327-RGS, 2015 WL 7295463 (D. Mass. Nov. 18, 2015), Judge Stearns held that an employment agreement superseded an earlier employment agreement and a separate earlier confidentiality and non-compete agreement. A 2005 employment agreement provided that the employee would be required to execute a separate confidentiality and non-compete agreement. The employee executed both agreements in 2005. Notably, the separate confidentiality and non-compete agreement was not expressly incorporated into the 2005 employment agreement, and the employment agreement did not contain an integration clause indicating that it was the final and complete agreement regarding the terms of employment.
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.
Judge Janet L. Sanders of the Superior Court’s Business Litigation Session has continued the trend of Massachusetts courts refusing to recognize the inevitable disclosure doctrine.
In The Gillette Company v. Craig Provost et al, Civ. Action No. 15-0149 (Mass. Sup. Dec. 22, 2015), Gillette moved for a preliminary injunction to prevent its former counsel and ShaveLogic’s current general counsel, Chester Cekala, from providing any legal advice regarding Gillette’s patents, not only with respect to patent validity but also on infringement and scope. Although Cekala’s non-compete agreement with Gillette had long expired, Gillette contended that Cekala’s legal advice inevitably disclosed Gillette’s trade secrets to its competitor given his experience with the company.
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 states have a rich tradition of passing legislation forbidding or limiting the use of non-compete agreements with identified classes of employees. As you might expect, a number of states forbid or limit the use of non-compete agreements with:
- Physicians, nurses, psychologists, social workers and other medical professionals
- Individuals working in broadcasting
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 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.