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  • Posts by Christopher H. Lindstrom
    Partner

    Christopher H. Lindstrom chairs Nutter’s Litigation Department. He also chairs the firm’s Labor, Employment and Benefits practice group. Clients rely on Chris’ broad experience in complex civil litigation matters that ...

Our firm’s Executive Comp Exchange blog recently added a post that is useful to employers who utilize confidentiality provisions in any of their employment documents. The blog post addresses the complications of confidentiality provisions of employee agreements and perceived constraints on the employee’s ability to report relevant information or conduct to certain government agencies. The National Labor Relations Board and now the SEC appear to be ramping up efforts to address what they believe are undue restraints by employers in this area.

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.

White HouseAs 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.

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:

Utah-Idaho Map

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.

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.

Calendar-ThinkstockPhotos-113517060In 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.”

Detail of exterior of courthouse

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.

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