This week, the Obama Administration continued its ongoing efforts to curb what it considers to be the “gross overuse” of non-compete agreements. In a “State Call to Action,” the White House encourages legislatures to adopt certain recommendations for non-compete reform. Tuesday’s announcement follows the Obama Administration’s May 2016 report, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses” discussed in an earlier blog post, which highlighted the variety of ways workers may be disadvantaged by non-competes.
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.
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 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.
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.