Word to the Wise: Non-Compete Law Is Changing Nationwide
The last several years have witnessed significant shifts nationwide with respect to the ability of employers to restrict the mobility of employees. Federal non-compete reform efforts began in 2015 with the Mobility and Opportunity for Vulnerable Employees (or MOVE) Act. While the MOVE Act never became law, it acted as a catalyst for several state legislatures, and foreshadowed another federal initiative soon to follow. The next year, the White House and Department of Treasury issued a call to action, providing “best practice policy objectives” aimed at banning non-competes for certain categories of workers and limiting non-competes in general. Since this call to action in 2016, 9 states have enacted noncompete reform and several more are currently working on comparable laws of their own.
On a parallel track, federal and state authorities have been cracking down on a different strategy used by companies to limit the mobility of employers in competitive industries. So-called “No Poach” agreements differ from non-competes in that the agreements are not between employers and their employees, but rather agreements between companies not to hire each other’s former employees. In other words, two or more organizations agree not to “poach” each other’s talent.
In 2016, the Department of Justice and Federal Trade Commission announced they would bring criminal antitrust charges against businesses engaging in such agreements. Additionally, Senate Bill 2480, sponsored by Senators Cory Booker and Elizabeth Warren, would prohibit “No Poach” agreements. And, in July 2018, the attorneys general of 10 states and the District of Columbia announced an investigation into “No Poach” agreements among fast food franchisors. The plaintiffs’ bar has responded, filing a series of class action suits alleging antitrust violations based on similar agreements and aimed at companies such as Papa John’s, Cinnabon and Burger King.
While reasonable restrictions to employee mobility based on the protection of confidential and proprietary information remain generally enforceable, protections against unreasonable restrictions are gaining traction nationwide. And for employers in 2019, it is increasingly important to know the difference and act accordingly.
- Stay on top of the changing legal landscape
If you have employees in California, Colorado, Idaho, Illinois, Massachusetts, Nevada, New Mexico, Oregon and/or Utah, you already have noncompete restrictions in effect. If you haven’t already modified your noncompete agreements accordingly, or aren’t sure if you have, call your noncompete lawyer as soon as possible.
If you have employees in Pennsylvania, New Jersey, New Hampshire, or Vermont, be aware that your state is currently debating noncompete reform. If you aren’t familiar with the proposed changes and how they may affect your business, now is the time to find out.
If you have employees in multiple states, including any combination of the states listed above, it is probably time to evaluate your hiring practices to avoid problems down the road.
In any event, if you have a “No Poach” agreement with a competitor, shred it.
- Identify your company’s valuable, confidential and proprietary information
The lynchpin of reasonable restrictive covenants will always be the protection of legitimate business interests. Step one in protecting confidential information and trade secrets is identifying what, exactly, those secrets are. If your company has invested significant resources developing technologies, processes, data, or other material that gives your organization a competitive advantage, make sure you know what information is truly confidential and what is known outside the company. Moreover, track the money and effort expended in developing the information, know its value to you and your competitors, and make sure a careful audit is performed to assess the steps currently taken to protect the confidentiality of this information from public disclosure.
Trade secrets, as a general matter, are only protectable if you take reasonable steps to protect their confidentiality. These steps may include implementing policies that limit access to your proprietary information, using non-disclosure agreements with third parties, limiting access to your office space, and monitoring departing employees.
- Keep using non-solicits and NDAs
The nationwide noncompete reform movement does not in any way limit the enforceability of non-solicitation and confidentiality agreements. These agreements should be carefully tailored to make them as enforceable as possible should the need arise. If you try to prohibit a former employee from soliciting any customer or “potential customer,” without some limiting language, this provision is likely to be found to be unreasonably broad and unenforceable. If you are thoughtful and reasonable about the restrictions, they are likely to be enforced.
Unless a federal law is enacted, which appears unlikely, employers will need to continue to be vigilant about changes in state non-compete laws in all of the states in which they have employees. Partnering with knowledgeable counsel to stay on top of these changes and modify existing policies and agreements is more important in 2019 than ever.
ABOUT ZACHARY GLASER
Zachary Glaser | firstname.lastname@example.org | 267-338-1315
Zach Glaser, Chair of the Labor & Employment practice group, is also the head of the newly formed Employee Mobility practice at Offit Kurman. This specific practice consists of over 50 attorneys with Intellectual Property, Labor & Employment and Commercial Litigation backgrounds. This unique combination of attorneys in a group practice equip the firm to assist in both common and complex employee mobility legal issues. Zach’s broad litigation experience includes complex commercial matters, business torts, employment litigation and intellectual property disputes, including contract claims, defending employment discrimination claims, the enforcement of non-competition and non-solicitation agreements, federal and state unfair competition claims, defense of Fair Labor Standards Act claims, franchise and distribution disputes, lender liability and FINRA matters, professional negligence and medical malpractice defense, and all manners of intellectual property litigation, including trade secret matters, Computer Fraud and Abuse Act cases, e-commerce, trademarks, copyrights and patent litigation.
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