Legislation recently introduced in the United States Senate to protect low-wage workers could roll back the use of non-compete agreements, a common tool companies use to protect their trade secrets.

Florida Senator Marco Rubio introduced the “Freedom to Compete Act,” which aims to protect low-wage and entry-level employees from non-compete agreements, which generally restrict former employees from working at or starting competing businesses. Under this proposed legislation, employers would be prohibited from entering into, enforcing, or threatening to enforce non-compete agreements against workers considered “non-exempt” under the Fair Labor Standards Act (FLSA). Unlike certain executive and administrative employees, “non-exempt” workers must be paid at least the federal minimum wage and are entitled to overtime pay.

Proponents of this legislation argue that non-compete agreements unfairly restrict employment opportunities for low-wage and entry-level workers by limiting their economic mobility and their ability to negotiate for higher wages and training, which is compounded by the fact that many of these workers may already face limited employment opportunities in the current economy. In addition, proponents point out that these workers are less likely to have access to confidential information and trade secrets in the first place. Companies have long turned to non-compete agreements to ensure their trade secrets are protected, and studies indicate that about 18% of all U.S. workers are subject to non-compete agreements. If this legislation passes, companies may be forced to reevaluate what level of disclosure risk low-wage employees pose to their trade secrets and how best to protect those trade secrets without the benefit of routine non-compete agreements.

Noncompete agreements are nothing new, in fact, 18% of all U.S. workers are subject to noncompetes while an estimated 70% of senior executives and 43% of engineers are bound by noncompetes. Employers frequently use noncompetes—which may restrict former employees from working for or starting competing businesses for a set period of time—to protect a company’s goodwill and trade secret information and as an effective tool for retaining talented employees from making a move to a competitor. Employees subject to these agreements may also be subject to a provision that provides for “garden leave,” which requires that an employee who is in the process of terminating their employment stay away from the workplace or work from home or another location during their notice period. In some cases, such “garden time” may not be paid. Recently, Massachusetts weighed in on the issue of “garden leave.” In first-of-its-kind legislation, Massachusetts signed into law House Bill No. 4714 stating that former employees in Massachusetts serving required “garden time” under noncompete agreements may be entitled to pay. Under this legislation, employers are required to pay former workers serving out their “garden leave” at least 50% of the workers’ base salary or, alternatively, provide “mutually-agreed upon consideration.” This reflects a compromise between opponents of noncompete agreements, who argue that they restrict economic growth, and the business community, which views noncompete agreements as necessary to protect legitimate business interests. In addition, this new legislation places Massachusetts squarely in the middle of a divide between states like California, which prohibits noncompete agreements except in certain limited contexts, and the many states that allow for their enforcement. However, as a practical matter, it remains to be seen how frequently former employees on “garden leave” will actually receive compensation since the bill does not define or restrict adequate consideration. Stay tuned…

As we previously posted, in June 2018 Tesla filed suit against a former employee, Martin Tripp, alleging trade secret misappropriation. Mr. Tripp has now filed an answer to Tesla’s accusations expanding on his whistleblower defense and bringing three intentional tort counterclaims against Tesla. According to his answer, Mr. Tripp was driven to act as whistleblower in response to numerous manufacturing practices at Tesla’s Nevada facility that allegedly posed a risk to both employees and customers. For example, Mr. Tripp alleges that Tesla used a non-validated manufacturing line to produce automotive parts and that his supervisors allowed workers to leave hazardous amounts of scrap metal throughout the manufacturing area. Mr. Tripp alleges that when his supervisors failed to address these concerns, he brought them to Tesla’s CEO Elon Musk directly. But rather than take corrective action, Tesla reassigned Mr. Tripp to Tesla’s battery assembly line. That’s where Mr. Tripp alleges to have learned that a defective manufacturing robot punctured over a thousand batteries and that Tesla knowingly installed hundreds of these defective batteries in Model S vehicles. Mr. Tripp also denies accessing Tesla’s operating system to steal trade secrets—although he admits to using Tesla’s manufacturing software to track which parts were installed in automobiles.

Additionally, Mr. Tripp brings three counterclaims based, in part, on Tesla’s allegations of trade secret misappropriation. For instance, Mr. Tripp claims Elon Musk defamed him in an email to Tesla employees that accused him of “extensive and damaging sabotage” and of “exporting large amounts of highly sensitive Tesla data to unknown third parties.” In addition to defamation, Mr. Tripp asserts invasion of privacy and intentional infliction of emotional distress claims based on statements made by Elon Musk and a spokesperson for Tesla about his actions as well as a accusations that Mr. Tripp threatened to “shoot . . .up” the Tesla facility.

We’ll keep watching and report how Tesla responds to Mr. Tripp’s counterclaims.

In June 2018, Tesla brought suit against a disgruntled former employee, Martin Tripp, for trade secret misappropriation. Tesla claims that Mr. Tripp hacked Tesla’s computer system, distributed its proprietary and confidential data to third parties, and distributed photographs and videos of Tesla’s manufacturing facility. In its complaint filed in a U.S. District Court in Nevada, Tesla asserts federal and state trade secret misappropriation, breach of contract, and violations of the Nevada Computer Crimes Law claims against Mr. Tripp. Tesla’s complaint does not identify the specific trade secrets Mr. Tripp is alleged to have disclosed, but alleges that Tesla maintains various methods, systems, and processes as trade secrets and that Mr. Tripp’s conduct revealed unspecified “manufacturing systems.”

Mr. Tripp, on the other hand, tells a different story. Perhaps positioning himself to assert whistleblower immunity under the DTSA, Mr. Tripp claims he shared information with news outlets to expose “some really scary things” going on inside of Tesla after becoming disillusioned with the company’s practices. In particular, Mr. Tripp claims Tesla installed punctured batteries in Model 3 vehicles, improperly disposed of raw-material waste, and inflated sales numbers. Establishing whistleblower immunity under the DTSA, however, may be an uphill battle for Mr. Tripp. The DTSA limits whistleblower immunity to confidential disclosures to the government or attorneys as part of a complaint or other judicial document filed under seal, not leaks to the media. For its part, Tesla has denied Mr. Tripp’s allegations of misconduct.

We will be watching this case to see how it unfolds.