Non-Compete Agreements

As the year comes to a close, it’s safe to say 2020 was a year unlike any other and full of lessons to be learned from the COVID-19 pandemic to the growing threat to U.S. intellectual property abroad.

A look back on the 10 most read posts from this past year highlights some key developments

Virginia recently joined a growing list of states that have passed legislation prohibiting employers from enforcing non-compete agreements against low-wage employees.  Illinois, Maine, Maryland, Massachusetts, New Hampshire, Rhode Island, and Washington have already enacted similar legislation.  And as we previously posted, similar legislation was introduced in the United States Senate nearly a year ago, though it did not advance.  The trend reflects recognition among policy makers that non-compete agreements may unfairly restrict low-wage workers, who generally have limited bargaining power with respect to employers, from seeking new employment opportunities.

Continue Reading Virginia Joins States That Restrict Use of Non-Compete Agreements

A Kansas District Court judge recently dismissed a trade secrets misappropriation action between two competing livestock nutrition companies.

In Biomin Am. Inc. v. Lesaffre Yeast Corp., Plaintiff Biomin America, Inc. (“Biomin”) sued competitor Lesaffre Yeast Corporation (“Lesaffre”) and two former Biomin employees who now work for Lesaffre, asserting trade secret misappropriation under the Federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 (“DTSA”) as well as a handful of state law claims, including breach of contract, tortious interference, civil conspiracy, and unfair competition.

Specifically, Biomin alleged that the two employees misappropriated trade secrets and violated restrictive covenants contained within their Biomin employment agreements by soliciting Biomin employees and customers and marketing Lesaffre’s competing products at a lower price.
Continue Reading Livestock Feed Trade Secrets Case Put Out to Pasture

On May 6, 2020, the U.S. District Court for the District of Maine denied plaintiff Alcom’s request for a temporary restraining order (“TRO”), which sought to enjoin a competitor’s alleged misappropriation of trade secrets. The court denied the request for a TRO, holding that Alcom’s speculation about the potential harm it would suffer absent the TRO was not enough to show a likelihood of irreparable harm, as required to obtain a TRO. The case serves as a reminder that when proving irreparable harm, courts require more than just speculation.

In 2015, Alcom (a trailer manufacturer) hired Mr. Temple (defendant) as a sales representative for its horse and livestock trailers. As the sole salesperson in North America for the Frontier line of trailers, Mr. Temple gained significant responsibilities including developing and maintaining sales leads, as well as growing Alcom’s customer base for those trailers. Mr. Temple signed various agreements as conditions to his employment, including (i) confidentiality agreement, (ii) non-disclosure agreement, (iii) non-compete agreement, and (iv) a non-solicitation agreement. Alcom required Mr. Temple to sign the agreements as a precondition for accessing highly valuable and confidential company information relating to customer incentive program details, sales and marketing information, and unique insights into the needs and operational requirements of the trailer dealers he solicited.
Continue Reading Under Alcom v. Temple, Speculative Harm Does Not Meet the Irreparable Harm Requirement

Are non-competes still enforceable in middle of the unprecedented economic disruption caused by COVID-19? Many employers have reacted to the business impact of COVID-19 by downsizing and laying off employees, some of whom signed non-compete agreements or restrictive covenants to protect the employer’s legitimate business interests, including its trade secrets and confidential information. Those same businesses now are left wondering whether those non-compete agreements are enforceable in the wake of massive unemployment triggered by the pandemic.

The answer to this question is complex, and depends on state law, public policy, and the terms of the specific agreements. Each state scrutinizes non-competes and restrictive covenants differently and, therefore, the answer may be different depending on where the business and employee are located or the agreement’s choice of law provision.
Continue Reading Non-Compete Agreements and Restrictive Covenants During COVID-19

The U.S. District Court for the Western District of Pennsylvania recently ruled that a forum-selection clause in a former employee’s non-compete agreement may bind their new employer for purposes of establishing personal jurisdiction.

Matthews International Corporation (“Matthews”), a manufacturer of cremation furnaces, filed an action in the Western District of Pennsylvania against former employees and two competitors, Implant Recycling, LLC (“Implant”) and IR Environmental Solutions, Inc. (“IR Environmental”), alleging misappropriation of trade secrets and unfair competition. According to Matthews’s complaint, its former employees saved confidential company information and trade secrets on their personal USB drives and emailed company files to themselves before leaving Matthews to join Implant or IR Environmental. These former employees were subject to non-competition agreements that required them to submit to personal jurisdiction in the Allegheny County Court of Common Pleas or the Western District of Pennsylvania.
Continue Reading Hirer Beware: Your Employee’s Non-Compete Agreement with their Former Employer May Determine Where You Can be Haled to Court

California Business and Professions Code section 16600 states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This statute has been interpreted to mean that noncompete agreements in employment contracts are per se invalid in California as an unlawful restraint on trade. Quidel Corp. v. Super. Ct., 39 Cal. App. 5th 530, 539 (2019). However, on August 29, 2019, in Quidel Corp. v. Superior Court, the California Court of Appeal declined to extend this prohibition against noncompetes to circumstances outside of the employment context.
Continue Reading California Declines to Extend Ban on Noncompetes Outside of Employment Context

In the First Circuit, restrictive covenants are governed predominately by statute (with the exception of Puerto Rico, which governs such agreements through common law). Within the last year, Maine, Rhode Island, and New Hampshire have amended their restrictive-covenant statutes to prohibit employers from requiring lower-wage earners to sign noncompete agreements. A recently proposed amendment to Massachusetts law, if passed, would render all noncompetition agreements void and unenforceable effective January 1, 2021. These efforts reflect increasing hostility towards, and increased scrutiny of, restrictive covenants in the First Circuit.

Continue Reading Restrictive Covenants in the First Circuit

As in other states, the enforceability of restrictive covenants or non-compete clauses in the Sixth Circuit turns primarily on the reasonableness of the restriction’s geographic and temporal scope. Michigan has enacted a statute explaining when non-competes may be enforced. In Kentucky, Ohio and Tennessee, enforcement is determined entirely by common law. In Ohio and Tennessee, courts will consider the public interest in addition to the interests of the parties involved.

Continue Reading Restrictive Covenants in the Sixth Circuit

After a week-long trial in June, a jury in the Southern District of Texas awarded digital marketing firm Six Dimensions, Inc. (Dimensions) $287,000 for its breach of contract claim against its former employee, Lynn Brading. However, the jury rejected Dimensions’ $50 million lawsuit against its competitor, Perficient Inc. (Perficient) for stealing its trade secrets.
Continue Reading Employee Wrongdoing Does Not Guarantee Favorable Trade Secrets Verdict