Restrictive Covenants

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Restrictive covenants and non-compete agreements have been a frequent topic of this blog in recent months, and rightfully so. Non-competes are generally thought to be effective tools to help firms protect trade secrets and competitive advantages. However, these agreements are falling out of favor across the country – the DOJ recently file a Statement of Interest in a state court case taking the position that non-competes may violate the Sherman Antitrust Act. Further, states continue to pass laws limiting or banning the use of noncompete agreements, including Illinois, Oregon, Nevada, D.C., and Colorado. 

But one Texas court seems to buck this trend. Last month, Fort Bend County District Judge J. Christian Becerra granted a temporary restraining order (“TRO”) in a trade secret misappropriation case, forcing multiple former employees to stop work for a competing business, and limiting one particular employee from engaging in any competing work for any competitor. The catch? Not a single employee had a non-compete agreement.Continue Reading No Non-Compete? No Problem. Texas Court Grants TRO Forcing Former Employees to Stop Working for Competing Business.

To continue our series on trade secret employee contract clauses, we’ve surveyed the First Circuit for updates to the law relating to restrictive covenants. Such covenants remain predominantly governed by statutes in Maine, Massachusetts, New Hampshire, and Rhode Island, while Puerto Rico continues to govern them by common law. And with no significant updates since 2020, restrictive covenants remain disfavored and under increased scrutiny in the First Circuit. Generally, these courts will only enforce noncompete agreements that are reasonable, no broader than necessary to protect an employer’s legitimate business interests, properly noticed, and in line with public policy. The applicable law for each state is set forth below.
Continue Reading Restrictive Covenants in the First Circuit

Restrictive covenants not to compete, or non-compete agreements, are one of a variety of tools companies use to protect their trade secrets and competitive advantage. However, whether a court will enforce a restrictive covenant varies widely across jurisdictions, including across states within the Fifth Circuit. For example, the Louisiana statute governing restrictive covenants applies a two-year durational limit, while Mississippi common law applies a more general ‘reasonable and specific’ standard to the duration and geographic scope of a restrictive covenant. In addition, Mississippi courts must balance the rights of the employer, the employee, and the public when enforcing restrictive covenants. Bus. Commc’ns, Inc. v. Banks, 91 So. 3d 1, 11 (Miss. Ct. App. 2011), aff’d, 90 So. 3d 1221 (Miss. 2012). Continue Reading Restrictive Covenants in the Fifth Circuit

New Jersey joins a growing list of states seeking to limit employers’ use of non-compete and non-solicitation agreements, adding to the patchwork of legislation in this area.

The New Jersey State Legislature proposed a bill on May 2, 2022 that would regulate and severely limit an employer’s use of non-compete agreements. Specifically, under A3715, all no-poach agreements would be void and non-compete agreements never enforceable against certain types of workers, including interns, apprentices, independent contractors, minors, low-wage employees, or employees who will be employed for less than one year. Outside of this population, restrictive covenants would only be enforced if the employer first discloses the terms of the agreement in writing 30 days before a prospective employee’s offer or, for current employees, 30 days before the agreement would be effective. Post-employment restrictions could only last for 12-months and employees must provide 10 days’ notice of their intent to enforce a post-employment agreement.Continue Reading Non-Compete Agreements a Non-Starter? New Jersey Proposes Sweeping Non-Compete Legislation

As a part of our series on trade secret employee contract clauses, we have surveyed the Seventh Circuit for updates on  the law pertaining to Restrictive Covenants. Each state’s laws are set forth below. But generally in the Seventh Circuit, states focus on reasonableness, geographic, and income restraints in restrictive covenant agreements. Indiana applies a reasonableness-standard common law approach to enforcing covenants, strictly construed against the employer. Wisconsin’s restrictive covenant statute also focuses on reasonableness restraints, and will void all parts of the covenant even if remaining portions are reasonable. Illinois recently passed a restrictive covenant statute in 2021, the Illinois Freedom to Work Act, which codifies the state’s longstanding common law, adding provisions restricting covenants against certain incomes and professions.
Continue Reading Restrictive Covenants in the Seventh Circuit

Within the Tenth Circuit, states vary in their enforcement of restrictive covenants. Wyoming, Kansas, and New Mexico govern the use of restrictive covenants through common law while Utah, Colorado, and Oklahoma govern through statute. Oklahoma is unique in that it prohibits restrictive covenants through statute. In the other five states, despite the variations in governing authority, many of the factors used are similar given the widely accepted “reasonableness” standard many jurisdictions have adopted as a metric for adjudicating the propriety of such agreements.
Continue Reading Restrictive Covenants in the Tenth Circuit

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 new lawsuit in the medical marijuana industry raises questions about the enforceability of noncompetes under Massachusetts’ new statute. On August 26, 2020, Alternative Compassion Services, Inc., (“ACS”) filed a federal lawsuit against its former Chief Operating Officer, Defendant Matthew Radebach (“Radebach”).
Continue Reading Pot Got Your Tongue? Company Alleges Former COO Disclosed Trade Secrets to Competitors

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

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