Restrictive Covenants

Subscribe to Restrictive Covenants via RSS

The COVID-19 pandemic presents unique and unprecedented challenges to the ongoing need to protect confidential information and trade secrets. The massive business disruptions that enterprises of all kinds now face include (1) entire workforces forced to work remotely, accessing and using confidential information and trade secrets from home; (2) exigent circumstances created by the cessation or substantial slowing of commercial activity that may result in the disclosure of confidential information or trade secrets to third parties outside normal procedures; and (3) the off-boarding of remote employees who are accessing confidential information and trade secrets remotely.

Trade secret protection may not be the immediate priority of a business facing massive business disruptions, but taking reasonable steps now to protect the security of trade secrets and confidential information is critical to the preservation of these valuable assets when this crisis is over. Trade secret law – both federal and state – requires that a trade secret holder take reasonable measures under the circumstances to protect trade secrets.1 Reasonable measures relate not only to prevention of unauthorized disclosures, but also the minimization of the impact of any such disclosures after they occur, and these measures must be reasonable now under the current exigent circumstances.
Continue Reading Trade Secret Protection During the COVID-19 Pandemic

A New Mexico court of appeals recently held that a former employee could not be permanently enjoined from disclosing trade secrets because his employment agreement provided for a five-year limit on the duty of confidentiality.

Lasen, Inc. (“Lasen”), a company that uses trade secret helicopter-mounted LIDAR imaging technology to detect methane gas leaks in natural gas pipelines, sued a former research scientist who wrote the source code for the company’s signature technology. Lasen alleged that the former employee stole the source code and other crucial information as well as deleted Lasen’s copies following his termination in 2009. As a result, Lasen was unable to update its LIDAR technology because it could not decipher the source code. Lasen also alleged that the former employee used its trade secrets in seeking employment with a direct competitor. After a bench trial, the court found the former employee did not misappropriate Lasen’s trade secrets, but he did breach his fiduciary duty and wrongfully retained intellectual property and trade secrets that belonged to Lasen. Therefore, the court permanently enjoined the former employee from disseminating or retaining any of Lasen’s trade secrets (the parties had stipulated that the source code was trade secret).
Continue Reading Permanent Injunctions Restricting Use of Trade Secrets May Only Be as Permanent as an Employment Contract’s Provisions

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

States within the Fourth Circuit vary in their enforcement of restrictive covenants. Virginia, Maryland, and South Carolina govern the use of restrictive covenants through common law while North Carolina governs through statute. Despite the variations in governing authority, many of the factors used in these states will be familiar, given the widely accepted “reasonableness” standard…

As in most states, the enforceability of restrictive covenants or non-compete clauses in the Fifth Circuit turns primarily on the reasonableness of the restriction’s geographic and temporal scope. Louisiana and Texas have enacted statutes explaining when non-competes may be enforced. But in Mississippi, enforcement is determined entirely by common law, and courts will consider the…

In the Third Circuit, common law generally governs the use of restrictive covenants. States in this Circuit employ a reasonability standard to determine whether a restrictive covenant is enforceable. In New Jersey, even if a covenant is found to be reasonable, it may be limited in its application by: geographical area, period of enforceability or…

States within the Seventh Circuit employ the reasonability standard used in many other circuits to determine whether a restrictive covenant is enforceable. Two of these states, Illinois and Indiana, apply a common law framework but largely disfavor such covenants as a restraint on trade. Wisconsin’s restrictive covenant statute focuses on the reasonableness of the agreement…

On March 22, 2019, the State of Utah amended its non-compete statute for the third time in only three years.

“Strike One” came in 2016, when the State of Utah enacted Utah Code Annotated 34-51-201 et seq.to restrict the validity of post-employment restrict covenants to no more than one year from the date on…