Despite its well-deserved reputation as an employee-friendly jurisdiction, the District of Columbia is absent from the list of “blue states” that have adopted legislation limiting the use of noncompete agreements. Over the last few years, states such as Illinois, Maryland, Massachusetts, New Hampshire, Oregon, Rhode Island, Virginia, and Washington have enacted such laws.
In May 2019, Washington enacted restrictions on noncompetition covenants, which we wrote about in our article, “Washington State Governor Signs Legislation Restricting Noncompetition Covenants,” and which took effect on January 1, 2020.
In Pennsylvania, noncompetition agreements must, among other things, be supported by adequate consideration to be enforceable. It is well established that an initial offer of employment constitutes adequate consideration. It is also well established that a noncompetition agreement presented to an employee after the start of employment must be supported by additional consideration, beyond the mere continuation of the employment relationship. But what about the regularly arising occurrence in which an agreement is orally agreed in connection with an initial offer, but isn’t signed until after the first day of work?
Significant new requirements for physician noncompete agreements in Indiana took effect on July 1, 2020, including mandatory language allowing a physician to purchase “a complete and final release” from a noncompete agreement “at a reasonable price.” The law also includes several provisions related to notices that employers must provide to patients and doctors when a physician’s employment has terminated or contract expires.
On December 18, 2019, in American Consulting, Inc. d/b/a American Structurepoint, Inc. v. Hannum Wagle & Cline Engineering, Inc., et al., the Indiana Supreme Court provided clarity about when liquidated damages become unenforceable penalties.
As employers reopen their businesses following closures or reductions in operations required during the COVID-19 pandemic, many are grappling with the fraught and complex task of bringing laid-off or furloughed employees back to the workplace. Among the many issues that such employers will need to deal with in onboarding those employees is whether and to what extent they will need to renew their restrictive covenants agreements with employees who had such agreements before the pandemic.
On April 9, 2020, Governor Ralph Northam signed House Bill (HB) 330, Virginia’s first law banning covenants not to compete against “low-wage employees.”
In response to the COVID-19 pandemic, some parts of the country are now in the third month of a lockdown. As a result of the lockdown, a large portion of U.S. businesses quickly transitioned their workforces to telework in the opening weeks of the pandemic. This abrupt shift to work-from-home disrupted many employers’ well-established protocols and practices for protecting confidential information and trade secrets, exposing this sensitive information to a heightened risk of theft.
Many employers have national and international workforces. When entering into contracts with employees, inclusion of a choice-of-law provision is important for determining what jurisdiction’s laws will apply if one of the parties breaches the agreement. While Massachusetts generally honors contracting parties’ choice as to which law will govern their relationship, there are exceptions to that general rule. In NuVasive, Inc. v. Day, the U.S. Court of Appeals for the First Circuit enforced a Delaware choice of law provision against a Massachusetts employee and rejected his arguments that one of Massachusetts’s recognized exceptions should apply.
The spread of the coronavirus disease 2019 (COVID-19) has led to changes regarding many legal issues. Despite the changes, companies still need to protect confidential information, goodwill, customer relationships, and competitive marketplace positions. The pandemic raises a variety of issues to consider for restrictive covenants. Employers may want to keep these challenges in mind and tread carefully.
The United States Department of Justice’s (DOJ) Antitrust Division and the Federal Trade Commission (FTC) warned employers in a joint statement issued on April 13, 2020, that they are “on alert” and working together to monitor employer collusion that exploits the COVID-19 pandemic in order to engage in anticompetitive conduct or fraud. The agencies specifically called out essential businesses and employers of frontline employees, staffing companies (including medical travel and locum tenens agencies), and recruiters.
It is now clear what choice of law rule applies to claims brought under the North Carolina Trade Secrets Protection Act (NCTSPA). No North Carolina appellate court had ever answered that question prior to the Supreme Court of North Carolina’s opinion in SciGrip, Inc. v. Osae & Scott Bader, Inc., No. 139A18 (February 28, 2020), a case defended by Ogletree Deakins lawyers Phillip J. Strach and Brodie D. Erwin.
The Illinois Workplace Transparency Act (WTA) (Public Act 101-0221) is designed to protect employees, consultants, and contractors who truthfully report alleged unlawful discrimination and harassment or criminal conduct in the workplace by prohibiting nonnegotiable confidentiality obligations, waivers, and mandatory arbitration of allegations of discrimination, harassment, or retaliation.
The Massachusetts Supreme Judicial Court (SJC), the Commonwealth’s highest court, recently clarified the standards applicable to analyzing nonsolicitation and anti-raid restrictive covenants following the sale of a business—an area of law where state appellate court jurisprudence had been lacking.
On December 3, 2019, in Heraeus Medical, LLC v. Zimmer, Inc., the Indiana Supreme Court reaffirmed the “blue pencil doctrine,” likening the doctrine to an eraser and stating that Indiana courts may only delete language from overbroad restrictive covenants; they cannot reform or add to such agreements.
The Louisiana Second Circuit Court of Appeal recently held that a noncompetition provision under La. R.S 23:921 affecting a former member of an accounting limited liability company (LLC) could be reformed when the scope of the defined business and geographic limitation was overly broad.
A new state law in Maryland now prohibits employers from requiring low-wage employees to enter into noncompete agreements. Maryland Senate Bill 328, which took effect on October 1, 2019, prohibits employers from obligating any employee who earns less than $15.00 per hour or $31,200 per year from entering into an agreement that restricts the employee’s ability to work with a new employer in the same or similar business.
As 2020 approaches, employers in New England may want to review their noncompetition agreements to determine whether they comply with recently enacted laws in Rhode Island and New Hampshire.
On August 29, 2019, legislators from the Michigan House of Representatives announced an ambitious package of 12 bills aimed at creating new criminal and civil penalties to combat employers that fail to properly pay wages and overtime pay. The legislation would also establish enhanced protections and penalties under Michigan’s whistleblower statute and create new civil remedies against employers for overzealous enforcement of noncompete agreements and for misclassifying employees as independent contractors.
On April 15, 2019, the Indiana Court of Appeals issued a ruling that significantly developed restrictive covenant law in two areas: whether courts may reform contracts (as opposed to blue-penciling them) and whether non-solicitation provisions can include prospective customers.
On July 3, 2019, in a long-awaited judgment the Supreme Court of the United Kingdom clarified the correct approach to deciding whether words can be severed from a post-employment covenant to leave an employee bound by the remainder of the covenant.
A recent Supreme Court case determined that private commercial and financial information that is transmitted to the federal government under an assurance of privacy is considered “confidential” and not subject to disclosure under the Freedom of Information Act (FOIA). The decision could provide some valuable safeguards for employers concerned about protecting sensitive data from public disclosure.
Lawmakers in Maine closed out the 2019 legislative session with a flurry of activity. Legislators passed more than 500 bills this year, including 50 on the final day, with many targeting the state’s employment laws.
On May 14, 2019, Oregon Governor Kate Brown signed House Bill (HB) 2992, which imposes a new burden on employers that want to have enforceable noncompetition agreements with their Oregon employees. For any noncompetition agreement entered into on or after January 1, 2020, employers must provide employees with a signed, written copy of the terms of the noncompetition agreement within 30 days after the termination of employment.
On May 8, 2019, Washington State Governor Jay Inslee signed new restrictions on noncompetition covenants for Washington employees. The new restrictions are effective January 1, 2020.
After several years of failed attempts, the state of Washington passed a law on April 17, 2019 that will significantly limit the enforceability of noncompetition agreements under Washington law. Governor Jay Inslee has not yet signed the act into law, but it is expected that Governor Inslee will promptly do so.
The hiring process can be one of the most stressful steps of any employment relationship. As the employer, you are opening your doors to somebody who is hopefully going to contribute to your company’s success. Moreover, hiring is a process that requires both time and money. Thus, employers often want to expedite the hiring process.
Texas law allows for the enforcement of covenants not to compete that impose reasonable restrictions on competition.
New technologies that enable temporary staffing candidates to find positions via applications that use algorithms to match people to positions, are here. With names like tilr and Shiftgig, these apps use an alternative, temporary, or on-demand staffing model akin to that used by ride-sharing apps to connect passengers with drivers.
With Massachusetts’s comprehensive noncompete law taking effect on October 1, 2018, many employers are reviewing and likely revising their restrictive covenants to ensure that they are compliant with the new law.