Trade Secrets & Employee Mobility

Earlier this year, legislation was proposed in New York that would effectively ban all post-employment noncompetes. Few paid close attention to the proposals, ostensibly because similar legislation is proposed virtually every year in states across the country, including in New York, and typically nothing comes of it (Minnesota being the major exception, having recently passed a noncompete ban that goes into effect July 1, 2023).

Now on Spilling Secrets, our podcast series on the future of non-compete and trade secrets law:

Trade secret and non-compete litigation can result in massive damage awards, but those cases can also be unpredictable. Many viable trade secret claims go unexplored due to financial limitations or a lack of willingness to invest in litigation.

Attorney and Spilling Secrets host Erik W. Weibust and three special guests—Epstein Becker Green’s Managing Partner, James P. Flynn; Stephanie Southwick of Omni Bridgeway; and Mary Guzman of Crown Jewel Insurance—discuss the monetization of trade secrets litigation.

New York State may soon join the growing list of jurisdictions restricting or banning noncompete agreements. On June 7, 2023 the New York State Senate passed S 3100A (the “Bill”), which would prohibit employers from seeking, requiring, demanding, or accepting certain noncompete agreements.

The National Labor Relations Board (NLRB) has found its first target under recent guidance issued in a memo from its General Counsel claiming that noncompete agreements may violate the National Labor Relations Act (NLRA). According to Bloomberg Law, “[t]he NLRB’s first enforcement action against an employer’s noncompete agreement targeted a Michigan cannabis processor and ended with a recent private settlement resolving the alleged labor law violations.” (The enforcement action predates the guidance memo). Bloomberg obtained redacted documents from the case via a Freedom of Information Act request.

On June 2, 2023, the Federal Trade Commission (FTC) announced that it finalized a consent order with Anchor Glass Container Corp. (“Anchor Glass”).

This consent order follows the FTC’s administrative complaint, filed in March 2023, against Anchor Glass and its controlling owners (the “Respondents”). The FTC’s complaint alleged that Anchor had entered into non-compete agreements with more than 300 employees and that these non-compete agreements were unfair and had the “tendency or likely effect of harming competition, consumers, and workers . . . .” 

On May 17, 2023, U.S. Senator Rob Wyden (D-OR) announced the release of a long-awaited report on the U.S. Government Accountability Office’s multi-year investigation into the use of noncompete agreements across the U.S. labor market. In announcing the release, Senator Wyden said that the GAO report “highlights the problems of noncompete agreements – particularly their impact on limiting workers’ fundamental freedom to change jobs,” and pledged to “fight tooth and nail for fair labor laws that protect workers and promote the creation of new businesses in Oregon and nationwide.”

The National Labor Relations Board’s top lawyer, Jennifer Abruzzo, issued  a General Counsel memo today instructing the Labor Board’s Regional Directors of her position  that noncompete clauses for employees protected by the National Labor Relations Act (NLRA) (i.e., nonmanagerial and nonsupervisory employees) in employment contracts and severance agreements violate federal labor law except in limited circumstances. The memo, while not law, outlines her legal theory which she will present to the National Labor Relations Board, which makes law primarily through adjudication of unfair labor practice cases.  The memo instructs the agency’s field offices of the position that the General Counsel is instructing them to take when investigating unfair labor practice charges claiming that such clauses interfere with employees’ rights under the NLRA.

For the last decade, one of the biggest issues in Illinois noncompete law has been what constitutes adequate consideration for a post-employment restrictive covenant, apart from employment lasting at least two years after the agreement was signed.  The “24 month rule” set forth in Fifield v. Premier Dealer Services, Inc., 2013 IL App (1^st) 120327 has caused much head-scratching, and the Illinois legislature essentially punted on the issue in the recent amendments to the Illinois Freedom to Work Act, 820 ILCS 90/1, et seq. (effective as of January 1, 2022).  (Full disclosure: One of the authors of this post advised the Illinois Chamber of Commerce in its negotiations with the State legislature over this law and, hence, can speak from personal experience on the legislative history of this “punt.”)

As expected, on May 24, 2023, Governor Tim Walz signed a new law banning noncompete agreements in Minnesota.  The ban will be effective for such agreements entered on or after July 1, 2023.

By enacting the Omnibus Jobs, Economic Development, Labor and Industry appropriations bill (MN SF 30035), Minnesota becomes only the fourth state (along with California, Oklahoma and North Dakota) to ban noncompetes. 

The day after obtaining federal brokerage authority for the logistics company he formed a month earlier, Christopher Johnson, a North Carolina resident, resigned from his employment with Cincinnati-based Total Quality Logistics, LLC (“TQL”). TQL then sued Johnson and his company Patriot Logistics (“Patriot”) in the Clermont County Court of Common Pleas, alleging Johnson breached his employment agreement and misappropriated trade secrets in forming Patriot while still employed by TQL.

Johnson and Patriot removed the case to federal district court based on diversity jurisdiction. TQL moved to remand the case back to state court, arguing the $75,000 amount in controversy requirement was not met. After the federal court denied TQL’s remand motion, TQL voluntarily dismissed the case and refiled in state court. Johnson and Patriot removed the case yet again.