New York Employers’ Use of Non-Competes in Jeopardy?


New York Attorney General Eric Schneiderman has promised to introduce a bill that would restrict New York employers’ use of non-compete agreements for certain non-highly-compensated employees. The proposed legislation would (i) ban the use of non-competes for employees who earn less than $900 per week; (ii) require employers to pay additional monetary consideration in exchange for an employee entering into a non-compete agreement; (iii) limit the duration and substantive scope of such agreements; and (iv) create a private right of action for violations of the prospective new law. In anticipation of these potential changes, employers must carefully consider the necessity of requiring certain employees to enter into non-compete agreements, and closely review their current agreements to ensure that they are only as expansive as necessary to protect their lawful interests.

Trade Secrets and the 2016 FOIA Improvement Act

united-states-capitol-buildingLast summer, Congress passed and President Obama signed into law the FOIA Improvement Act of 2016 (Public Law No. 114-185), which adds to and amends the Freedom of Information Act (FOIA). The stated purpose of the amendments to the FOIA is to create a “presumption of openness” limiting the federal government’s discretionary power to withhold requested information only when disclosure would result in “foreseeable harm.” For those that transact business with or even simply communicate with the government (referred to as “submitters” in FOIA parlance), the FOIA changes mean that submitters such as government contractors and grant recipients must proactively respond when a FOIA request potentially targets confidential and/or proprietary data that has been shared with the government.

Importantly, the 2016 FOIA improvement Act did not change FOIA Exemption 4, which protects from disclosure “trade secrets and commercial or financial information obtained from a person [that is] privileged or confidential.” Under Exemption 4, the government is prohibited from disclosing trade secrets or other proprietary/confidential information that any submitter has shared with the government. Unlike with some of the other FOIA exemptions, in their interpretation of Exemption 4, Courts have determined that the government lacks any discretion to disclose trade secret or commercial confidential/proprietary information in response to a FOIA request.

The 2016 FOIA Improvement Act was passed to accelerate the FOIA process and to compel government FOIA officials to provide as much information as soon as possible in response to a FOIA request. Specifically, the Act now imposes a penalty (i.e., the waiver of the statutory FOIA fees) on the agency for failing to provide a timely FOIA response. The Act also requires that the FOIA response segregate exempt information from releasable information in the same document, as an agency can no longer simply refuse to produce any document containing exempt information. In addition, the Act requires the agency to produce electronic copies of documents/data, which can be instantly disseminated by the requesting party, rather than paper documents, in response to a FOIA request. Furthermore, the Act requires the creation of a federal government FOIA portal that allows the same FOIA request to be simultaneously submitted to multiple agencies. As a result, submitters must be poised to respond immediately as soon as the government provides notice that a FOIA request seeks disclosure of the submitter’s data and/or documents.

As an initial step, whenever any person or entity first shares information/data with the government that it does not want disclosed to any third party, the title page and each subsequent page of the confidential document or data should be plainly marked as containing “confidential and proprietary information which is exempt from disclosure under FOIA.” Next, when the agency contacts the submitter (as FOIA requires) to tell them that a request seeks the disclosure of their information, the submitter should promptly respond by identifying: 1) the specific information within each responsive document that is exempt from disclosure, 2) the particular FOIA exemption (there are nine) that prohibits disclosure (as stated above, Exemption 4 protects trade secrets and confidential/proprietary data), and 3) why that exemption applies to each identified section of data/information that the submitter seeks to protect. Also, the submitter (or submitter’s counsel) should attempt to maintain an open dialogue with the assigned agency FOIA official throughout the FOIA process to promptly address and resolve any disagreements about what should and should not be disclosed before the agency takes a final disclosure position, which is often difficult to unwind. Finally, the submitter must be ready to assert a “reverse FOIA” action to prevent the disclosure of trade secrets or other confidential/proprietary information in the event that the agency disregards the submitter’s exemption recommendations before the agency releases the submitter’s trade secrets and confidential information in response to a FOIA request.

Rethinking “Cause” May Enhance the Enforceability of Your Non-Compete

Although the arrival of the new Administration moots the Obama White House’s recent “State Call to Action on Non-Compete Agreements” addressing that administration’s concerns about non-compete agreements in the workplace, the fact remains that non-competes are governed by state law, and that some of the issues raised in the “State Call” will remain with us.

One such issue is the enforcement of non-competes against employees who are terminated without cause. For example, some courts have found that an employer has no legitimate business interest in enforcing a non-compete when the employer terminates an employee without cause. Politics aside, this is a concern that employers can address so as to enhance their odds of enforcing a non-compete.

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U.S. Supreme Court Denies Certiorari on ITC Ban Based on Trade Secret Misappropriation

Test TubesA Chinese tire manufacturer, Sino Legend, was found to have misappropriated trade secrets—in China—from another Chinese company. The International Trade Commission, in turn, banned Sino Legend’s tires from the United States for 10 years. On January 9, 2017 the U.S. Supreme Court denied Sino Legend’s Petition for a Writ of Certiorari on whether the U.S. International Trade Commission (ITC) had jurisdiction over the misappropriation of trade secrets that were alleged and found to have been misappropriated and used in China.

The Practical Takeaways. The ITC’s ban reinforces the importance of trade secrets, especially in light of the recently enacted Defend Trade Secrets Act (DFTA) of 2016, as well as the ITC’s unique and powerful remedies. But before litigation becomes necessary to address trade secret misappropriation, companies can take steps to protect themselves, including: Continue Reading

Moving Toward a Federal-State Approach To Noncompete Regulation?

Non-compete agreements are currently exclusively regulated by a panoply of state laws. Coextensive with recent scrutiny over anti-competitive business practices relating to non-compete use, federal interest in non-compete regulation has heightened, culminating in a White House “Call to Action” urging certain state reforms. While there appears to be room for a limited level of federal regulation, such regulation should focus on bridging the information gap between employers and employees rather than blessing an overtly pro-employer or pro-employee policy with the imprimatur of the federal government.

To read the full article, click here.

California Further Restricts Employers from Trying to Enforce Non-Compete Agreements

business-962364Are you an employer based outside of California with employees who live or work in California? If so, you will want to take note of a new California Labor Code provision that becomes effective on January 1.

Not surprisingly, companies headquartered outside of California generally have employment agreements that are purported to be governed by the substantive law of the state in which the company is headquartered. This is true even when the company hires employees who live and work in California.

But companies need to be aware that, effective January 1, new California Labor Code section 925 goes into effect and limits their ability to apply the substantive law of a different state to their California employees. (The new provision applies only to contracts “entered into, modified, or extended on or after January 1, 2017,” and does not have retroactive effect.) Continue Reading

Litigating Whistle-Blower Immunity Under the Defend Trade Secrets Act

whistle blower word cloudThe Defend Trade Secrets Act grants immunity from any federal or state trade secret law to anyone who discloses a trade secret to an attorney or government official “solely for the purpose of reporting or investigating a suspected violation of law.”

A recent district court decision holds that a defendant must present evidence justifying the immunity. This means the defense likely will not be available on a motion to dismiss when the court may consider only the complaint and facts subject to judicial notice. Continue Reading

No-Poach Agreements Still Illegal, According to the FTC/DOJ

agree-1728448_1920Last month, the Federal Trade Commission and the Antitrust Division of the Department of Justice issued “Antitrust Guidance for Human Resource Professionals.”  The guidelines are a helpful reminder that any agreement among competing employers to limit the employment or compensation of potential hires may violate federal antitrust laws.

“Competing employers” in this context means any companies which “compete to hire or retain employees . . . , regardless of whether the firms make the same products or compete to provide the same services.” Continue Reading

White House Call to Action to Limit Non-Competes

building-839787Earlier this year, the White House and Treasury issued reports criticizing the widespread use of non-compete agreements. They found that such agreements affect nearly one in five U.S. workers, or approximately 30 million people.

Last week the White House expanded its efforts, issuing a Call to Action for states to reform and limit non-compete agreements, if not ban them more generally as has been done in California, Oklahoma and North Dakota.  The White House proclaimed that “non-compete agreements should be the exception rather than the rule, and . . . there is gross overuse of non-compete clauses today.” According to the published Call to Action, “[r]esearchers have found that states that strictly enforce non-compete agreements have lower wage growth and lower mobility than states that do not enforce them.” Continue Reading

Netflix Responds – CA Law does not Permit Employment Contracts?


Just in late last week: Netflix counters the Fox lawsuit with a jab of its own – Netflix claims that the employment agreements that Fox utilizes and its practices concerning those term agreements run afoul of California law. Since neither former Fox employee was bound for more than 7 years under an employment agreement (and therefore California’s Seven Year Rule doesn’t apply), Netflix relies on Section 16600 (the California prohibition against non-competes) as its rationale for hiring Fox employees who are on contract. There may be some appeal to the straightforward application of Section 16600 in this context, but what would this do to employment contracts in California? How this novel theory plays out is worth watching – these are well-heeled litigants, so the appellate courts are not out of the question. More to come.

Click here for our first post in this series.