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.

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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?

employment-contract

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.

Ninth Circuit Revives Implied Confidential Relationships in Trade Secrets Case

digital-storage-media-1444798In a decision handed down September 6, 2016, the Ninth Circuit revived the notion, long presumed dead, that an implied confidential relationship can arise from the context of a business communication or relationship.  While the Ninth Circuit declined to rule on the basis of an implied confidential relationship, it did open the door to future rulings.

Electronic Arts (EA) contracted with Direct Technology (DT) to produce a prototype of a USB flash drive shaped like an object from EA’s game The Sims.  Once DT provided EA with its prototype, EA contracted with a third-party manufacturer to produce the flash drive at a lower price.  DT subsequently sued EA, alleging copyright and trade secret claims.  EA moved for summary judgment on each claim.  The district court granted EA’s motion, and DT appealed. Continue Reading

Fox v. Netflix – Employee Mobility in a Transforming World

Career StepsAt first glance, you wouldn’t believe Netflix (formerly known as a distributor) would be a competitor of 20th Century Fox (known as a producer). If anything, they should be doing business with one another. But times change, and in this situation, the transforming entertainment industry pits Netflix (now alleged to be “an internet-based television and film producer”) against Fox (still a traditional TV and film producer). The dispute? Employee mobility and whether Netflix has violated the law by recruiting and hiring Fox employees who are alleged to have been under fixed-term employment contracts with Fox. Fox contends that Netflix intentionally interfered with these fixed-term contracts and should pay damages and be enjoined from further interfering with Fox’s fixed-term contracts. According to Variety:

Netflix vowed to fight the lawsuit “vigorously.”

“We do not believe Fox’s use of fixed term employment contracts in this manner are enforceable,” a Netflix spokesman said. “We believe in employee mobility and will fight for the right to hire great colleagues no matter where they work.”

Stay tuned…

Ask, Tell, & Do: Three Keys to using Exit Interviews to Protect Against Trade Secret Misappropriation

Departing employees  pose one of the biggest risks of misappropriation of a company’s proprietary and confidential information and trade secrets.

When a high-level employee has access to critical company information, conducting an appropriate exit interview requires more than an HR rep checking off boxes on a form. When it comes to protecting trade secrets from misappropriation, here are three keys to a successful exit interview process: Continue Reading

Three Reasons Why Employees Might Pose the Biggest Threat to a Company’s Trade Secrets

 

burglar-157142_1280For many people, “trade secret theft” evokes an image of a technological superspy, a James Bond meets Edward Snowden. But the more common, less dramatic and yet more dangerous threat to a company’s proprietary information comes from within.  Current and departing employees likely are more threatening to a company’s trade secrets than are foreign espionage agents.

First, unlike outside cyber-attackers, often a company’s employees are freely granted access to the company’s trade secrets. They don’t need to hack into the company’s system – they just log in with their user ID and password, or stroll down the hall and open a file cabinet.

Second, employees are much more likely to be able to utilize trade secrets to the company’s detriment. A departing employee is well positioned by training and experience to work for a company’s competitor.  Insiders will best understand the competitive value of a company’s confidential information, and know which competitors can most easily exploit stolen information.  In other words, unlike a foreign hacker, an employee better understands the market  for the confidential information and needs to waste little time trying to capitalize on the information. Continue Reading

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