BRR 50-State Noncompete Chart (Updated 11/11/2016)

World MapThe BRR 50 State Noncompete Chart has been updated to reflect several recent state law developments (in particular, limits on physician noncompetes in Connecticut, New Hampshire, and Rhode Island).

Click here to get the latest version.

Please note that the chart has been revised through today, November 11, 2016.

Also, if you are looking for our 50 State Trade Secrets Comparison Chart, it is updated and available here.

Trade Secret | Noncompete Issues and Cases in the News (Through November 6)

extras_03Below are the latest issues and cases making trade secrets | noncompete news since our last update. There’s a lot to catch up on (sorry!) …

Remember that the Changing Trade Secrets | Noncompete Laws is updated regularly to reflect (in as close to real time as possible) the changes and proposed changes to trade secrets laws and noncompete laws around the country. 

Also remember that, if you want to see the differences among how each of the 50 states handle noncompetes and trade secrets, charts for those comparisons are available here (noncompetes) and here (trade secrets). Note that these charts are updated as new developments arise.

Federal:  The White House has been busy this year trying to find the appropriate balance between protecting trade secrets (see Defend Trade Secrets Act versus the UTSA) and limiting the abuse of overreaching noncompetes (see White House Releases Noncompete Call to Action).

I was honored to be invited by the White House to be a part of its working group discussions. What I can say is that, despite the vocal criticism from both sides (from the White House went too far to it didn’t go far enough), the White House considered substantial amounts of information from myriad sources and made great efforts to find a compromise. If nothing else, the fact that the White House has brought the question of the appropriate balance to an open discussion is unquestionably a good first step.

And, of course, a lot of work still needs to be done. There is a small but growing body of research on the impacts of noncompetes. All but the irrational “true believers” would agree that much more work needs to be done to have a proper understanding of how the use of noncompetes – broadly to narrowly to not at all – relates to innovation, employee training and wages, and myriad other potential impacts on the success of corporate growth and the economy. As that work moves forward, it will be interesting to see whether the opinions expressed by Jonathan Macey (Sam Harris Professor of Corporate Law, Securities Law and Corporate Finance at Yale Law School and a professor in the Yale School of Management) in Obama’s Pitch to Ban Non-Compete Agreements Would Make the Rich Richer are ultimately supported by empirical data.

As a separate but related observation, it is interesting to see that tech companies are moving to Boston (not Silicon Valley – the location often held up to show the alleged benefits that resulted from California’s general refusal (at least since Edwards vs. Arthur Andersen) to enforce noncompetes). See Why these tech execs moved their companies to Boston and Here Are Some of the Boston Tech Cos. Supporting the Campaign Against Noncompete Reform and Here Are the Most Innovative States in America. (See also a July 12, 2016, letter issued by the Massachusetts High Technology Counsel in opposition to some of the proposed Massachusetts legislation.) 

The bottom line is that most people who dig into the issue recognize that there is simply not enough information or research to make definitive conclusions on the overall relative benefits and detriments of noncompetes. Accordingly, at this point, decisions will have to be made based on whether people believe corporate interests or employee mobility should prevail and visceral reactions (pro or con) to the use of noncompetes. 

Federal:  On the theme of cracking down on noncompetes and related employment issues, the Department of Justice Antitrust Division and the Federal Trade Commission together issued “Antitrust Guidance for Human Resource Professionals,” taking aim at, among other things, inter-company no-poach agreements.

Federal:  On September 2, a complaint was filed with the NLRB challenging Trump’s requirement that all vendors – and their employees – agree to (among other restrictions) the following noncompete (exhibit A to the complaint):

Until the [November 8, 2016 or (if applicable) the date Trump withdraws his candidacy] you promise and agree not to assist or counsel, directly or indirectly, for compensation or as a volunteer, any person that is a candidate or exploring candidacy for President of the United States other than Mr. Trump and to prevent your employees from doing so.

While noncompetes are not unusual in these contexts, the challenge stems primarily from the fact that the restriction applies not just to the vendors, but to their employees. See Trump campaign contract has unusually broad non-compete clause.

Federal (4th Circuit):  Although nothing particularly new, the 4th Circuit (in RLM Communications, Inc. v. Tuschen) weighed in on noncompetes in North Carolina, observing that the prohibition on engaging in a competitive business meant not only that the former employee could not engage in a truly competitive role risking harming the former employer’s legitimate business interests, but the employee “may also not mow their lawns, cater their lunch businesses, [or] serve as their realtor.” Like the (like the so-called “janitor rule,” the court found that this was too much – and because North Carolina follows the blue-pencil the noncompete could not be narrowed in a way that would render it enforceable. For more, see Fourth Circuit’s RLM Communications, LLC v. Tuschen Tackles Noncompetition and Trade Secret Misappropriation Issues.

Federal (5th Circuit):  The 5th Circuit issued a decision on September 7, again finding that the Copyright Act does not preempt trade secrets protection for software. GlobeRanger Corp. v. Software AG.

Federal (9th Circuit):  Adoption of the Uniform Trade Secrets Act is, as  Sid Leach observed (in a terrific article), anything but uniform. See also my state-by-state comparison of the UTSA. However, the one thing that is uniform is that the trade secret owner must take reasonable measures to protect its purported trade secrets. The area of some controversy is what constitutes reasonable measures.

Well, the 9th Circuit recently took a very liberal view in its September 6 decision in Direct Technologies, LLC v. Electronic Arts, Inc. (Hat tip to  and  for identifying the case.)

In that case, although the plaintiff did basically nothing, the court observed that the plaintiff might have satisfied its reasonable measures requirement by relying on its “implicit business expectations that [the defendant] would keep the [information] secret . . . .” Basically, the court’s decision is that the reasonable measures requirement may be satisfied by simply relying on the assumed confidential nature of a relationship.

Am I the only one who immediately thought of this clip?

Federal (Massachusetts):  On September 19, 2016, the District of Massachusetts issued a decision in Kurra v. Synergy Computer Solutions, Inc. sending the case to Michigan, in yet one more case following Atlantic Marine, and enforcing a forum selection clause in a noncompete agreement.

Federal (Missouri):  Unlike the Jimmy John’s sandwich makers, executives at Panera can be (and one recently was) enjoined from joining Papa Johns. Such was the August 3, 2016 decision in Panera, LLC v. Nettles.

Federal (Virginia):  The question of whether ownership of stock can violate a noncompete should not really be an issue, but yet, it does occasionally surface. On August 31, the District of Virginia issued a decision in Hair Club for Men, LLC v. Ehson, that did not apply Virginia’s red pencil doctrine to invalidate an agreement that would have prohibited the holding of stock in a competitor. See Noncompete Restriction Against Owning Stock Not Necessarily Unenforceable.

Federal (ITC):  Trade secrets litigation at the ITC is in vogue these days since Dean Pelletier‘s team’s victory in the TianRui case. That case stands for the proposition (among others) that misappropriation of trade secrets occurring outside of the United States can serve as the basis to justify seizure of products containing the trade secret imported into the United States. Well, a recent case is now challenging that rule, petitioning the United States Supreme Court for certiorari. For more, see Sino Legend v. ITC – Update: Certiorari Petition Seeks to Preclude ITC Actions Based on Foreign Theft of Trade Secrets

Federal (ITC):  The ITC recently issued a decision affirming the award of terminating sanctions for the spoliation of evidence. This is quite significant, as terminating sanctions is the harshest sanction available. See Stainless steel products: commission affirms default finding based on bad-faith spoliation.

Federal (Chamber of Commerce):  In the midst of the ongoing debate over the interplay between protection from employee theft of trade secrets and the overuse of noncompetes, enter the United States Chamber of Commerce and fears of risk of loss of trade secrets (and other intellectual property) by means of insufficient cybersecurity. See more in a nice summary of the issue by Kate M. Growley of Crowell & Moring:  U.S. Chamber of Commerce Calls for Greater Trade Secrets Protection.

California:  California is at it again. On September 25, 2016, California adopted a new law (effective January 1, 2017) making forum selection clauses in noncompetes unenforceable (putting the employer at risk of paying attorneys’ fees for trying). As a practical matter, that issue is not so different from Louisiana’s forum selection law, which precludes enforcement of agreement on forum selection unless the choice is made after a dispute has arisen. How that this prohibition will work in federal courts, given Atlantic Marine, remains to be seen.

California:  On October 18, the California Court of Appeal for the First Appellate Division issued an order in Robinson v. U-Haul Company of California permanently enjoining U-Haul from enforcing against one of its former location operators a noncompete in the parties’ dealer contract.  For a discussion of the case, see California Appeals Court Affirms Permanent Injunction Against Use of Noncompete in California Contracts.

Delaware:  Like the Atlantic Marine cases in the federal courts, state courts routinely honor forum selection clauses. Such was the case recently in the Delaware Chancery Court, which enjoined the employee from prosecuting his case in Massachusetts. See Delaware Chancery Court Blocks Former Exec’s Effort to Invalidate Noncompete in a Massachusetts Court

Illinois:  On June 27, in Airgas USA, LLC v. Adams, the United States District Court for Northern District of Illinois issued yet another decision rejecting the requirement established in Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938 (Ill. App. Ct. 2013), that absent other consideration, an employee noncompete must be supported by at least two years of employment. As the court explained,

While Fifield, McInnis v. OAG Motorcycle Ventures, Inc., 35 N.E.3d 1076 (Ill. App. 2015), and Prairie Rheumatology Assoc., S.C. v. Francis, 24 N.E.3d 58 (Ill. App. 2014) have applied a bright-line test requiring at least two years of continued employment for the continued employment to be considered adequate consideration, the Illinois Supreme Court holds that the validity of a noncompetition agreement depends “on the totality of the facts and circumstances of the individual case. Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions. No factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case.” Reliable Fire Equip. Co. v. Arredondo, 965 N.E.2d 393, 403 (Ill. 2011). A “totality of the facts and circumstances” test conflicts with the “bright-line” rule utilized by the Illinois Appellate Court in the cases noted above. Accordingly, the court rejects the two-year bright-line rule. In doing so, the court joins the other federal courts in this district that have determined that “[i]t is probable, that if confronted with the question of the adequacy of consideration, the [Illinois Supreme Court] would likewise avoid the appellate courts’ bright-line test in favor of a more flexible case-by-case determination, considering the totality of the circumstances.” Allied Waste Servs.of North America v. Tibble, No. 16 C 1660, 2016 WL 1441449, *4 (N.D. Ill. Apr. 7, 2016) (Leinenweber, J.); see also, R.J. O’brien & Assoc., LLC v. Williamson, No. 14 C 2715, 2016 WL 930628 (N.D. Ill. Mar. 3, 2016) (Gettleman, J.); Montel Aetnastak, Inc. v. Miessen, 998 F. Supp.2d 694 (N.D. Ill. 2014) (Castillo, C.J.); but see, Instant Technology, LLC v. DeFazio, 40 F.Supp. 3d 989 (Holderman, J.).

Illinois:  Hat tip to Doug Albritton for identifying the unpublished decision, Mohanty v. St. John Heart Clinic, upholding a physician noncompete (including the enforcement of a fee-shifting provision in the agreement). See Doctor Covenants Upheld, Large Attorney Fee Award Upheld for Small Damages

Illinois:  As noted in August, following on the Jimmy John’s settlement and the White House’s efforts at suggested noncompete reform, Illinois passed a law banning noncompetes for low wager earners. See Illinois Bans Noncompetes for Low Wage Earners.

Illinois:  On September 30, the Illinois Appellate Court for the Fifth Division issued a decision in Reed v. Getco, LLC in which the court prevented the employer from waiving the noncompete, where the employer had agreed to pay the employee $1 million for the restriction.

Massachusetts:  Because so many trade secrets and noncompete cases arise out of the employment relationship (if for no other reason than that there are more employer/employee relationships than any other type of business arrangement), these cases are often coupled with breach of fiduciary claims against the employee. An October 24 decision from the Massachusetts Appeals Court (Beninati v. Borghi) focuses on the availability of Massachusetts’ unfair competition statute (G.L. c. 93A) – which provides for multiple damages and attorneys fees, but is not available against employees – against consultants who advised an employee. See Consultant can face 93A liability for aiding, abetting fiduciary violation (paid service).

Michigan:  On July 14, 2016, the Supreme Court of Michigan issued a decision in Innovation Ventures, LLC v. Liquid Manufacturing, LLC, holding that inter-company noncompetes are governed by a rule of reason under antitrust law. See Michigan Supreme Court Holds That the Federal “Rule of Reason” Applies in Evaluating the Enforceability of Noncompete Agreements Between Businesses.

Nevada:  On July 21, 2016, the Nevada Supreme Court issued a decision in Golden Road Motor Inn, Inc. v. Islam, dispelling the generally-accepted view that Nevada courts reform overly broad noncompete agreements.

New Hampshire:  On August 5, 2016, Senate Bill 417 became effective and now prohibits physician noncompetes in New Hampshire.

North Carolina:  One issue that arises often in states (like North Carolina, see here) is, if continued employment alone is not sufficient consideration to support a noncompete, what is? Well, a recent North Carolina Court of Appeals decision, Employment Staffing Group v. Little, provides some guidance:  $100.  (Hat tip to my former partner, Peter Steinmeyer and his associate, Scarlett L. Freeman, for passing along that decision in a recent post.)

Pennsylvania:  In vogue these days is the enforcement of no-raid agreements. No wonder. A Pennsylvania court recently awarded $4.5 million in punitive damages in B.G. Balmer & Co. Inc. v. Frank Crystal & Co., Inc., for the violation of some no-raid agreements (as well as violations of other restrictions, of course). For more, see 4.5 Million Reasons to Abide by a Non-Solicitation Agreement.

Rhode Island:  Effective July 12, 2016, Rhode Island passed a law (R.I. Gen. Laws § 5-37-33) invalidating physician noncompetes, except (as are commonly permitted) for those agreements arising from the sale of a practice (provided that they are no longer than five years).

Virginia:  A recent letter opinion by a judge of the Fairfax Circuit Court identifies misclassification (as an independent contractor as opposed to as an employee) as a defense to the enforcement of a noncompete. See Virginia Non-Competes – Another One Bites The Dust.

 

Other Noteworthy News…

Illinois Bans Noncompetes for Low Wage Earners

2000px-illinois_in_united_states-svgOn August 19, Illinois Governor Rauner signed the Illinois Freedom to Work Act. In short, the Act bans the use of noncompete agreements for low wage workers, i.e., those earning less than the greater of the minimum wage or $13.50/hour.

The full text of the act is as follows:

Section 1. Short title. This Act may be cited as the Illinois Freedom to Work Act.

Section 5. Definitions. In this Act:

“Covenant not to compete” means an agreement:

(1) between an employer and a low-wage employee that restricts such low-wage employee from performing:

(A) any work for another employer for a specified period of time;

(B) any work in a specified geographical area; or

(C) work for another employer that is similar to such low-wage employee’s work for the employer included as a party to the agreement; and

(2) that is entered into after the effective date of this Act.

“Employer” has the meaning given to such term in subsection (c) of Section 3 of the Minimum Wage Law.

“Employer” does not include governmental or quasi-governmental bodies.

“Low-wage employee” means an employee who earns the greater of (1) the hourly rate equal to the minimum wage required by the applicable federal, State, or local minimum wage law or (2) $13.00 per hour.

Section 10. Prohibiting covenants not to compete for low-wage employees.

(a) No employer shall enter into a covenant not to compete with any low-wage employee of the employer.

(b) A covenant not to compete entered into between an employer and a low-wage employee is illegal and void.

Effective Date: 1/1/2017

Massachusetts Noncompete Law Stalls

IMG_0017To the surprise of many, the efforts of the Conference Committee to reconcile the House and Senate versions of Massachusetts’ noncompete bill (and bill proposing the adoption of the Uniform Trade Secrets Act) stalled last night – at the end of the current legislative session.

The most significant divide was around garden leave requirements (essentially, how much money has to be paid to employees for the noncompete and when it can be negotiated). For a breakdown of the differences between the bills, see Lining up the Massachusetts Senate and House Noncompete | UTSA Bills and here (for a chart I had initially prepared a couple of weeks ago to summarize the key differences).

The bill now appears to be dead.

Lining up the Massachusetts Senate and House Noncompete | UTSA Bills

IMG_0017As of last night, Massachusetts has two competing versions of noncompete and trade secrets law reform bills. The House version (H.4434) is described here, and the Senate version (S.2418) (which does not yet reflect the amendments) is described here, with last night’s two amendments summarized here.

This post will compare the two bills.

In addition, I have compared the two bills in track changes here. (I will have a final (cleaned up) comparison after the Senate incorporates the amendments into its bill.)

First the UTSA:  The House version adopts the UTSA submitted by Steve Chow on behalf of the Uniform Law Commissioners, with the the handful of changes that I had suggested. The Senate version made a few tweaks to the House version, but in substance, they are largely the same.

The balance of the bill is the proposal to reform Massachusetts noncompete law.

Both proposals follow the same basic structure and incorporate much of the text proposed early on by Representative Lori Ehrlich and now-Senator Will Brownsberger, when we first started working on it in 2008/09, and as it later evolved.

However, a lot has changed over the years, and the final bills include several provisions that have taken divergent approaches and will now need to be reconciled presumably by the end of the legislative session on July 31.

The key differences needing to be reconciled are as follows:

      •  Effective Date

The House version would become effective on October 1, and apply prospectively.

The Senate version would become effective immediately upon becoming law.

      •  Maximum duration of the restriction

The House version limits noncompetes to 1 year, with the ability to extend to two years in the event of misconduct by the employee.

The Senate version limits noncompetes to 3 months, with the same ability to extend to two years for employee misconduct.

      •  Garden leave

The House version requires that the employee must be paid at the rate of 50 percent of his or her salary during the period he or she is subject to the restriction. This requirement does not apply to any extension based on the employee’s misconduct. In addition, the House version permits the parties to negotiate – in advance – “other mutually-agreed upon consideration” in lieu of the 1/2 salary requirement, and does not require any specific consideration.

The Senate version ups the percentage to 100 percent, uses “earnings” as the base (instead of “salary”), and, while it does permit “other mutually-agreed upon consideration,” it requires that that consideration equal or exceed what would be paid under the 100 percent of earnings test. In addition, it must be negotiated after the fact (i.e., at the end of the employment relationship), not when the noncompete is agreed upon.

      •  Effect of overly-board restrictions

The House version retains current Massachusetts law, permitting a court to revise (“reform”) an overly-broad noncompete.

The Senate version replaces the reformation approach with the red pencil approach, which invalidates an overly-broad noncompete. (Note that it does not invalidate the entirety of the agreement – just the noncompete restriction.)

      •  Exemptions

The House version includes several exemptions (categories of people who cannot be bound by noncompetes). They are:

1.  Nonexempt employees under the Fair Labor Standards Act

2.  Undergraduate or graduate students engaged in short-term employment

3.  Employees who have been terminated without cause or laid off

4.  Employees who are 18 years old or younger

The Senate version adopts the same four exemptions and adds:

1.  Employees whose average weekly earnings are less than twice the Massachusetts average

2.  Independent contractors

      •  Definition of Employee

The House version adds “independent contractors” to the statutory definition of employees.

The Senate version removes the reference, and relies only on the statutory definition of employee (which is quite broad).

      •  Periodic Review

The Senate version adds a requirement (not in the House bill) that the noncompetition agreement be reviewed every three years.

      •  Notice of Intent to Enforce

The Senate version adds a requirement (not in the House bill) that, within 10 days following the termination of the employment relationship, the employer must notify the employee in writing of its intent to enforce the agreement. This requirement does not apply, however, in the event of employee misconduct.

      •  Jurisdiction and Venue

The House version requires that any action be brought in the county in which the employee resides or (by agreement) Suffolk County. Further, if brought in Suffolk County, then the Superior Court (including the BLS, i.e., the Business Litigation Session) has exclusive jurisdiction. (The exclusive jurisdiction provision, on its face, would prohibit the filing in federal court; albeit such a provision is very likely ineffective.)

The Senate version removes the exclusivity requirement.

 

Stay tuned!

 

Massachusetts Senate Votes for Tough Noncompete Bill and Adoption of Uniform Trade Secrets Act

IMG_0017The Massachusetts Senate voted tonight on Massachusetts trade secrets law and noncompete law reform.

Senators proposed multiple amendments to the version of the bill that Senator Mark Montigny, on behalf of the Massachusetts Senate Committee on Rules, recommended on Tuesday.

The details of the Rules Committee’s version are in Tuesday’s post: Massachusetts Noncompete Bill Enhanced By Senate.

No surprise, the Senate passed the Rules Committee’s version of the bill, with only a few material changes. Those changes are as follows:

(1) The bill now requires that “To remain valid and enforceable, the employer shall review a noncompetition agreement with the employee not less than once every three years.” (In the prior bill, it was once every five years.)

(2)  The garden leave was revised to make clear that it is intended to require the payments on a pro rata basis for the duration of the restriction, rather than having to pay a full year’s salary.

The bill now goes to committee. That process will need to be completed quickly, as the legislative session ends on July 31.

Stay tuned!

Trade Secret | Noncompete Issues and Cases in the News (June/July)

extras_03Below are the latest issues and cases making trade secrets | noncompete news since our last update …

(My apologies to those who received an email update with a draft of this post.)

Also, note that the Changing Trade Secrets | Noncompete Laws has been updated, and is regularly updated.

Federal (9th Circuit):  One of the most-watched decisions involving the Computer Fraud and Abuse Act may have finally come to an end with a recent 9th Circuit decision issued on July 5. See Ninth Circuit Affirms Nosal Computer Crime Conviction in Key CFAA Ruling

Federal (8th Circuit):  On July 6, the 8th Circuit overturned the Western District of Missouri’s decision in Symphony Diagnostic Services No. 1 Inc. v. Greenbaum and held that a noncompete – despite arguments that it is a personal services contract and therefore cannot be assigned without the employee’s approval – could be assigned. The rationale for the ruling was essentially that the noncompete prohibits the employee from acting, as opposed to requiring the employee to act (which is the basis for not allowing the automatic assignment of personal services contracts). See Noncompete Agreements Can Pass From One Company to Next

Federal (California):  The first case to issue an injunction under the Economic Espionage Act’s new private right of action was on June 10 in the Northern District of California in Henry Schein, Inc. v. Cook.

Federal (New York, Criminal):  On June 14, Xu Jiaqiang, a Chinese national, had been arrested last year in a sting operation, was indicted for espionage on by stealing source code (presumably from IBM) on behalf of the People’s Republic of China. See Former IBM software developer accused of espionage

California: A particularly interesting (perhaps only to me) area of trade secrets law involves the intersection of trade secrets law with lawyer ethical obligations. That issue will likely be playing out in a case in Adelson, Testan, Brundo, Novell & Jimenez v. Misa Stefen Koller Ward LLP, No. 30201600850385CUBTCJC, Superior Court of California, County of Orange. See Lawyers Who Departed Call Trade Secret Lawsuit by Former Firm “Vindictive” and “Baseless” and Ask Court to Throw Out All ClaimsFirm Accuses Ex-Partners of Stealing Clients, Trade Secrets

California:  Alphabet has been sued in Federal Court in San Jose for allegedly stealing the idea to use weather balloons to provide wireless service to rural areas. Google accused of stealing idea for Project Loon

California:  California’s drought problems are no secret, but how much water is used by any individual is. There is now a bill that would change that (for businesses). Bill targets secrecy in California water data

Illinois:  Not to be outdone by New York Attorney General Eric Schneiderman‘s investigation of Jimmy John’s (see below), Illinois Attorney General Lisa Madigan filed a lawsuit against Jimmy John’s on June 8. See The Illinois AG’s Suit Against Jimmy John’s On Non-Competes – What It Means For EmployersAttorney General Madigan Sues Jimmy John’s over Non-Compete Agreements.

Illinois:  On June 29, a bill (the Illinois Freedom to Work Actto ban the use of noncompete agreements for low wage workers (i.e., those earning less than $13.50/hour) was sent to Governor Rauner on June 29.

Illinois:  On April 7, in Allied Waste Services of North America, LLC v. Tibble (Ill. N.D. April 7, 2016), another judge joined the majority of federal case law in Illinois rejecting the requirement established in Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938 (Ill. App. Ct. 2013), that absent other consideration, an employee noncompete must be supported by at least two years of employment. (Thanks to Thadford A. Felton of Greensfelder Hemker & Gale for identifying the case.) 

Massachusetts:  On June 30, the Massachusetts House of Representatives passed a revised version of the noncompete bill reported out of the the Joint Committee on Labor and Workforce Development. The current bill still contains the version of the Uniform Trade Secrets Act submitted by Steve Chow on behalf of the Uniform Law Commission and reflecting my input revising certain aspects of the earlier draft that I thought would make trade secrets harder to protect in Massachusetts, but includes significant additions to the version of the bill recently reported out by the Joint Committee on Labor and Workforce Development.

An interesting commentary by Michael Gilleran, author of the bible on 93A, argues that the UTSA (assuming it is ultimately signed into law in its present form) will preempt G.L. c. 93A (the Massachusetts unfair competition statute), insofar as 93A applies to the misappropriation of trade secrets. See Will 93A continue to apply to trade secrets — and should it? (paid subscription). (Mike focuses on Peggy Lawton Kitchens v. Hogan, 18 Mass. App. Ct. 937 (1984) and its progeny, though its application is not without question when it comes to misappropriation by former employees (which, as a group, are the greatest risk factor for misappropriation). See Massachusetts Trade Secret Protections Are Given Big Boost.) In making his argument that 93A is preempted, Mike relies, in part, on the extensive comments that accompanied the version of the Uniform Trade Secrets Act submitted by Steve Chow on behalf of the Uniform Law Commissioners.

However, although the text of the Steve’s version of the UTSA (with my handful of changes) was passed by the House, the comments (while very helpful generally – and definitely worth a read) were not included. Accordingly, their impact is of questionable significance.

Regardless, as Mike also notes, the practical impact when it comes to the availability of treble damages is likely quite limited. Noting the requirements of “willful and malicious” in the UTSA (as opposed to only “willful” or “knowing” in 93A), Mike states:

[T]he term “malicious” in the Massachusetts UTSA is to be interpreted as it would be under Massachusetts law, which has a longstanding history of equating the term malicious with the term willful: “Whatever is done wilfully and purposely, if it be at the same time wrong and unlawful, and that known to the party, is in legal contemplation malicious.” Wills v. Noyes, 29 Mass. 324, 327-328 (1832), cited in Chervin v. The Travelers Ins. Co., 448 Mass. 95, 109 (2006).

Therefore, because the term malicious under Massachusetts law is legally equivalent to the term willful, the “willful and malicious” test for triple damages under the UTSA should be the same as the “willful and knowing” test for triple damages under 93A.

Mike also notes that the same “willful and malicious” standard applies to an award of attorneys’ fees under the UTSA and that it will “make an award of attorneys’ fees under the UTSA only somewhat harder to obtain than under 93A.”

In a separate post discussing the bill, Mark Muro of the Brookings Institution takes the position that Massachusetts should limit noncompete pacts to spur growth. In a similar vein, see the June 28 article by Steven Lohr of the New York Times, To Compete Better, States Are Trying to Curb Noncompete Pacts

New York:  On June 22, New York Attorney General Eric Schneiderman concluded his year and a half  investigation of Jimmy John’s sandwich shops’ use of noncompetes with an announcement of a settlement. As a result, Jimmy John’s will no longer include sample noncompetes in the hiring packets it sends to its franchisees.

New York:  On June 15, New York Attorney General announced a settlement with Law360 (a subsidiary of LexisNexis), as a result of which, Law360 will no longer use noncompetes for its editorial employees, with the exception of top executives.  See New York Blows Up Company’s Non-Compete Policy in Warning to Employers.

Ohio:  On June 28, Abercrombie & Fitch sued a former marketing executive, Craig Brommers, who took a marketing job at the Gap. Claiming that part of Brommer’s job at Abercrombie was to differentiate its products from those of the Gap and that Brommers received confidential information to do so, Abercrombie seeks to enforce his 12-month noncompete. See Abercrombie Says Gap Poached Its Executive.

Wisconsin:  Wisconsin, one of the handful of red pencil states, is know for being generally hostile to noncompetes. Yet, maybe the tide is turning. Proposed legislation to replace the red pencil rule with the reformation rule (and other changes) aside (see Changing Trade Secrets | Noncompete Laws), a recent judicial decision took a surprisingly permissive approach in Schetter v. Newcomer Funeral Service Group, Inc. In addition to not invalidating a the arguably-overbroad noncompete (that was the surprising part), the court also found that a $1,000 payment for the noncompete was good consideration for a noncompete. For a good discussion of the case, see Fisher PhillipsJoseph Shelton‘s discussion, Wisconsin Court Throws Out Choice-of-Law Provision, Then Enforces a Non-Compete Anyway

Other Noteworthy News…