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 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…

Trade Secret | Noncompete – Issues and Cases in the News – May

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

Federal:  The president has until Saturday to sign or veto the DTSA. “[D]escribed as the ‘most significant expansion of federal law in intellectual property since the Lanham Act in 1946,’” see Congress May Be About to Shake Up Trade Secret Law: Is That a Good Thing?the DTSA will provide federal court access without diversity of citizenship and the express ability to obtain ex parte seizure orders (albeit only in extraordinary circumstances) to protect trade secrets. For more, see Jim Pooley‘s guest post on PatentlyO: What you need to know about the amended defend trade secrets act.

Federal:  On March 31, 2016, the United States Department of the Treasury issued a report entitled, “Non-compete Contracts: Economic Effects and Policy Implications.” As the Treasury Department explains, the “report seeks to begin a discussion of potential reforms in the usage of non-compete agreements.” The report is a substantial effort and worth a read (and not just because it relies in part on my 50 State Noncompete Survey!).

6th Circuit:  It’s a common theme: employees secretly competing through a company they created and worked for while employed by their “real” employer. In a recent case in Michigan, the two defendants formed a competing company using their wives’ names. (I’ve seen the same consciousness of guilt result in the competing company ostensibly owned by the employee’s son.) See Sixth Circuit Affirms $3.7 Million Award And Permanent Injunction In Trade Secret/Breach Of Duty Of Loyalty Case.

9th Circuit: Forum selection clauses have received a lot of attention since the Supreme Court’s 2013 decision in Atlantic Marine Construction Company, Inc. v. United States District Court for the Western District of Texas, 134 S.Ct. 568 (2013), discussed here. In a 2016 decision by the 9th Circuit in In re Orange, S.A. v. United States District Court for the Northern District of California, San Francisco, the court held that a nondisclosure agreement’s forum selection clause did “not cover trade secret misappropriation and related claims that are not based on the agreement.” See 9th Circuit: Claims proceed in California despite French forum selection clause.

Connecticut:  On April 27, 2016, the Connecticut Senate passed a bill (S.B. No. 351) to restrict the duration, geographic reach, and scope of physician noncompetes. The vote was 35-1. The bill has now progressed to the House. Thank you to Jeffers Cowherd for noting the vote.

North Carolina:  As Caitlin M. Goforth of Poyner Spruill reports, in a recent case in North Carolina, Beverage Sys. Of the Carolinas, LLC v. Associated Beverage Repair, LLC, the North Carolina Supreme Court rejected the efforts of two companies to expressly authorize the court to reform their noncompete, rather than rely only North Carolina’s blue-pencil approach. (Note that the case was not the employment context, but rather in the B2B context, where courts tend to be more permissive of the parties’ noncompete agreements.)

Rhode Island:  Rhode Island (unlike a handful of states including in particular Delaware, Massachusetts, and Illinios) does not have a statutory exemption to its noncompete laws for physicians. In an unusual move, despite the fact that the legislature has not declared physician noncompetes unenforceable, a Rhode Island state Superior Court judge refused to enforce a noncompete against a physician on public policy grounds (under the injunction standards, which consider injury to the public). The case is Medicine and Long Term Care Associates, LLC v. Khurshid, 2016 WL 1294194 (R.I. Super. Ct. Mar. 29, 2016).

Other Noteworthy News…

Don’t forget to check Changing Trade Secrets | Noncompete Laws for coverage of all major developments nationally and internationally. 

Idaho Noncompete Reform: Senate Passes Bill

Wikimedia Commons

Updated (updates in italic)

On March 22, 2016, the Idaho Senate voted 22-13 to pass a bill (H487) to modify Idaho noncompete law. (This follows the March 14 vote by the House to pass the bill 40-27-3.) On March 25, the bill was delivered to the governor.

The bill would amend Idaho noncompete law by limiting noncompetes to 18 months, where the only consideration is employment or continued employment. It would also create several rebuttable presumptions: (1) a duration of 18 months or shorter is reasonable; (2) a geographic area that “is restricted to the geographic areas in which the key employee or key independent contractor provided services or had a significant presence or influence” is reasonable; (3) if the scope of the restriction is limited to “the type of employment or line of business conducted by the key employee or key independent contractor while working for the employer” it is reasonable; (4) an employee who is “among the highest paid five percent (5%) of the employer’s employees or independent contractors is a ‘key employee’ or a ‘key independent contractor’” is reasonable; and (5) an employee who is in breach is causing irreparable harm to the employer. The latter two presumptions are rebuttable only if the “employee or independent contractor . . . show[s] that it has no ability to adversely affect the employer’s legitimate business interests.”

Idaho, following Utah, may be the second state this year to change its noncompete laws.

Thank you to Betsy Russell for calling this out.

BRR 50-State Noncompete Chart (updated for Utah)

World MapThe BRR 50 State Noncompete Chart has been updated to reflect a recent update in Utah law (which will take effect on May 10, 2016). Click here to get the latest version.

Please note that the chart has been revised through today, March 25, 2016.

Utah Noncompete Reform and What it Means

Utah - Wikimedia Commons
Wikimedia Commons

On March 22, 2016, Utah passed the Post-Employment Restrictions Act.

Under the Act, all new noncompete agreements executed on or after May 10, 2016, are restricted to one year; any agreement that violates this limit is void. Section 34-51-201.

The Act does not operate retroactively (section 34-51-201), nor does it apply to nonsolicitation agreements or nondisclosure agreements (section 34-51-102 (1)(a)). It also excepts from its purview “reasonable severance agreement[s] mutually and freely agreed upon in good faith at or after the time of termination that includes a [noncompete]” (section 34-51-202(1)) and noncompetes “arising out of the sale of a business, if the individual subject to the restrictive covenant receives value related to the sale of the business” (section 34-51-202(2)).

The Act also provides that the employer is liable for the employee’s attorneys’ fees, costs, and damages if “it is determined that the post-employment restrictive covenant is unenforceable . . . .” Section 34-51-301.

There will be quite a few things to sort out, not the least of which is what does it mean to be “determined that the post-employment restrictive covenant is unenforceable”? For example, what if the agreement is reformed and then enforced? Similarly, what is a “reasonable severance agreement”? And what amount and type of “value” will suffice in a sale of business? How judges handle these and other questions will be interesting to watch.

Time will tell.

The full text is here:


Part 1. General Provisions

34-51-101. Title.

This chapter is known as the “Post-Employment Restrictions Act.”

Section 2. Section 34-51-102 is enacted to read:

34-51-102. Definition.

As used in this chapter:

(1) (a) “Post-employment restrictive covenant,” also known as a “covenant not to compete” or “noncompete agreement,” means an agreement, written or oral, between an employer and employee under which the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes, or services that are similar to the employer’s products, processes, or services.

(b) “Post-employment restrictive covenant” does not include nonsolicitation agreements or nondisclosure or confidentiality agreements.

(2) “Sale of a business” means a transfer of the ownership by sale, acquisition, merger, or other method of the tangible or intangible assets of a business entity, or a division or segment of the business entity.

Section 3. Section 34-51-201 is enacted to read:

Part 2. Scope of Post-Employment Restrictions

34-51-201. Post-employment restrictive covenants.

     In addition to any requirements imposed under common law, for a post-employment restrictive covenant entered into on or after May 10, 2016, an employer and an employee may not enter into a post-employment restrictive covenant for a period of more than one year from the day on which the employee is no longer employed by the employer. A post-employment restrictive covenant that violates this section is void.

Section 4. Section 34-51-202 is enacted to read:

34-51-202. Exceptions.

(1) This chapter does not prohibit a reasonable severance agreement mutually and freely agreed upon in good faith at or after the time of termination that includes a post-employment restrictive covenant. A severance agreement remains subject to any requirements imposed under common law.

(2) This chapter does not prohibit a post-employment restrictive covenant related to or arising out of the sale of a business, if the individual subject to the restrictive covenant receives value related to the sale of the business.

Section 5. Section 34-51-301 is enacted to read:

Part 3. Remedies

34-51-301. Award of arbitration costs, attorney fees and court costs, and damages.

     If an employer seeks to enforce a post-employment restrictive covenant through arbitration or by filing a civil action and it is determined that the post-employment restrictive covenant is unenforceable, the employer is liable for the employee’s:

(1) costs associated with arbitration;

(2) attorney fees and court costs; and

(3) actual damages.