Changing Trade Secrets | Noncompete Laws

Changing Trade Secrets | Noncompete Laws

Hand WritingThe Changing Landscape of Trade Secrets Laws and Noncompete Laws Around the Country

JULY 12, 2022: We have now updated and revamped this page to make it more useful. 

Context for Noncompete and Trade Secret Legislation and Regulation

For over two hundred years, trade secret laws and noncompete laws have been the product of state law. Since May 11, 2016, we have also had a federal private right of action for trade secret misappropriation under the Defend Trade Secrets Act of 2016. And, if some federal legislators have their way, there will be a federal noncompete law (see below).

These laws — especially noncompete laws — are in a constant state of flux, particularly in the past several years. As such, no surprise, we have 50 variations of each (really 52, when you factor in DC and federal law).

On the noncompete side, although there is constant talk of banning noncompetes (and many states have had bills to do precisely that), only 3 states prohibit employee noncompetes altogether. They are California, North Dakota, and Oklahoma. (No, Montana does not ban noncompetes.)

Charts reflecting the differences among how each of the 50 states (plus D.C.) handle noncompetes and trade secrets are available here (noncompetes) and here (trade secrets). Note that these charts are updated as new developments arise.

Given how hard it can be to stay on top of the recent developments in each state (as well as at the federal level, not to mention international changes) and the absence of any aggregation of this information elsewhere, we have dedicated a separate page to the current status of developments in trade secrets laws and noncompete laws around the country.

While updates will continue regularly in our blog posts, this page is intended to serve as an ongoing resource for people to easily find all of the important developments in one place. Although the focus will be on the United States, important international developments will sometimes be included as well.

The summaries are (sort-of) color coded for the nature of the bill (ban, modification or establishment of standards, reversal of prior changes) and the groups for whom it creates exceptions or specific limitations (medical personnel, low-wage workers, others).

Please consider this page to be a work in progress, as the laws are ever-changing. So, please check back regularly. And, a huge thank you to Erika Hahn for all of her extraordinary help in tracking the state and federal bills and developments.

Federal [Trade Secrets and Noncompetes]

Current status

Despite many efforts, there has been no legislation or regulation of employee noncompetes at the federal level. (The Federal Trade Commission has required some noncompetes to be eliminated as a condition of approving mergers, but it has not addressed noncompetes generally.)

Background

On the trade secret side, the Defend Trade Secrets Act of 2016 (commonly referred to as the “DTSA”), a bill to create a federal private right of action for the protection of trade secrets, was – with some amendments, including in connection with the inevitable disclosure doctrine – reported out of the Senate Judiciary Committee at the end of January 2016. Bloomberg BNA has a terrific summary here: Senate Judiciary Committee OKs Federal Trade Secret Bill.

Testimony was taken back in December 2015, and is available here. Persons appearing to testify were: Karen Cochran, Chief Intellectual Property Counsel at E.I. DuPont de Nemours and Company, Tom Beall Vice President and Chief Intellectual Property Counsel at Corning Incorporated, James Pooley, a leading trade secrets expert, and Sharon Sandeen, Professor of Law at Hamline University School of Law. In addition, a letter was submitted in lieu of live testimony by a number of trade secrets practitioners (myself included) around the country. That letter is available here.

On March 7, 2016, the Senate Committee on the Judiciary reported favorably on the Defend Trade Secrets Act of 2016 bill (S. 1890) and issued a report detailing its reasons.

On April 4, 2016, the Senate voted unanimously to approve the DTSA.

On April 20, the House Judiciary Committee voted to approve the DTSA without amendment. As Reuters has reported, “The House version of the bill has more than 120 sponsors, but the House Judiciary Committee has not yet considered it and it was not clear whether it would act in coming months.”

On April 27, 2016, the United States House of Representatives joined the Senate in voting in favor of the DTSA. Not quite unanimous like the Senate, but almost, the House voted 410-2 to approve.

On May 11, 2016President Obama signed the DTSA into law. The DTSA “has been described 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? Given that so much has been written about it, I will not repeat the details. However, the House Judiciary Committee has a detailed report (here), my post (Defend Trade Secrets Act and What it Means) is hereBen Fink’s summary of the amendments is in Federal Trade Secrets Law Takes Another Step Toward Reality, and Dennis Crouch’s What you need to know the Amended Defend Trade Secrets Act on PatentlyO.

On June 28, 2017 (which was about a year ahead of time), Timothy Lau, on behalf of the Federal Judicial Center, produced the best practices report mandated by the the DTSA: Trade Secret Seizure Best Practices Under the Defend Trade Secrets Act of 2016. Definitely worth a read!  

On the noncompete side, the first federal legislative efforts to restrict noncompetes trace back to three bills filed in 2015. The first (the “Mobility and Opportunity for Vulnerable Employees Act” or “MOVE Act“), filed by Senator Chris Murphy (D-CT) and co-sponsored by then-Senator Franken and Senators Elizabeth Warren (D-MA), Richard Blumenthal (D-CT), and Sheldon Whitehouse (D-RI), sought to prohibit the use of noncompetes for “low-wage employees,” i.e., employees earning the greater of (subject to inflation) $15 per hour or the applicable state or local minimum wage rate or $31,200 per year, but excluding any salaried employee earning (subject to inflation) more than $5,000/month for 2 consecutive months. The other two were the “Limiting the Ability to Demand Detrimental Employment Restrictions Act” (the “LADDER Act”), which was very similar to the MOVE Act (but limited somewhat the definition of the employees that are considered low-wage employees), and the “Freedom for Workers to Seek Opportunity Act” (“FWSOA”), which although not having quite as catchy an acronym as the MOVE Act or the LADDER Act, won on creativity in that it sought to ban the use of noncompetes for grocery store workers (only). None of these bills passed.

On May 5, 2016, the White House released a report on the overuse and misuse of noncompetes: Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.

On March 26, 2016, the U.S. Department of the Treasury, Office of Economic Policy released Non-compete Contracts: Economic Effects and Policy Implications, finding both overuse and misuse of noncompete agreements. In response to the two reports, President Obama convened a small working group to determine how to address the findings of the reports. I was invited to (and did) participate in that small working group.

On October 25, 2016, President Obama released the product of the working group: “Non-Compete Reform: A Policymaker’s Guide to State Policies” and a Call to Action on noncompetes. (For details, see White House Releases Noncompete Call to Action.)

In April 2018, Senators Elizabeth Warren (D-MA), Chris Murphy (D-CT), and Ron Wyden (D-OR) introduced the Workforce Mobility Act of 2018 (S. 2782) to impose a federal ban on the use of employee noncompetes. A companion bill (H.R. 5631) was introduced in the House by Representatives Joseph Crowley (D-NY), Linda Sanchez (D-CA), Mark Pocan (D-WI), Keith Ellison (D-MN), Jerrold Nadler (D-NY), and David Cicilline (D-RI), who were later joined by Janice Schakowsky (D-IL), and Alan Lowenthal (D-CA). The two bills were largely the same, although they differed in some respects, including that the Senate version instructed the Secretary of Labor to enforce the law and provided for civil penalties, while the House bill added that such contracts violate antitrust laws absent a showing by the employer to the contrary. That legislative session ended without action on either bill.

In January 2019Senator Marco Rubio introduced the “Freedom to Compete Act” to amend the Fair Labor Standards Act of 1938 (29 U.S.C. 201, et seq.) to ban noncompetes for most nonexempt workers. And, in October 2019, Senator Chris Murphy (D-CT) and Senator Todd Young (R-IN) filed the Workforce Mobility Act to ban the use of virtually all employee noncompete agreements. Neither of these bills passed.

On October 29, 2019, the United States House Committee on the Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law, held a hearing on “Antitrust and Economic Opportunity: Competition in Labor Markets” that seemed to be looking to the FTC for action. (A summary is available here.)

On November 19, 2019, the United States Senate Committee on Small Business and Entrepreneurship held a hearing on “Noncompete Agreements and American Workers.” (A summary is available here along with written testimony that I with the help of Erika Hahn submitted in response.)

On January 9, 2020, the FTC held a full-day workshop on noncompetes and related issues. In response to a request for submissions to address a series of questions, I and 22 others promptly submitted a letter to provide answers. Shortly after, COVID hit and the investigation (seemingly) paused.

On July 22, 2020, Senators Elizabeth Warren and Chris Murphy sent a letter to the FTC asking the FTC what actions it has taken to regulate noncompetes, and requesting a response by August 4, 2020. No public response was provided.

In December 2020, President Biden identified noncompete reform as part of his platform. The details were uncertain, but the stated policy was that, “[a]s president, Biden will work with Congress to eliminate all non-compete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets . . . . ”

On February 25, 2021, another version of the Workforce Mobility Act (S.843) was introduced. This time it was Senators Chris Murphy (D-Conn.), Todd Young (R-Ind.), Kevin Cramer (R-N.D.) and Tim Kaine (D-Va.). Simultaneously, Congressman Scott Peters (D-CA-52) filed an analogue bill (H.R.1367) in the House. (For a detailed history, see Federal Noncompete Initiatives: When you can’t convince the states, ask the feds.) The act proposed a complete ban on all employee noncompetes.

On May 20, 2021The VA Hiring Enhancement Act ((H.R.3401) was introduced to the House to void noncompetes for physicians going to work at VA hospitals.

On July 9, 2021, President Biden issued an “Executive Order on Promoting Competition in the American Economy” in which he “encouraged [FTC Chair Lina Khan] to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” In response, I and 58 others promptly submitted a letter to the White House and FTC. (See Ask 59 Trade Secret Lawyers and Paralegals About Noncompetes and Get One Opinion.)

On July 15, 2021, Freedom To Compete Act (S.2375) was reintroduced to ban noncompetes for workers who are not exempt under the Fair Labor Standards Act.

On November 3, 2021, the “Employment Freedom for All Act” (H.B.5851) was introduced in the House by U.S. Congresswoman Claudia Tenney to “void existing non-compete agreements for any employee who is fired for not complying with an employer’s COVID-19 vaccine mandate, and for other purposes.”

On November 12, 2021, the FTC posted a draft Strategic Plan for Fiscal years 2022-2026. That plan contained two express references to noncompetes and some other language that seems aligned with President Biden’s Executive Order. (For more information, see The FTC’s Draft Strategic Plan: What it says about noncompetes and other restrictive covenants.)

On November 30, 2021, the FTC Whistleblower Act of 2021 (H.R.6093) was introduced to void noncompetes for whistleblowers to the FTC.

Next, on December 6 and 7, 2021, the FTC and DOJ held a virtual workshop, “Making Competition Work: Promoting Competition in Labor Markets.” During the workshop, they considered, among other things, possible regulation of noncompetes, no-poach agreements, nondisclosure agreements, and training repayment agreements, among other things. (See New Vigor at the FTC and DOJ to Ban Noncompetes for a summary of the Workshop.) The FTC and DOJ encouraged the submission of public comments following the workshop. I, along with 69 other lawyers and paralegals, submitted a supplemental letter in response.

Related to noncompetes, though not technically a noncompete, other federal legislation has been proposed to addresses other restrictive covenants (no-poach agreements — also typically the province of the states): In March 2018Senator Cory Booker (D-NJ) and Senator Elizabeth Warren (D-MA) introduced the End Employer Collusion Act (S.2480), which would have made it unlawful for two or more employers to enter an agreement prohibiting one of them from soliciting or hiring the other’s employees or former employees. The bill allowed aggrieved individuals to bring a civil action for actual and punitive damages and attorney’s fees against an entity that enters into, or threatens to enforce, an agreement that violates the act. The bill also would have granted the Federal Trade Commission the power to enforce. The bill was immediately referred to the Committee on Health, Education, Labor, and Pensions. A companion bill (HB 5632) was introduced in April 2018, by Representative Keith Ellison (D-MN), Representative Jerrold Nadler (D-NY), Representative David Cicilline (D-RI), Representative Joseph Crowley (D-NY), and Representative Steve Cohen (D-TN) and was immediately referred to the Committee on Education and the Workforce, and in addition to the Committees on Energy and Commerce, and the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned. In May 2018, it was referred to the Subcommittee on Regulatory Reform, Commercial And Antitrust Law. Both bills ultimately died.

State Changes

Since 2011, 28 states (plus Washington, D.C.) have changed their noncompete laws. They are set out below in alphabetical order by state, along with links to more details. A chronological list is available here.

For a visual, these are the states with changes:

Alabama adopted a new noncompete statute that included a presumption that a two-year noncompete is reasonable  and requires mandatory judicial reformation (January 1, 2016).

Arkansas made sweeping changes to its noncompete statute (August 6, 2015).

California adopted choice of forum and choice of law requirements (January 1, 2017).

Colorado updated its misdemeanor law, impacting noncompetes (March 1, 2022) and made sweeping changes to its noncompete law (August 10, 2022).

Connecticut banned physician noncompetes (July 1, 2016).

Florida banned noncompetes for specialist physicians in certain underserved communities (June 26, 2019).

Georgia amended its noncompete law — and constitution — to permit courts to modify overly broad noncompete agreements (May 11, 2011).

Hawaii banned noncompetes for technology workers (July 1, 2015).

Idaho added a presumption of irreparable harm if a key employee breached their noncompete (March 30, 2016) and then removed the presumption (March 28, 2018).

Illinois banned noncompetes for low-wage workers (January 1, 2017); made sweeping changes to its noncompete laws (January 1, 2022); and imposed limits on noncompetes for nurses and certified nurse aides (July 1, 2022).

Indiana imposed limits on noncompetes for physicians (July 1, 2020).

Iowa imposed limits on noncompetes for healthcare employment agency workers (July 1, 2022).

Kentucky prohibited professional employer organizations from interfering with noncompetes (March 29, 2022) and imposed limits on noncompetes for direct care staff of healthcare service agencies (April 8, 2022).

Louisiana allowed the use of noncompetes to prohibit shareholders, partners, LLC members, franchisees, and franchise employees from competing, even if they are just employeesi.e., not owners – of the competitor (August 1, 2020).

Maine banned noncompetes for low-wage workers, required advance notice for a noncompete, imposed a six-month minimum period of employment, imposed a $5,000 per violation fine (September 18, 2019).

Maryland banned noncompetes for low-wage workers (October 1, 2019).

Massachusetts made sweeping changes to its noncompete law (October 1, 2018).

Nevada adopted a brand new noncompete law (June 3, 2017) and banned noncompetes for hourly workers (October 1, 2021).

New Hampshire banned physician noncompetes (August 5, 2016) and banned noncompetes for low-wage workers (September 8, 2019).

New Mexico banned employee noncompetes for dentists, physicians, podiatrists, osteopathic physicians, and certified registered nurses (July 1, 2015).

North Dakota modified its prohibition of employee noncompete to permit noncompetes in connection with the sale of limited liability companies and corporations (March 28, 2019)

Oregon shortened the maximum duration of a noncompete to 18 months (January 1, 2016); banned noncompetes for home care and personal support workers (January 1, 2018); required employers to provide employees with a signed copy of their noncompete within 30 days after termination of employment (January 1, 2020); and established a new low-wage threshold, made agreements that violated the statute void (instead of voidable), and shortened the maximum duration to one year (January 1, 2022).

Rhode Island banned physician noncompetes (July 12, 2016) and banned noncompetes for low-wage workers (January 15, 2020).

Tennessee removed a ban on noncompetes for physicians who had been working for the employer for six years of more (January 1, 2012).

Utah limited noncompetes to one year (May 10, 2016); banned noncompetes for low-wage workers in the broadcast industry (May 8, 2018); and changed the maximum term for noncompetes in the broadcasting industry (May 14, 2019).

Virginia banned noncompetes for low-wage workers and required certain notices (July 1, 2020).

Washington made sweeping changes to its noncompete law (January 1, 2020).

Washington, D.C. made sweeping changes (about to be amended — details to follow) to its noncompete law (projected: October 1, 2022).

West Virginia limited physician noncompetes to one year and thirty miles (July 1, 2017).