Ixchel Pharma, LLC v. Biogen, Inc.: Opening the Door to Non-Compete Agreements Between Businesses in California

In a recent decision, Ixchel Pharma, LLC v. Biogen, Inc.,[1] the Supreme Court of California opened the door for some restrictive covenants between commercial enterprises, but it left alone California law generally prohibiting post-employment restrictive covenants with employees.
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Part 27 of the “The Restricting Covenant Series”: Disgorgement

Most of the action in restrictive covenant cases occurs in the beginning of the litigation at the temporary or preliminary injunction stage when a company seeks to stop someone from doing something immediately.  However, after the dust settles and the case moves forward to discovery and trial, money damages often take center stage.  There are different types of monetary relief that might be available to a company that is harmed by a former employee’s unlawful competitive conduct – compensatory, liquidated, equitable, or punitive, to name a few.  This edition of The Restricting Covenant Series discusses a potentially potent form of equitable monetary relief in restrictive covenant and duty of loyalty cases – disgorgement of an employee’s compensation based on that employee’s competitive and disloyal conduct.
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California Non-Compete and Trade Secret Catch-Up

Non-Competes

California is notorious in the non-compete world for its prohibition and extreme scrutiny of individual non-compete and other types of restrictive covenant agreements. These types of agreements between two businesses, however, have received less attention.

In August, the Supreme Court of California in Ixchel Pharma, LLC v. Biogen, Inc., 470 P.3d 571, 573 (Cal. 2020), examined an agreement between two businesses and found “that a rule of reason applies to determine the validity” of business-to-business non-compete agreements. While some commentary on Ixchel has examined the validity of business-to-business non-compete agreements, the larger focus of the Ixchel case was “whether contractual restraints on business operations or commercial dealings are subject to a reasonableness standard under [California Business and Professions Code] section 16600.” Id. at 581 (emphasis added). It is important to note that the Ixchel court reiterated California’s strong position that agreements not to compete related to the termination of employment are invalid and not subject to a reasonableness test. Id. at 583-584. The Ixchel court adopted the reasonableness standard from the Cartwright Act (California’s antitrust law which generally assesses whether an agreement promotes or suppresses competition) for application to business-to business non-competes and further stated that its decision potentially affects all California contracts “that in some way restrain a contracting party from engaging in a profession, trade, or business.” Id. at 581, 588.

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The Impact of COVID-19-Related Factors on Courts’ Enforcement of Employee Post-Employment Restrictive Covenants

In the best of economic times, some courts can be reluctant to grant immediate injunctive relief and enjoin an employee from working in order to enforce employee post-employment restrictive covenants. Now that we are in the midst of a global pandemic and an economic recession, that challenge has grown. Current economic considerations are causing some courts to weigh the “balance of harms” on injunctive relief applications in favor of employee defendants who are faced with the difficulty of finding other work in an economic downturn with high unemployment. Nevertheless, our review of recent decisions from around the country indicates that courts remain willing to consider injunction motions on an emergent basis to enforce restrictive covenants, particularly where there is a threat of trade secret misappropriation.

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State & Local Employment Law Developments: Q3 2020

State and local governments are increasingly regulating the workplace. Although it is not possible to discuss all state and local laws, this update provides an overview of recent and upcoming legislative developments to help you and your organization stay in compliance. (Please note that developments specifically related to COVID-19 are not included.) This quarter, state and local legislatures were particularly active in passing laws addressing employee classification, sexual harassment training, lactation accommodation, criminal background inquiries and a variety of unpaid and paid leaves.

For the full alert, visit the Faegre Drinker website.

Part 26 of “The Restricting Covenant” Series: COVID-19 Edition

The global COVID-19 pandemic continues to impact employers and their employees’ work activities in a variety of ways.  Millions of workers have been terminated, laid off or furloughed.  Companies have shifted to remote workforces either partially or completely.  Courts around the country continue to grapple with suspended or stayed proceedings.  This pandemic is presenting some unique challenges and complications to many areas of the law, including restrictive covenant law, as discussed in this COVID-19-themed edition of The Restricting Covenant Series.

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