Part 28 of the “The Restricting Covenant Series”: Worldwide Noncompete Restrictions

Grab your passports, compass and other essential travel gear, as this edition of The Restricting Covenant Series navigates through the treacherous waters of noncompete agreements and their geographic reach.

First Stop: New Jersey

Ah, the Garden State. Home to the most diners and shopping malls. Where the state bird is the American goldfinch, the state flower is the violet, but alas there is no official state song (perhaps a New Jersey native such as Bruce Springsteen, John Bon Jovi or Queen Latifah will change that). Who would ever want to leave? Well, suppose you worked for a New Jersey company that required you to sign a noncompete with a geographic restriction that prohibits you from competing in business against your employer anywhere within the entire Garden State after your employment ends (that’s right, all 365 exits and entrances on the Garden State Parkway). Could such a statewide geographic restriction be enforced? The short answer is: Maybe.

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D.C. Signs Broad Ban on Noncompetes and Anti-Moonlighting Policies

With the issuance of the D.C. Ban on Non-Compete Agreements Amendment Act of 2020 (the Act), the District joins the growing list of jurisdictions subjecting noncompetes to intense scrutiny. D.C.’s Act goes much further though, and once in effect will be one of the broadest limitations on such agreements in the country. While the Act’s precise effective date remains unclear, employers should begin reviewing their existing policies and form agreements now to ensure compliance with the sweeping prohibitions.

For the full alert, visit the Faegre Drinker website.

Top 3 Employee Mobility and Restrictive Covenant Issues to Watch For in 2021

With 2020 finally in our rearview mirror, we can begin to look ahead to a promising and prosperous 2021. As the cloud of COVID-19 starts to lift (thanks to several vaccines), we expect employers will slowly begin to reopen their offices, employees will travel more, and the job market may revert back to the low unemployment levels that predated the onset of COVID-19 in March 2020. The ever-changing landscape of restrictive covenants certainly could affect all of this employment-related activity, including non-competes and non-solicits. Here are our early predictions for the Top 3 hot-button issues to look out for in the coming year.

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Biden Proposes Nationwide Non-Compete Ban

President-Elect Biden recently released his “Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions.” His Plan states that “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, and outright ban all no-poaching agreements,” which are common in franchisor/franchisee and other arrangements. The foregoing statement is consistent with Biden’s previous comments about eliminating non-compete restrictions and no-poaching agreements while on the campaign trail, as well as with the Obama administration’s call for states to ban non-compete agreements.

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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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