The Federal Trade Commission made headlines earlier this month with its proposed rule banning non-competes. Other news announced by the FTC the same day received less attention but has the potential to cause real headaches for employers – the settlement of three enforcement actions against companies for allegedly using non-competes in an unlawful manner.
These enforcement actions by the FTC are the first of their kind at the federal level and represent a significant expansion of the agency’s involvement in policing non-compete agreements.
While the proposed rule should be concerning to employers, it may never be adopted or could be invalidated by the U.S. Supreme Court. By contrast, the FTC’s enforcement actions on non-competes represent a new and non-theoretical compliance risk that employers must take into account immediately.
Governor Pritzker has signed a bill creating Illinois’ first comprehensive statute regulating the use of non-compete and non-solicit covenants. The law establishes bright-line, compensation-based rules regarding which employees can be required to sign such covenants and creates a mandatory pre-signature process designed to protect employees. The statute also codifies existing Illinois case law without changing it substantially.
Can a former employee be sued for violating a non-competition agreement in a State the employee has never set foot in? The answer, according to the U.S. District Court for the Northern District of Illinois in Tekway, Inc. v. Agarwal, 19-CV-6867 (Oct. 7, 2020), is quite likely “Yes” if that State is where the employer is based and the employee has “directed” conduct to that State.
In a decision that may contain some useful reminders as businesses rehire employees who were let go during the coronavirus pandemic and economic downturn, the U.S. Court of Appeals for the First Circuit recently handed down a decision affirming the denial of a former employer’s request to enforce a non-competition agreement against an employee it had terminated and then rehired. Russomano v. Novo Nordisk Inc., No. 20-1173 (Ist. Cir. June 2, 2020).
The employer did not have the employee sign a new agreement upon rehire, but instead tried to rely on the his original agreement. The First Circuit held that the non-compete ran from the date of the employee’s original termination and expired one year into his rehire, leaving him free to compete after its expiration. Continue reading →
Non-compete agreements are in the cross-hairs of both federal and state officials, who are looking to ban non-competes in many instances. Senate Bill 2614, introduced on October 16, 2019, if enacted, would outlaw most non-compete agreements as a matter of federal law. There would be a few limited exceptions. In addition, the Attorneys General of nearly twenty states and the District of Columbia have urged the Federal Trade Commission to use its rulemaking authority to end the use of non-compete clauses in employment contracts.Continue reading →
A recent decision by the U.S. Court of Appeals for the Second Circuit serves as a timely reminder of the importance of complying with Rule 65’s requirement that injunctions describe the prohibited conduct “in reasonable detail.” Fail to comply and you could find yourself with an invalid injunction.Continue reading →
Long used in the U.K., garden leave is becoming increasingly popular with employers in the United States as an alternative to traditional non-compete agreements.
Garden leave provisions take several different forms, but the key feature is that the employee is paid to sit out before starting his or her new job. The payment of compensation mitigates the impact on the employee, especially as compared to a non-compete where no payment is required and the employee may suffer a significant loss of earnings. Garden leaves are also generally shorter than non-competes—30 to 90 days—rather than one or two years as with many non-competes.Continue reading →
The Nevada Supreme Court reversed an injunction entered by a district court, when it found the employer failed to put on sufficient evidence to justify an injunction enforcing a 50-state non-compete against a former employee. Here’s what happened.Continue reading →
In the recent case of Capistrant v. Lifetouch National School Studios, Inc., No. A16-1829, 2018 BL 263415 (July 25, 2018), the Minnesota Supreme Court had occasion to consider whether a 25+ year employee’s failure to return all of his employer’s property immediately upon termination justified the forfeiture of $2.6MM in compensation. The case reminds us once again that employment agreements will not always be enforced as drafted.Continue reading →
A recent federal decision from the Northern District of Illinois again illustrates the perils of drafting and attempting to enforce overbroad restrictive covenants. In the case of Medix Staffing Solutions, Inc. v. Dumrauf, 17-cv-6648, 2018 WL 1859039 (N.D.Ill. Apr. 17, 2018)(Ellis, J.), Medix, a pharmaceutical, biotech and medical device company, attempted to enforce a non-compete agreement against its former Director, Dumrauf, who had been responsible for its medical sales and recruiting strategies and who had left to work for a direct competitor, ProLink. Continue reading →