Trade Secret / Noncompete : Business, Employment, Intellectual Property, and Litigation Attorneys Focused on Trade Secret/Noncompete Issues

It is official:  The Massachusetts noncompete bill (of which I am the principal draftsperson) has been reported out of committee.  A copy is available here or by clicking on the picture to the right.

Upon a quick read, it appears that garden leave clauses have been removed.  Otherwise, the bill remains largely the same as the September version of the so-called "compromise bill."  More to follow after a more thorough review.

Other changes are likely, particularly as we have received some outstanding input from many different people since the bill was initially submitted to committee.

For more information, please contact either of the two state representatives who have been leading the charge - Lori Ehrilich and Will Brownsberger - or me.  (Click on our names for our information.)

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On October 7, the Massachusetts legislature's Joint Committee on Labor and Workforce Development will conduct a hearing on the two noncompete bills sponsored, respectively, by Representatives Lori Ehrlich and Will Brownsberger. While those two bills are technically before the Committee, there is a third bill that reflects a joint effort by the two legislators, which is likely to be the focus of the hearing. The representatives initially made a draft available for public comment in July. Since then, there have been many meetings, emails, and other communications providing input on the draft. We have made an effort to consider them all in drafting the revisions to the July version. We also made an effort to structure the bill in as straightforward a manner as possible, given the complicated nature of the issues and the many interests to be balanced. As before, we have striven to achieve an appropriate balance of protections and incentives to both employers and employees, and make it easier for both sides to predict the outcome of any potential dispute, thereby reducing the need to resort to the courts for resolution of such disputes. The current draft (including changes through September 28) is available here.

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We are pleased to announce a free five part web series entitled, "Trade Secrets and Noncompete Agreements: What You Need to Know."  The series covers the topics below.  For more information please click here or visit Foley.com.  To register, click here. 
 

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Sometimes as a discussion progresses, the details become obscured or lost altogether.  The discussions about noncompete agreements are no exception.  So, below are some definitions with which people should be familiar:

Common Types of Agreements:

• Restrictive covenant:  An agreement that limits a party's ability to perform similar work.  Generally, people think of the limits as applying after the parties' relationship ends, but typically the restrictions apply during the term of the contract as well.  (The reason for the post-contract focus is that the parties' interests are more likely to diverge at that point.)
• Noncompete agreement (also known as "noncompetition agreements"):  A type of restrictive covenant in which the applicable limitation precludes a party from providing services to a competitor of the other party.  These agreements can arise in many contexts (sale of a business, independent contractor agreements, partnerships, etc.), but most often arise in the employment context.  (Those that arise in the employment context are commonly referred to as "employee noncompete agreements.")
• Garden leave clause:  a type of employee noncompete agreement for which the employer compensates the employee while the employee is restricted from competitive activities.  There are two types: one in which employment continues during the restricted period (essentially the employee is required to provide a minimum amount of notice of resignation); one in which the employment terminates and the restrictive period begins.  For more on the garden leave clause, see Christi Adams' post, Garden Leaves.
• Forfeiture-for-competition agreement:  a form of employee noncompete agreement by which an employee forfeits certain benefits if he engages in activities that are competitive with his former employer.
• Compensation-for-competition agreement:  a form of employee noncompete agreement by which an employee pays his former employer (sometimes a percentage of the revenues from the competitive activities) if he engages in activities that are competitive with his former employer.  (This agreement can be viewed as a form of forfeiture-for-competition agreement, insofar as the employee forfeits some of the compensation for competitive activities.)
• Forfeiture agreement:  an agreement by which an employee forfeits benefits when his employment terminates - regardless of whether he engages in competitive activities.
• Nondisclosure/confidentiality agreement:  an agreement by which an employee agrees not to use or disclose an employer's confidential information.
• Nonsolicitation agreement:  an greement by which an employee agrees not to solicit - and, if well drafted, not to accept - business from the employer's customers.
• Antipiracy agreement:  an agreement by which an employee agrees not to solicit - and, if well drafted, not to hire - the employer's employees.
• No-hire agreement:  a type of antipiracy agreement by which a party agrees not to hire the other party's employees.
• Invention assignment agreement:  an agreement by which an employee assigns to the employer any potential inventions conceived of during employment.  (Typically, the inventions are only those that somehow relate to the work of the employer.)

For more information on these agreements, see, Beyond the noncompete. 

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In these extraordinary economic times, many employers are learning to think outside of the box and explore employment arrangements that may be new to the United States. Many employers are familiar with restrictive covenants such as noncompetition agreements and non-solicitation agreements. However, if the employer's objective is to delay the employee's termination of employment for a short period of time, there is another option available that may assist the employer. The employer may consider using a "garden leave" provision.

There are two types of garden leave clauses: one in which an employee is paid to "sit in the garden" and not compete for a post-employment period (essentially a noncompete agreement with pay); and another that restricts when employees may resign their employment by requiring that the employees provide a minimal amount of notice before their resignation becomes effective. As to the latter, once employees provide notice of their resignation the employees may continue to work in order to transition job responsibilities to their replacements, or the employers may immediately relieve the employees of their responsibilities and continue to compensate the employees for their time. 

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This is the inaugural posting to Foley & Lardner LLP's Trade Secret/Noncompete Blog.  And, what better way to kick it off than with an announcement of a symposium about whether noncompete and trade secret laws need overhauling?  The symposium will be held at the Boston Bar Association (and simulcast through WestLegalEd) on July 22, 2009, from 4:00 to 6:00 p.m.

The panel's analysis and discussion will focus on relevant pending legislation in Massachusetts.  Those bills are as follows:

1. A bill to abolish noncompetes presented by State Representative William Brownsberger.
2. A bill to codify, clarify, and to modify the current common law presented by State Representative Lori Ehrlich.
3. A bill to adopt a version of the Uniform Trade Secrets Act presented by State Representative Daniel E. Bosley.

Massachusetts, however, is not alone in its recent review of these areas of law.  Several states (including, for example, Georgia, Idaho, Illinois, and Oregon) have been considering, or have recently adopted, noncompete legislation, and many recent judicial decisions have made significant clarifications to the laws of various states.  Accordingly, and with myriad reports of noncompete litigation on the rise, the issue should prove to be an important one.

The panelists will be:

• State Representative William N. Brownsberger, Esq.
• Russell Beck, Esq., Foley & Lardner, LLP, drafter of the bill presented by Rep. Ehrlich and author of the book,  Negotiating, Drafting, & Enforcing Noncompetition Agreements & Related Restrictive Covenants (3^rd ed. MCLE 2009).
• Stephen Y. Chow, Esq., Burns & Levinson LLP, symposium organizer and drafter of the bill presented by Rep. Bosley.
• Michael L. Rosen, Esq., Foley Hoag LLP, author of the Massachusetts Noncompete Law Blog. Hon. Gordon L. Doerfer (Ret.), JAMS, moderator.
• Dr. Matthew Marx, MIT Sloan School, investigator on longitudinal study of electrical engineer parties to non-compete agreements.
• Mr. Scott Kirsner, "Innovation Economy" columnist, Boston Globe

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