This week the White House issued a statement encouraging state lawmakers to ban non-compete agreements for workers who: (i) fall below certain wage thresholds; (ii) likely do not possess trade secrets; (iii) work in occupations related to public health and safety; or (iv) would suffer “undue adverse impacts” from being limited by a non-compete (such as those terminated without cause). The White House further encouraged states to require that non-compete agreements be presented to employees before a job offer or a significant promotion has been accepted so that it can be considered as part of the offer.
According to the White House, “[i]n adopting these strategies, states can help ensure that workers can move freely from job to job, without fear of being sued … Even in states that choose to enforce noncompetes, we have heard from experts that only in rare cases is a noncompete the best option for an employer to use, over and above the host of other legal frameworks — including trade secret protections, nonsolicitation agreements and nondisclosure agreements.” State officials from a number of states, including Illinois, released statements supporting the White House’s announcement.
It remains to be seen whether any states follow the White House’s suggestion and enact they types of provisions being recommended. We will keep you updated on any developments.
Under the new Illinois Freedom to Work Act, Illinois employers cannot impose non-compete agreements on “low wage employees.” The Act comes in response to growing concerns and lawsuits over non-compete agreements imposed on employees by certain fast-food companies. Effective January 1, 2017, the Act defines a “low wage employee” as any employee who earns the greater of (1) the hourly minimum wage under federal (currently $7.25 per hour), state (currently $8.25 per hour) or local law (currently $10.50 per hour in Chicago) or (2) $13.00 per hour. The Act defines a non-compete agreement as an agreement between an employer and a “low-wage employee” that restricts such low-wage employee from performing:
- any work for another employer for a specific period of time;
- any work in a specified geographical area; or
- work for another employer that is similar to such low-wage employee’s work for the employer included as a party to the agreement.
The Act does not specifically ban non-solicitation agreements with low-wage employees, in which the employee promises not to solicit employer customers or employees. This will likely be answered in future litigation … stay tuned.
Similarly, the New York Attorney General has been extremely critical of non-competes for low-wage employees, and has publicly announced various monetary settlements with employers who required low-level employees to sign non-competes as a condition of employment. Employers with New York operations should be very wary of requiring low-wage workers to sign such agreements, and are encouraged to consult counsel before doing so.
On Wednesday, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). The DTSA sets a single national standard for trade secret protection and gives the option of bringing trade secret cases in federal court and provides for remedies (such as seizure and recovery of stolen trade secrets). The DTSA also creates whistleblower protections for employees who disclose trade secrets to an attorney or governmental official for the purpose of reporting or investigating a suspected violation of law. But most urgently for employers, the DTSA contains a new notice requirement that employers need to take action quickly to satisfy.
Effective immediately, any new or updated agreements with employees, consultants or independent contractors that govern trade secrets or confidential information need to include a “notice-of-immunity.” The notice may be provided via reference to a general policy document rather than restating the entire immunity provisions in each agreement. An employer that fails to provide this notice will forfeit their right to exemplary double damages and attorneys’ fees in an action brought under the DTSA.
Employers wishing to take advantage of the DTSA’s protections need to revise their standard agreements and ensure that any agreement provided on or after May 11, 2016 includes the required notice-of-immunity. We recommend that you consult with legal counsel to ensure compliance with this new requirement.