Category Archives: Restrictive Covenants

New Defend Trade Secrets Act Requires Notice in Employee Agreements

pillarsOn 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.

 

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The Courts Continue to Debate Restrictive Covenant Enforcement in Illinois – UPDATED 2/20

From time to time, other attorneys with our firm will contribute blog posts on items that may be of interest to members of the labor and employment law community. Today, we are fortunate to have a post contributed by Jason Hirsh, a partner in Levenfeld Pearlstein’s Litigation Group. Jason’s post discusses current Illinois cases at the forefront of labor and employment law that frequently come up when employers draft, or seek to enforce, restrictive covenants in their employment agreements in this changing legal climate . . .

employent contract

Courts in Illinois are in the midst of a significant legal debate relative to whether a post-employment restrictive covenant involving an at-will employee can be enforced if the employee has less than two years of continued employment. This two-year bright line rule first blossomed in the often cited Fifield v. Premier Dealer Servs., Inc., 373 Ill.Dec.379 (1st Dist. 2013) decision. The debate continues to play out in the Chicago federal court.

In Montel Aetnastak, Inc. v. Miessen, 998 F.Supp.2d 694, 716 (N.D. Ill. 2014), Judge Castillo refused to apply the two-year bright line rule presumably adopted in Fifield. Judge Holderman, on the other hand, in Instant Technology, LLC v. Defazio, 12 C 491, __ F.Supp.2d __, 2014 WL 1759184 at *14 (N.D. Ill. 2014), took a contrary view.

On February 6, 2015, in Bankers Life and Casualty Company v. Richard Miller, et al., Case No. 14 CV 3165, Judge Shah waded into this controversy and rejected the two-year bright line rule. Instead, Judge Shah concluded that not only has “the Illinois Supreme Court not spoken on this issue”, but that case law does not support the argument that two years of employment is “necessary” to support a restrictive covenant.

This is a critically important issue affecting employers. Given the obvious uncertainty in the area of restrictive covenant enforcement, we recommend other forms of consideration, such as bonus payments, be considered.

Read the Bankers Life and Casualty Company v. Richard Miller, et al., Case No. 14 CV 3165 decision.

UPDATE (2/20/15) 
On the heels of Bankers Life, on February 13, 2015, in Cumulus Radio Corp. v. Olson, et al., Case No. 15-cv-1067 (C.D. Ill.2015), Judge McDade of the federal court in Peoria, Illinois granted an employer’s motion for a temporary restraining order stating “the Court does not believe that the Illinois Supreme Court would adopt the bright-line test announced in Fifield.”  Judge McDade added that the two-year bright line rule “suffers from a number of analytical problems that make it unsatisfying.”  Judge McDade also stated it also suffers from a “failure to give weight to the reason that an employee’s at-will employment ended.”  Favoring a case-by-case analysis, akin to that suggested by Bankers Life, Judge McDade further criticized the two-year bright line rule stating “[s]uch a rule is overprotective of employees, and risks making post-employment restrictive covenants illusory for employers subject completely to the whimsy of the employee as to the length of his employment.”

 

Update on the EEOC’s Fight Against Separation Agreement Language Allegedly Limiting Employee Rights

EEOC LOGOAs we have blogged about before (see related post links below), the EEOC has said one of its priorities is to challenge separation agreements that, in its view, interfere with the ability of employees to file charges with the EEOC or participate in investigations.

On December 2, the EEOC’s efforts in this area took another hit. A Colorado judge tossed out the EEOC’s claims against CollegeAmerica Denver Inc. relating to the company’s separation agreements, although the judge permitted the EEOC’s claims of retaliation to move forward. EEOC v. CollegeAmerica Denver Inc. The court ruled that the EEOC had not made an adequate effort to conciliate the claims relating to the separation agreements.

Earlier this year, a similar case against CVS also was dismissed on other grounds before the court addressed the separation agreement issue. The EEOC recently appealed the CVS decision to the 7th Circuit.

And it’s not just about separation agreements anymore either; in September, the EEOC sued Doherty Enterprises for using pre-employment arbitration agreements that allegedly interfered with the rights of employees to file charges and participate in investigations. EEOC v. Doherty Enterprises Inc.

Though the EEOC hasn’t had much success in court to date, companies should review their separation and arbitration agreements to ensure that they carve out employee rights relating to the EEOC process. Otherwise, they risk ending up in the EEOC’s cross hairs.

Judge in Chicago Dismisses EEOC Suit Challenging CVS Health’s Severance Agreements

EEOC ImageAs we reported earlier this year (EEOC Files Suit Over Separation Agreement Language), the Chicago District Office of the Equal Employment Opportunity Commission (EEOC) filed suit against CVS Pharmacy alleging that the company’s standard separation and release agreements were “overly broad, misleading, and unenforceable.” Specifically, the EEOC argued that provisions in CVS’s agreements infringed on the employees’ rights to file discrimination charges and participate in EEOC investigations.

On October 7, 2014, U.S. District Court Judge John W. Darrah issued a Memorandum Opinion and Order granting CVS’s Motion for Summary Judgment and dismissing the EEOC’s lawsuit against CVS. Equal Employment Opportunity Commission v. CVS Pharmacy, Inc., No. 14-cv-863 (N.D.Ill.2014).

Judge Darrah did not rule on the issue of whether the terms and conditions of CVS’s Severance Agreement are enforceable.  He dismissed the lawsuit because the EEOC did not fulfill the administrative prerequisite of attempting to conciliate with CVS before filing the lawsuit.  Nevertheless, in a footnote in the opinion, Judge Darrah indicated that the settlement agreement properly carved out employee rights to participate in EEOC investigations and also indicated that any attempt to restrain such participation would be unenforceable in any event.

It is unfortunate that Judge Darrah did not have an opportunity to squarely address the challenge presented by the EEOC, but the opinion is still a setback for the EEOC in its efforts to invalidate private settlement terms.  The EEOC may appeal the dismissal to the 7th Circuit and we will keep you posted on new developments, including the outcome of a similar case filed by the EEOC in a different district court.