May 2016 Heats Up Post-Employment Competition Law with the Defend Trade Secrets Act and White House Non-Compete Agreements Brief

While Wisconsin weather hasn’t seen the mercury rise as much as this author prefers, it is proving to be a hot month for post-employment competition law. Specifically, two developments have occurred at the federal government level that should draw the attention of any company that maintains sensitive information for its business.

On May 11, 2016, President Obama signed the Defend Trade Secrets Act of 2016 into law. Previously, trade secret protections existed only at the state level. Although state laws were all very similar, this meant that trade secret claims typically had to proceed in state court. Now, most trade secret claims will have the option to originate in federal court.

The DTSA is similar to Wisconsin’s law in many respects. However, there are three significant differences. First, the DTSA allows a federal court to issue a civil seizure order “providing for the seizure of property” to prevent the disclosure of a trade secret. In Wisconsin, the best a plaintiff could previously hope for would be a court order, subject to contempt if violated, that a party not disclose claimed-trade secret information. This is significantly different (and weaker) than actually seizing property that houses such information (i.e. electronic storage devices). Second, the DTSA grants a whistleblower immunity from civil or criminal liability for the disclosure of trade secrets to Federal, State, or local government officials to report a violation of law. Third, the DTSA requires companies to provide notice of employee immunity in any trade secret or confidentiality agreement (think restrictive covenants). If such notice is not included in these agreements, the company forfeits the right to seek additional “exemplary” damages or attorney fees in a trade secrets lawsuit. Thus, now is a good time to consider updating any employee agreements that contain trade secret or confidential information provisions.

That wasn’t all in the world of post-employment competition law, though. A few days earlier on May 5, 2016, the President Obama’s Administration released a brief entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.” Attendees of my world famous presentations on restrictive covenants know that the use of non-compete agreements has increased significantly in recent years. The White House brief presents an analysis of non-compete laws across the nation, statistics on the prevalence of non-compete agreements, and offers a critique on their wide-spread use in today’s labor market. Although the brief does not make any clear policy recommendations, it may prove to be a persuasive source of restricting the use of non-compete agreements by state legislators. This paper also follows efforts by U.S. Senator Al Franken’s (D-Minn.) and Sen. Chris Murphy’s (D-Conn.) 2015 federal bill that attempted to ban non-compete agreements for low-wage workers. Given this recent activity, we may see an increased focus to limit application of non-compete agreements at the federal level if the Democratic nominee for President wins the November election.