Protecting a Manufacturer’s Competitive Advantage: Recent Developments in Post-Employment Restrictions
I have posted a few times here about using post-employment restrictions to preserve a manufacturer’s competitive advantage. See “Non-Compete Cautionary Tale” (Nov, 2, 2018); “I’m New – And It’s No [Trade] Secret” (Oct. 27, 2014) and “Even More Reason for Manufacturers to Update Their Employment Agreements” (June 15, 2015). Many of my clients use these tools (and others) to protect that “secret sauce” that gives them a market advantage.
And so, I watch with more than a little interest as state legislatures move to adopt new restrictions on these tools. California long held the title for the most restrictive of states, with its statutory prohibition on virtually all post-employment restrictions. Maine, New Hampshire, Maryland and Rhode Island have each joined that club by enacting laws prohibiting non-competes for low wage workers (although each defines “low wage” differently). Massachusetts’ adopted a law banning non-competes for non-exempt employees, limits them to one-year, and imposes a “garden leave” requirement. Oregon now requires notice of the non-compete within 30 days of the employee’s termination, while proposed legislation in New Jersey imposes a 30-day pre-hire notice. Washington State recently adopted a comprehensive scheme banning non-competes for employees earning less than $100,000 per year (contractors earning less than $250,000 per year). And, to add a bit of intrigue, the Washington law will not take effect until January 2020, but will apply retroactively.
This changing landscape requires manufacturers and others to think creatively about their employment and other agreements to enhance protections. Many such agreements have sought to “contract around” state law by using different so-called “forum selection” and/or “choice of law” provisions, with mixed success. See generally Brown & Brown, Inc. v. Johnson and Lawley Benefits Group, LLC, 25 N.Y.3d 364 (2015)(rejecting Florida “choice of law” provision); NuVasive, Inc. v. Patrick Miles, 2019 WL 4010814 (Del. Ch. Aug. 26, 2019)(rejecting Delaware choice of law); Gen. Electric Co. v. Uptake Technologies, Inc., 2019 WL 2601351 (N.D. Ill. June 25, 2019) (applying New York law). Others have sought to circumvent state restrictions by tying the restriction to a number of federal laws which pre-empt contrary state laws under the Supremacy Clause to the United States Constitution. See e.g. Latif v. Morgan Stanley & Co., 2019 WL 2610985 (SDNY June 26, 2019)(Federal Arbitration Act); Abdullayeva v. Attending Home Care Services, LLC, 18-651 (2d Cir. 2019)(National Labor Relations Act); Clark v. Lauren Young Tire Center Profit Sharing Trust, 816 F.2d 480, 481 (9th Cir. 1987)(ERISA).
Given this evolving landscape, manufacturers seeking to maintain their advantage should periodically review and update agreements and policies.