Why Trade Secrets Protection is Even More Important in the Strong Economy

downloadIt is a well-known fact that when the economy improves, employee mobility rises as well. The most valuable employees – those with a specialized skill set and many years of experience in a particular industry – tend to stay within that industry while moving among competitors. Since such employees are usually given access to confidential information as part of their job duties, their move to a rival company often raises a concern of whether they will be sharing that information with their new employer. 

As 2016 was drawing to a close, a number of nationally known companies filed lawsuits to prevent their former employees from working for their competitors and/or sharing their confidential information. In December, Carolina Herrera sued Oscar De La Renta for hiring Herrera’s former Senior VP of Design despite her 6-month non-compete with Herrera. In January, Aria sued its Las Vegas rival, Cosmopolitan, and a former executive, alleging that she took confidential information about Aria’s high-roller clients in order to solicit them for Cosmopolitan. Earlier that month, Zynga, a mobile app gaming power house and creator of Farmville, sued two of its former employees for allegedly taking 14,000 files related to a new game Zynga was developing before going to work for its competitor. These are just a few examples that have received attention in the media.  In reality, similar situations develop all over the country on a daily basis.

In short, in the current market, any successful business, regardless of its size or industry, may be subject to trade secret theft not from foreign entities, but from its own departing employees. To prevent theft, or minimize the inherent damage that it carries with it, companies must have a process in place for protection of trade secrets and a plan of action for when theft is detected.

I have previously written about the simple steps any company can take to protect its trade secrets. In addition to these preventative steps, companies should be prepared to act quickly if a trade secrets theft is detected or suspected as time is of the essence, and not only from the practical standpoint of preventing dissemination of trade secrets, but from the legal standpoint as well. The more time passes between a company’s discovery of trade secret theft and any legal action, the less likely is the company to obtain an order from the court prohibiting the thief from using or disseminating the information.  Thus, being prepared to act quickly and having the resources to do so, can make e a difference in the company’s ability to stop the thief from sharing its confidential information with others.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Non-Compete and Confidentiality Issues to Watch in 2017

Non-Compete Issues to WatchIn 2016, there have been some major developments involving confidentiality and non-compete agreements law, which are likely to have some repercussions in 2017. Here’s a summary of the most important issues that companies should be aware of going into the new year.

1. The Federal Defend Trade Secrets Act.  This statute, enacted in May 2016, creates a federal question jurisdiction for misappropriation of trade secrets, allows companies to seize their trade secrets out of the hands of competitors in some circumstances, and provides whistleblower protection to employees when certain conditions are met.  In 2017, as companies begin to take advantage of the statute, the courts will begin creating a new body of law interpreting its provisions.

2. SEC Enforcement. The SEC will continue to go after the companies whose confidentiality agreements and policies they may find to violate the SEC’s whistleblowing rules.  Making sure that confidentiality agreements include the language specified in the federal Defend Trade Secrets Act may help with SEC’s scrutiny.

3. Choice of Law Issues.  Choice of law issues in interstate non-compete and confidentiality disputes will continue to be of major concern to companies who have out-of-state employees. A number of states in 2016 passed statutes dramatically limiting non-competes and California passed a statute that prohibits application of other states’ laws to its employees’ non-compete agreements. Business owners should make sure that their non-competes are enforceable in the jurisdictions in which they intend to enforce them.

4. Disclosure of Trade Secrets During Litigation.  This will continue to be a major point of dispute in trade secrets and non-compete lawsuits. For example, earlier this year, the Texas Supreme Court addressed what a trial judge must consider before allowing a competitor’s corporate representative in the courtroom during the testimony that might reveal the adverse party’s trade secrets. Thus, in 2017, those companies that are engaged in trade secrets misappropriation litigation in Texas will need to consider how this balancing test will apply in their particular circumstances. Many other states’ courts faced a similar issue in 2016 and have fashioned their own rules regarding when the disclosure of trade secrets in litigation is appropriate. 

TexasBarToday_TopTen_Badge_VectorGraphicLeiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Will Ban the Non-Competes Movement Lose Its Momentum During the Trump Administration?

donald_trump_rnc_h_2016It’s no secret that the Obama administration made a push, especially towards the end, towards limiting the use of non-compete agreements by employers around the country. The White House commissioned not one but two reports on this topic, both of which concluded that non-compete agreements stifle innovation, reduce job mobility, and negatively impact economic growth.  

Several states around the country seemed to join the White House’s view on non-compete agreements in passing statutes limiting their use. Illinois, for example, recently enacted the Illinois Freedom to Work Act, 5 ILCS § 140/1 et. seq., which prohibits private employers from entering into non-competition agreements with “low-wage employees.” Utah passed the Post-Employment Restrictions Act, Utah Code § 34-51-101 et seq., in March 2016, restricting non-competes’ length to 1 year.  Massachusetts tried to pass a similar legislation this year, but failed. And New York State Attorney General Eric Schneiderman announced that he will propose legislation in 2017 to limit the use of non-compete agreements in New York.  

Will this push to limit non-compete agreements continue during the Trump administration?  My prediction is that it won’t.  Of course, as with many other areas of the law, predicting what Trump will or will not do, is like reading tea leaves – nobody really knows. However, here are my top three reasons for thinking that the Trump Administration won’t pursue the same stance on non-compete agreements as the Obama Administration. 

First, Trump is a savvy businessmen and an employer. Therefore, he knows the value of non-compete agreements to employers and, without a doubt, has used them himself in his many businesses. 

Second, Trump has demonstrated that he is not above using such agreements in what some would view as overreaching situations.  For example, he did not shun from using non-compete agreements with the volunteers for his political campaign, even though the volunteers were not paid compensation for their services and probably performed tasks that did not involve any confidential information.

Third, Trump’s recent appointment of Andrew F. Puzder – the former CEO of a fast-food franchise – as the Secretary of Labor, suggests that his focus may not be on helping low-wage employees. Mr. Puzder had openly criticized the minimum wage increase that was supposed to go into effect this December and is commonly perceived as an ally for employers.  His position on ACA, minimum wage, and the joint-employer rule promulgated by the NRLB, is contrary to the position taken by the Obama administration. Thus, if he takes a 180-degree shift from the Obama administration’s stance on non-competes, such position won’t come as a surprise. 

Employers should stay tuned to see how the Trump’s policy on non-competes develops in 2017…

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Five Non-Compete Agreements Myths in Texas for Employees

share-knowledge-715x400The old saying “ignorance is bliss” may be true in many situations, but not when it comes to non-compete agreements in Texas.  Over the years, I have identified five most common misconceptions about such agreements from my discussions with clients, friends, and even other lawyers.  It’s time to dispel these common myths once and for all:

Myth #1: Non-compete agreements are not enforceable in Texas.  This is absolutely false. In Texas, non-compete agreements are enforceable if they meet certain requirements spelled out in the Texas Covenants Not to Compete Act.  Even if they do not meet those requirements, a lot of times, a judge can reform, i.e. rewrite, them to make them more “reasonable” and then enforce them.

Myth #2: Texas is a right to work state, so an employer cannot prevent employees from going to work for a competitor. This is also false. A “right to work state” simply means that employees in Texas cannot be fired for joining unions.   It has nothing to do with the enforceability of the non-compete agreements. So, while Texas is a right to work state, that doesn’t mean that the non-competes here are invalid. 

Myth #3: An employer threatening to fire an employee if s/he doesn’t sign a non-compete agreement makes such agreement invalid. This is false. Because Texas is an at-will employment state, an employer may change the terms of employment at any time, including adding non-compete restraints to an already-existing employment relationship. Thus, with rare exceptions, employers may force employees to sign non-competes under a threat of termination.

Myth #4: Since an employer never enforced its non-compete agreements, it won’t/can’t enforce it against a particular employee.  Again, this is false.  Employers typically consider many factors when deciding whether to enforce a non-compete agreement, so while they might decide not to enforce the agreement against one employee, they may be motivated to do so against another employee. 

Myth #5: If a non-compete agreement looks/sounds reasonable, there is no way to fight it. This is false. There are many defenses to non-compete agreements, and whether a particular non-compete agreement will hold up in court depends on the specific language of the agreement as well as employee’s job duties, length of employment, access to confidential information and a myriad of other factors.

The bottom line is that employees in Texas cannot afford to ignore non-compete restraints in their agreements and, when in doubt, should seek legal advice to understand the consequences of signing a non-compete agreement, or switching jobs or starting a competing business when subject to a non-compete.  Planning ahead is key when it comes to non-compete agreements in this state. 

Stay tuned for part II to find out common  non-compete agreements myths for employers. 

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

 

A Texas Case Demonstrates Why Using Stock Non-Compete Agreements May Backfire

picLast month, a Texas Court of Appeals denied an insurance agency’s application for a temporary injunction against its former President because it held that the non-compete agreement, as written, did not restrict the President from competing. The agency tried to enforce the non-compete and non-solicitation agreement to prevent the President from soliciting the agency’s clients for the purpose of selling or marketing any products or services that would compete with the agency, and it was able to obtain a temporary restraining order (TRO).  However, the trial court refused to convert the TRO into a temporary injunction.

The reason the company lost at the temporary injunction hearing is because both the non-compete and non-solicitation clauses in the agreement stated that the President could not compete with or solicit the agency’s clients “during the term of CMC Account Development Sub Agent Agreement, and for a period of two (2) years after the termination of the Agreement.”  However, the agency’s representative and the President both testified that he was never a sub agent (i.e. sales person) for the agency and that he did not have a CMC Account Development Sub Agent Agreement.  

Basically, the non-compete and non-solicitation restraints were tied to the length of a non-existent agreement between the agency and the President. In most likelihood, the language was left over from the standard contract form that the agency used for its sales representatives, and was included in the President’s agreement due to oversight.  As the result, the company was unable to stop the President from competing. 

TexasBarToday_TopTen_Badge_VectorGraphicTakeaway:  This case demonstrates why the  companies should conduct an audit of their non-compete and non-solicitation agreements at least once a year to make sure that (1) the agreements are enforceable, (2) they have a legible copy of the agreements signed by both parties, and (3) the agreements will adequately protect the company if they have to be enforced. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete dispute, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

DOL Overtime Rules Blocked Nationwide by a Federal Court in Texas

usdepartmentoflaborLast week, the United States District Court for the Eastern District of Texas issued a decision enjoining the Department of Labor (DOL) from enforcing its new overtime rules. State of Nevada et al. v. U.S. Department of Labor et al., case number 16-cv-00731.

The new overtime rules were set to go into effect on December 1, 2016, causing many companies to scramble to adjust their compensation systems in compliance with the new minimum salary threshold for administrative, executive, and professional exemptions, which was going to jump from $23,660 per year to $47,476 per year on December 1st. 

The court’s injunction requested in early October in two parallel cases filed by business organizations and 20 states, enjoins the Department of Labor from enforcing the new overtime rules.  

Takeaway:  In light of this injunction, businesses who are not in compliance with the DOL new overtime rules, are not going to be in trouble come December 1, 2016.  However, since this is a temporary injunction, employers are not 100% in the clear, as the court may still enforce the rules when the final hearing  in the cases takes place.  Thus, the injunction grants a temporary reprieve, but companies should continue to monitor the situation, which may last anywhere from several months to several years.  

Bottom line is that the injunction will remain in effect until a final resolution of the merits is reached or there is further order of the court, the Fifth Circuit, or the United States Supreme Court. 

Leiza is a business and employment litigation attorney in Dallas, Texas. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Why the Appointment of Jeff Sessions as the New Attorney General May Lead to More Trade Secrets Litigation

jeff-sessions-827pngOn Friday, President-elect Donald Trump named Alabama Sen. Jeff Sessions as his pick for the next Attorney General. Sessions is a former U.S. attorney and current senator with lengthy experience with the Justice Department. He is also known as a pro-business conservative, who on numerous occasions has expressed a favorable view of corporate indictments of executives marred in white-collar crimes. 

Sessions co-sponsored the Federal Defend Trade Secrets Act, which became the law this year. The statute allows civil lawsuits to prevent or redress theft of trade secrets in addition to already-existing criminal penalties under 18 U.S.C. § 1832.  His previous publicly expressed views suggest that he will not shy away from indicting big companies and individuals for white-collar crimes, which include theft of trade secrets.  

For example, in 2010, during a confirmation hearing for the U.S. deputy general, Sessions questioned the candidate about the “dangerous” philosophy of not charging companies criminally because of concerns regarding the effect of such charges on employees and shareholders and stated that he “was taught that if they violate a law, you charge them.” 

Trade secret theft indictments have been on the rise over the past several years, prompting an almost unanimous passage of the Federal Defend Trade Secrets Act in the beginning of this year. The uptick in criminal litigation has been accompanied by a blooming civil litigation of trade secrets theft on state and federal level as well.  

Given Sessions’ prior remarks regarding his preference for corporate indictments in lieu of settlements or payment of penalties, as well as his expressed support towards protection of trade secrets, we can expect a rise in corporate indictments arising out of theft of sensitive information (especially when it is shared with foreign companies or states). This will put the spotlight on the rise of trade secrets theft in the country, will garner more publicity for such acts, and will in turn educate the US companies and business owners as to legal remedies available to them in the civil court to remedy trade secret theft.  

In short, Sessions’ expected tough stance on corporate crime, including trade secrets theft and the accompanying publicity will likely result in an increase in civil litigation in that arena as well. 

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Federal Government Warns That Anti-Poaching and Wage-Fixing Agreements May Violate Antitrust Laws. What Does This Mean for Texas Companies?

dojThe Department of Justice (DOJ) and Federal Trade Commission (FTC) recently issued Antitrust Guidance for HR Professionals (“Guidance”) intended to alert professionals involved in hiring and compensation decisions to potential violations of the antitrust laws.

This Guidance is the result of the infamous wage-fixing anti-poaching agreement among Ebay, Google, Apple, and other heavy-weights of the tech industry, which came to light in 2010 during the DOJ investigation and a civil class action involving 64,000 employees of such companies that settled in September of last year.

You can find the full text here, but the Guidance can be boiled down to the following simple rules for HR professionals:

  • companies that compete for employees are competitors regardless of whether they sell the same products or provide the same services
  • it is unlawful for competitors to agree not to compete with each other
  • therefore, companies may not agree – expressly or implicitly, in writing or orally – not to poach each other’s employees or to cap salaries or benefits of their employees
  • specifically, HR professionals are “likely” breaking the anti-trust laws if they:
    • agree with individuals at another company about employee salary or other terms of compensation, either at a specific level or within a range (wage-fixing agreement), or
    • agree with individuals at another company to refuse to solicit or hire that other company’s employees (“no poaching” agreements)
  • HR professionals should avoid sharing sensitive information with competitors as it could serve as evidence of an implicit illegal agreement (especially where it causes companies to match each other’s arrangement)

What are the consequences of violating the anti-trust rules?  The DOJ and/or FTC may bring a felony criminal prosecution against individuals involved in anti-poaching or wage-fixing agreements, the company, or both. Additionally, individual employees may bring a civil suit for three times the damages they suffered.

Takeaway for HR Professionals: We all know that price-fixing for goods is illegal, i.e., competing companies cannot get together and agree to charge consumers a certain price for certain goods in the market.  The Guidance makes it clear that agreeing on wages for employees is just as illegal and will be prosecuted.

What does this mean for Texas companies in terms of non-compete agreements?  The companies may still enter into such agreements with their employees (as long as they comply with the Texas Covenants not to Compete Act).  However, they cannot agree with other competing companies on the terms of such non-compete agreements. For example, Companies A and B, which are competing for the same employees, cannot enter into an agreement that they both will tie up their employees with no less than a 2-year, 30-mile non-compete agreement, or that the non-compete specifically will prohibit employees from working for Company A (if they worked for Company B), and vice versa. When in doubt about the legality of your particular agreement, seek legal counsel.

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

 

Staffing Agency Could be on the Hook for Termination of an 83-Year Old Receptionist at Client’s Request

staffing-agencyThe Fifth Circuit recently addressed an interesting issue – when a staffing agency’s client asks to replace an employee, does the staffing agency have a duty to investigate the reasons for the request?  For example, if a staffing agency’s client calls and says we want you to replace Bob, who is African-American, does the agency have a duty to ask why the client wants to terminate Bob and make sure it is not because of his race? The Fifth Circuit ruled that a staffing agency must follow its usual practices in responding to a client’s desire to have an employee removed, and a deviation from such practices may serve as evidence that the staffing agency knew or should have known of the client’s discrimination. So, in the example above, if the staffing agency typically investigates a client’s complaint about an employee, but in Bob’s case it removes him without confirming that he was unable to do his job, such action may create an issue of fact (and prevent summary judgment in favor of the employer) as to whether the staffing agency knew or should have known that the client’s request to remove the employee was discriminatory.

In Nicholson v. Securitas Services USA, Securitas was asked by a client to replace an 83-year old receptionist due to her not being able to perform new technology-related tasks. Securitas removed Nicholson, without asking her for an explanation and without any investigation, and replaced her with a 29-year old employee. According to at least one of its employees, this failure to “check out” the complaint or investigate the reason for the client’s request, was not a normal procedure at Securitas. The Fifth Circuit, therefore, found that the trial court improperly granted Securitas’ summary judgment because there was a fact issue regarding whether the staffing agency knew or should have known that its client’s request to replace Nicholson was motivated by her age.

Takeway:  A staffing agency is liable for discriminatory conduct of its joint-employer client if it (1) participates in the discrimination or (2) knows or should have known of client’s discrimination but fails to take corrective measures within its control. Moreover, a staffing agency’s deviation from standard evaluation or investigation practices is evidence of discriminatory intent.

Thus, staffing agencies should follow their policies and procedures in a consistent manner when faced with a client’s request to remove or replace an employee. If such request is later found to have been based on a prohibited discriminatory factor, a staffing agency who replaces an employee without investigating the client’s complaint may be liable for discrimination along with its client, if its failure to investigate constitutes deviation from its standard procedures.

Leiza is a business and employment litigation attorney in Dallas, Texas. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

 

The Fifth Circuit Reminds that the Interactive Process Under ADA Is a Two-Way Street

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The Fifth Circuit recently found in favor of the City of Austin for firing a disabled employee because he did not attempt to perform his new lighter-duty job in good faith.  After the employee was injured on the job, the city offered him an administrative position as an accommodation because he could not perform manual labor required by his prior job.  

The employee accepted the new job, but began missing work, played computer games and surfed internet, slept on the job, made personal phone calls and applied for other positions within the city while at work.  He also refused to participate in any training that would have helped him perform his new job.  

After he was fired, he sued the city alleging discrimination based on disability and failure to provide him with reasonable accommodation. The Fifth Circuit found no discrimination and emphasized that “terminating an employee whose performance is unsatisfactory according to management’s business judgment is legitimate and nondiscriminatory as a matter of law.”  It further explained the boundaries of the interactive process between an employer and an employee who requests an accommodation for his disability.

Once an employee requests an accommodation based on a disability, the employer and employee must work together in good faith, back and forth, to find a reasonable accommodation. The process does not end with the first offer of accommodation but continues when the employee asks for a different accommodation or where the employer is aware that the initial accommodation is failing and further accommodation is needed. Thus, the process is a two-way street.  In this case, once the employee accepted an administrative position, he had to make an honest effort to learn and carry out the duties of his new job with the help of the training that his employer had offered to him. He certainly had an obligation not to engage in misconduct at work.   Once he had shown no desire to try to succeed in that position, the city had no duty to offer him another job. After all, the ADA provides a right to reasonable accommodation, not the employee’s preferred accommodation.

Takeaway: When an employee requests a reasonable accommodation due to disability, the employer must engage in an interactive process with that employee to determine what reasonable accommodation will help the employee perform his or her duties. Employers should always document the process so that they have proof of engaging in it in good faith.  Employees should also engage in the process in good faith, which means that if an accommodation is granted to them, they should try to take advantage of it. At the end of the day, an employer is required to provide reasonable accommodation, but not necessarily the accommodation requested by the employee.

Leiza is a business and employment attorney in Dallas, Texas. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.