Throughout 2021, our dedicated Trade Secrets, Computer Fraud & Non-Competes Practice Group hosted a series of CLE webinars that addressed significant trade secret and restrictive covenant issues facing clients today. This year’s series included:
- 2020 Year in Review: What You Need to Know about the Recent Cases and Developments in Trade Secrets, Non-Competes, and Computer Fraud Law
- Employee Termination & Data Repatriation in the Remote Work Environment
- The Connection Between Wage and Hour & Restrictive Covenant Law
- How and Why Texas is Different When it Comes to Trade Secrets and Restrictive Covenants
- Anatomy of an M&A Transaction: How to Issue Spot for Non-Compete, Trade Secrets/Confidential Information, and Intellectual Capital Concerns
- Overview of Non-Compete Legislation and Enforcement Issues from 2021
As a conclusion to our 2021 webinar series, we compiled a list of key takeaway points for each program. For those clients who missed any of the programs in this year’s series, recordings of all of our past webinars are available on the Trading Secrets blog, or you may click on the link for each webinar in this Legal Update to view the online recording.
2020 Year in Review: What You Need to Know about the Recent Cases and Developments in Trade Secrets, Non-Competes, and Computer Fraud Law
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The first webinar in the series, led by Robert Milligan, Jesse Coleman, and Joshua Salinas, reviewed the noteworthy legislation, cases, and other legal developments from across the nation over the last year in the area of trade secrets and data theft, non-competes and other restrictive covenants, and computer fraud—plus, predictions for what to watch for in 2020.
- While they appear on their surface to be typically straightforward affairs, trade secret and non-compete lawsuits can assume an infinite number of forms and fact patterns. It is only by keeping up with the newest laws and court pronouncements that litigants can hope to prevail in this ever-changing landscape.
- Legislation such as anti-SLAPP laws can have a dramatic impact on a litigant’s ability to bring or defend a claim. While at least one of these state laws now expressly exempts most trade secret and non-compete lawsuits from its scope, there remains a backlog of cases filed before the new regime where the anti-SLAPP law stands as the primary hurdle before a case can even proceed to full discovery. It is important to understand what anti-SLAPP law applies in your jurisdiction and what jurisdictions your courts look to for interpretation of those laws.
- The FTC is exploring whether it has the authority to ban or limit the use of non-competes in the employment setting. It recently held a workshop where academics and regulators addressed the issue. At the workshop, legal scholars, economists, and policy experts reviewed the current state of the law and economic literature on non-compete clauses in contracts between employers and employees. Academic panels evaluated the effects of non-compete clauses on labor market participants and their efficiency rationales. The panels also will considered the potential harms to workers that may addressed through the FTC’s rulemaking, law enforcement, or advocacy authority. We expect the FTC to continue to attempt to regulate non-competes in the employment context.
- Employers should review their restrictive covenant agreements and consider whether they need to be amended for employees in jurisdictions with new restrictive covenant laws, especially new laws that now require income thresholds for the use of such agreements.
Employee Termination & Data Repatriation in the Remote Work Environment
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Seyfarth attorneys Bob Stevens and Matthew Simmons, along with AlixPartners’ Richard Lutkus, outlined best practices and steps companies can take to continue to protect intellectual capital, including policies, protections, security concerns, and agreements needed to protect information in a remote environment.
Technical takeaways to avoid your trade secrets and IP ending up leaked on the dark web:
- Train your employees to be suspicious of emails and test them against phishing attacks
- Get proper malware detection software for servers and endpoints.
- Turn logging on and retain logs as long as practical so you can have something to investigate if an issue occurs.
- Keep ANY critical IP/trade secrets encrypted at rest on your file servers!
Pre-termination checklist:
- Update employee policies and procedures regarding confidential information, BYOD policy, obligation of employee to update location, notice of resignation period, non-use of personal and cloud accounts, return of company property and compliance with return obligation, company asset/hard copy tracking, and training on new policies.
- Update restrictive covenants and provide sufficient consideration for the updated covenants at the time the employee executes the new restrictive covenant.
- Complete a company versus personal property assessment.
- Complete pre-termination forensic searches.
Remote employee resignation checklist:
- Notify IT and ensure system access is disabled as soon as possible.
- Ensure all devices (phones, computers, drives, etc.) are returned and postpone reissuance for as long as fiscally able.
- Conduct exit interview and remind resigning employee of restrictive covenant obligations.
- Preserve and monitor email account and phone.
The Connection Between Wage and Hour & Restrictive Covenant Law
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In this webinar, Seyfarth attorneys Dan Hart, Kevin Young, and Cary Burke outlined the connection between wage and hour law and restrictive covenant law. The panel addressed how these important and impactful areas of employment law intersect and can, if not managed appropriately, create layered and compounding risks for employers. The panel also addressed practical tips for managing those risks, such as conducting proactive audits and considering arbitration clauses.
- Wage and hour lawsuits continue to be one of most common types of employment lawsuits that employers face.
- Meanwhile, with data being more important, and more accessible to employees, than ever before, restrictive covenants remain one of the most important tools in an employer’s toolkit.
- Even if not obvious, these two forces—wage and hour lawsuits on the one hand and restrictive covenants on the other—can converge and feed one another. Many states, for example, expressly or implicitly look to statutory overtime exemptions to define which types of workers may be bound by a non-compete promise. Other states limit non-compete covenants to employees who earn compensation above a certain level or perform duties that are typically associated with exempt employees.
- Given the potential for a restrictive covenant action to feed an exempt misclassification claim, or vice versa, it is important for employers to take proactive steps to ensure proper classification of employees. In addition, multi-state employers relying on restrictive covenant agreements are well-served to periodically assess their standard restrictive covenant agreements to ensure consistency with state-specific laws, including laws restricting the types of employees who may be bound by such an agreement.
How and Why Texas is Different When it Comes to Trade Secrets and Restrictive Covenants
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In this program, Seyfarth attorneys Jesse Coleman, Matt Simmons, and Kevin Green outlined recent legal developments in Texas trade secret and non-compete law and how it is similar to and diverse from other jurisdictions. The webinar also covered how these latest developments impact counseling, litigation, and deals involving companies with employees based in Texas.
- A restrictive covenant is a legal term for a clause in an employment contract (or a standalone agreement) that prevents an employee from doing something. Most often, restrictive covenants are designed to prevent a departing employee from competing with his/her former employer for clients or business.
- There are four types of restrictive covenants: 1) non-competition; 2) non-solicitation of customers; 3) non-solicitation of employees; and 4) non-disclosure. Common limitations relate to time, geographic or customer restrictions, and the departing employee’s scope of activity in their new employment.
- Trade secret can be elusive to define, but generally consists of: 1) identifiable information 2) not generally known to others (i.e. secret) 3) that is economically valuable and 4) subject to reasonable efforts to maintain secrecy. Famous example is Coca-Cola recipe, but trade secrets are not limited to products alone and can also be processes, confidential information such as business plans, and other know how.
- In over 90% of trade secret cases, the misappropriator is someone the trade secret owner knew (former employee or business partner). Vast majority of cases involve misappropriation by electronic means.
- Texas believes in the freedom to contract with certain statutory safeguards on the reasonableness of the restrictive covenant (non-compete, non-solicitation) as it relates to time, geographical area, and scope of activity restrained.
- Unlike other States, Texas does not have a minimum salary for the restrictive covenant to be enforceable or differentiate enforceability of the covenant based on whether the employee was terminated or resigned.
- Generally, Texas employee and customer non-solicitation covenants are adjudged based on the same reasonableness requirements as non-competes pursuant to Tex. Bus. & Com. Code Section 15.50(a).
- Generally, reformation of a restrictive covenant is required under Texas law; however, the timing of the reformation (during the initial stages of litigation or upon a final trial on the merits) is still an open question.
- In order to later revise restrictive covenant agreements, employer must provide additional consideration in Texas and it is highly recommended that such consideration is provided close in time to the employee’s execution of the new agreement.
- Texas enacted its own trade secret statute – the Texas Uniform Trade Secrets Act- in 2013, modeled on the Uniform Trade Secrets Act (UTSA), and amended in 2017 to align more closely to the federal Defend Trade Secrets Act (DTSA) and controlling case law.
- Minor differences exist in the definition of “trade secret” between TUTSA and DTSA, TUTSA lacks whistleblower immunity provisions and a specific mechanism for ex parte seizures, and TUTSA preempts related common law claims while the DTSA does not.
- TUTSA provides greater scope of injunctive relief to employers in cases of trade secret theft than DTSA but will not enjoin a departing employee from using general knowledge, skill, and experience acquired during the employment relationship.
- Texas appellate courts vary in applying the inevitable disclosure doctrine when granting injunctive relief under TUTSA, while the Texas Supreme Court recognizes that a competitive decision maker may not be able to resist acting on what they learn of a competitor’s trade secrets, even when acting in good faith.
- TUTSA provides similar monetary relief to both DTSA and UTSA, including actual losses, unjust enrichment, reasonable royalties, exemplary damages, and attorneys’ fees, under specific circumstances.
Anatomy of an M&A Transaction: How to Issue Spot for Non-Compete, Trade Secrets/Confidential Information, and Intellectual Capital Concerns
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In this webinar, Seyfarth partners Robert Milligan and Suzanne Saxman discussed trade secret/confidentiality, non-compete and restrictive covenant issues that typically arise in M&A transactions. The panel walked through the keys issues in the typical M&A lifecycle and provided practical tips to help businesses effectively maximize value and protect their assets.
- Careful management of all stages in the M&A process is critical to maintaining a high level of confidentiality and avoiding inadvertent leaks and missteps.
- Phased sharing of sensitive and confidential commercial information can preserve a Seller’s valuable intellectual assets and avoid giving undue leverage to bidders or putting the seller’s business at risk.
- Special care should be given to the seller’s key employees and the use of retention agreements with enforceable restrictive covenants to ensure that the buyer retains continuity and key company leaders.
- Experienced counsel should carefully draft restrictive covenants in the definitive buy sell agreement and ensure that the covenants apply with applicable law, including addressing issues of reasonableness and antitrust consideration.
Overview of Non-Compete Legislation and Enforcement Issues from 2021
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In the final webinar for 2021, Seyfarth attorneys Dawn Mertineit, Eric Barton, and Joshua Salinas discussed new legislation and the enforcement of non-competes. Any company that seeks to use non-compete and non-solicitation agreements to protect its trade secrets, confidential information, client relationships, goodwill, or work forces needs to stay informed of the varied and ever-evolving standards in each state.
- State laws are changing at a rapid rate, with dozens of bills introduced or pending this year. Multi-state employers in particular should stay abreast of changes in the law to make sure their agreements remain compliant and enforceable.
- Federal legislation continues to be proposed to establish standardized rules for non-compete agreements, which if passed, would supersede a variety of state laws, but so far, no proposals have made it past committee. We continue to closely monitor potential developments.
- The Great Resignation has created an unprecedented challenge to workforce retention and recruitment. Employers that utilize restrictive covenant agreements and intend to shift to more flexible work locations for employees should seek competent counsel regarding any ongoing or contemplated use of forum selection and/or choice of law provisions.
2022 Trade Secret Webinar Series
Starting in January 2022, we will begin another series of trade secret webinars. The first webinar of 2022 will be “2021 Year in Review: What You Need to Know About the Recent Cases and Developments in Trade Secrets, Non-Compete, and Computer Fraud Law.” To receive an invitation to this webinar or any of our future webinars, please click here to sign up for our Trade Secrets, Computer Fraud & Non-Competes mailing list. Seyfarth Trade Secrets, Computer Fraud & Non-Compete attorneys are happy to discuss presenting similar presentations to your company for CLE credit. Stay up to date on non-compete laws with our recently updated 50 State Non-Compete Guide and by following our Trading Secrets blog, where we blog on topics and issues related to trade secrets and non-competes.
