Non-Compete and Trade Secrets News for the week ended April 28, 2017
Non-Competes in Expired Employment Agreements
The case of Metallico Pittsburgh, Inc. v. Newman from the Superior Court of Pennsylvania addressed a question that I have confronted on at least 5 or 6 occasions. What happens when a term employment agreement (say, for three years) that contains a non-compete expires, but the employee stays on in an at-will context? The basic answer is that it depends entirely on the contract language and whether the non-competes start running once the contract is over or once the relationship is over. In Metallico Pittsburgh, the non-competes ran once the relationship ended so the employee's transition to at-will employment did not trigger the time period. Several years ago Illinois courts addressed a case similar to Metallico Pittsburgh and reached the opposite result. But the cases are consistent. The Illinois case involved an agreement that was worded much more favorably towards the employee.
The decision in Metallico Pittsburgh is available here.
Continuing Use Claims under the DTSA
The Defend Trade Secrets Act has generated a fair amount of case law about whether the statute applies to conduct occurring, at least in part, before it went into effect last May. The latest case comes from California, and involves the theory of misappropriation based on improper use of a trade secret. The use prong - as opposed to improper acquisition or disclosure - is more nebulous as far as the DTSA is concerned. Acquisition is usually a discrete event. Disclosure may not be, but it too is usually something that a plaintiff can pinpoint. Use, however, is tough to nail down. Use of a trade secret can occur systematically - continuously from the time the secret is acquired until it's enjoined.
That raises a knotty issue. If the same use-based conduct occurs before and after the DTSA's effective date, does the plaintiff have a federal claim. The district court in Cave Consulting Group, Inc. v. Truven Health Analytics Inc. said no and dismissed it. Applying that court's reasoning, the post-enactment use of the trade secret must be different than what occurred before the law went into effect.
The decision is available here.
Russell Beck's Fair Competition Law blog has available an updated "Trade Secret and Noncompete Survey -- National Case Graph 2017." The graph has helpful data to show the trends in reported cases. One thing to consider: the rise of private arbitration may not reflect the full scope of how much this type of litigation has grown.
Ever curious to know which States are most and least employer-friendly when it comes to non-compete enforcement? Take a spin through an old favorite of mine, Fifty Ways to Leave Your Employer: Relative Enforcement of Covenants not to Compete, Trends, and Implications for Employee Mobility Policy. Norman D. Bishara wrote this article in 2011 and it graphs the States' enforcement trends. Though the study is now a few years old, I doubt the findings would change significantly. Even in those States with legislative changes (Georgia, Utah), the changes are too new to be statistically important to this research compilation.