The Meaning of "Not Less Than"

This week, I lost an appeal.

It sucks. It really does. Losing is never fun, and I occasionally take things too personally. The case was an interlocutory appeal, meaning it's not over. Meaning that I appealed early. Meaning that in cases like this sometimes you must swing for the fences. Meaning that trying to hit home runs isgood, even if it means striking out on occasion. (Ask any baseball geek GM; he'll concur).

So the Appellate Court of Illinois' opinion can be found here, but the case was simple in terms of the legal issue presented. It is thus stated as follows:

Does a non-compete that lasts for "not less than" five years mean that it lasts for five years?

That is the issue I appealed under a procedural rule that allows for discretionary interlocutory appeals. Basically you get to ask the appellate court a question and see what they seay. The Third District Appellate Court answered my question and said "yes." I said no. I was wrong. Judges are right when they rule, even if you don't like the result.

I will say that this experience of arguing in the Third District (site of the Lincoln-Douglas debates for you folks who live in lower-taxed States) was fantastic and the appellate justices were highly engaged throughout this argument, not to mention exceedingly likeable. I have appeared here before with success (in another non-compete case, before the same exact panel) and found the court equally engaged then.

I just happen to disagree with what they said. I don't think a covenant lasting "not less than" five years means that it lasts five years, and so the covenant for now at least sets forth some ascertainable time limit, which means that for now I head back to the trial court and attempt to hit singles, doubles, steal bases, and eventually win the game through my typical plodding around.

I am posting this because I felt my side needed to be heard. Links to both of my briefs are embedded here in this post. The court adopted my opponents' arguments in full. So no need to post what he wrote! He is a terrifically nice guy and effective lawyer, and I congratulate him. Well done. But, sorry bruh, I'm not posting your brief!

My opening brief is below

Defendant-Appellant's B... by on Scribd

My reply brief follows.

Reply Brief of Defendant Ap... by on Scribd

Reading Round-Up and Some Thoughts on Wrapping Up Another Non-Compete Case

As the year comes to close, I've come across a few recent articles that merit some brief mention.

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A prominent early voice in the call for non-compete reform is current Boston University Professor Matt Marx. He drafted a policy paper for The Hamilton Project, titled Reforming Non-Competes to Support Workers, which you can access here.

Professor Marx's paper is worth a read for a number of reasons, including its very informative discussion on the history of non-competes and recent legislative trends. More helpful, though, is Marx's discussion of statistics regarding the ubiquity of non-competes and the impact of contractual restraints on job mobility.

One proposal Marx discusses, which hasn't received as much scholarly attention, is incenting state attorneys general to use general consumer protection or unfair trade practices law to undertake litigation efforts over abusive non-compete practices. Though this has occurred a bit in the low-wage worker context, there's no reason why it couldn't extend outward to address troubling practices directed at additional categories of employees.

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Speaking of low-wage workers, the Troutman Sanders firm published a short piece entitled The Potential Pitfalls of Using Non-Competes for Low-Wage Workers, to which my reply simply is "yes." If you really feel the need to be persuaded or convinced on this topic, then click here. But I understand if you take a hard pass...

(The Washington Examiner also explores the increasing backlash against non-competes and horizontal no-poaching pacts, particularly in the fast-food industry, in this September piece.)

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Moving on to other controversial topics, Venable authors Tom Wallerstein and William Abramovitz write that the Defend Trade Secrets Act's ex parte seizure provision is, indeed, constitutional. They appear to have written in response to a New York University Law Review article suggesting otherwise. That article is available for download here.

The Venable folks are correct. In fact, the DTSA provision, which allows for the seizure of instrumentalities used to steal trade secrets without notice to the party in possession of those instrumentalities, is modeled on a similar trademark statutory provision. That provision allows for the seizure of counterfeited goods on an ex parte basis. The procedural requirements built into the DTSA and the Lanham Act specifically address the Fourth Amendment concerns that attend property grabs.

I will repeat what I've said before. The ex parte seizure tool is more interesting from an academic, rather than a practical, standpoint. Some variant of this process was around long before the DTSA was ever law. Let's move on, folks.

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Now on to another bad non-compete case, just concluded.

Let me start with this. My 6 year-old daughter reads a series of chapter books by author Ron Roy, which are called the A to Z Mysteries. In this series, a trio of aspiring gumshoes (named Dink, Josh, and Ruth Rose) investigate a number of weird mysteries in a fictional Connecticut town. Think of it as a much less violent version of Cabot Cove, Maine. Two things are notable about this A to Z trio of sleuths. First, they most certainly have free-range parents, who are almost never seen and impose little to no restriction on what their kids do. And second, the kids are relentless in their pursuit of understanding facts.

At this point, you're likely asking "what's the point?" Well, I have one.

I just finished yet another case in which a defendant was wrongfully sued for violating a non-compete clause and stealing employer trade secrets. It was immediately clear when I got the case that the plaintiff's attorney made no attempt to discover any basic facts that were alleged uniformly on "information and belief." And to make matters worse, it was even more clear that my client's own attorney was uninterested in investigating these same basic facts.

Instead, as it turned out, counsel both were perfectly content to follow some kind of odd litigation playbook, filing motions, responses, and other filings that did little to address my client's concerns. And let me state this again. Her concern was that the plaintiff got the facts wrong.

It turns out that four months into this case, no one had talked to the two witnesses who knew precisely what facts to confirm and dispel. I was hired, called them the next day, and within literally within hours, the case was dismissed with prejudice. The plaintiff knew it was cooked when it saw my disclosures, because it knew these witnesses would undercut the entire case. We then sought our fees. This matter is now over with a great result for a client who never should have been sued.

This is not to suggest I am great. All I did was what my client had asked. All I did was what the kids in the A to Z Mysteries series did. All I did was call people who knew what happened. Practicing law is not supposed to be some mysterious quest into the abyss, where lawyers operate in a parallel universe from their clients.

What's the lesson? Maybe attorneys should listen more to their clients. Mine had been begging for someone to validate her story, and she had the witnesses ready to do this. The problem is that her former attorneys told her they had a different strategy. Guess what? It was a costly one, despite its patent ineffectiveness. It got them fired.

This anecdote is, unfortunately, far too common in competition cases. Many cases that appear flimsy are in fact flimsy. Attorneys can pick up the phone and call witnesses. Their first reaction should not be to jump on Westlaw and see if a case with a similar non-compete somewhere was dismissed for on some obscure legal basis that does not interest the client and will not interest a judge.

Cleaning Up the Janitorial Mess

Somewhat predictably, the reaction to C&W Facility Services non-compete lawsuit against janitorial employee Sonia Mercado was swift and severe.

I wrote about this last week, offering my opinion on a number of different facets to this ill-advised lawsuit. This dispute got mention not just on the nerdosphere, but also mainstream outlets including the Financial Times and the Washington Post.

After the Post published its piece, Cushman & Wakefield (an affiliate of C&W) issued a statement withdrawing the case and apologizing to Ms. Mercado. It also offered to pay her the bonus she had given up in an attempt to avoid triggering the non-compete. Here's the apology:

"Following recent media reports related to the use of restrictive agreements with our janitorial staff, we have completed a review of the circumstances. While we do have restrictions with a select number of salaried managers, we have found that this policy was incorrectly applied in this instance. We are taking action to correct this situation. We sincerely apologize to Ms. Mercado. Restricting the employment of hourly workers is inconsistent with our policies and contrary to our values as an organization.”

There are two ways to view this. First, C&W may have just tried to pull a fast one and then issued an apology when it got caught in a media firestorm. That's probably the most plausible. Second, someone at C&W may have authorized counsel to take action without clearing it through the appropriate channels. That, too, is quite plausible. At least, that's the narrative C&W's statement seems to be trying to sell.

I maintain, as do others, that Ms. Mercado was never a real target. She was a pawn, used as part of a tactical gambit against C&W's competitor. (To continue the dorky chess analogy, she became a passed pawn ready to mate the other side until it resigned.) This happens far too often in non-compete litigation, when one individual gets caught in the crosshairs of a much larger message-sending dispute. Common or not, that is not an appropriate use of legal process.

In the end, it is at least gratifying that this story had a just ending to it. But it never should have been written in the first place.

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One noteworthy item. The Fifth Circuit, applying Louisiana law, has taken a narrow view of the preemption doctrine applicable to statutory trade-secrets claims. States that have adopted the Uniform Trade Secrets Act frequently confront the question of preemption. That is, when do other claims based on trade-secrets theft have to give way to just the statutory claim itself? The so-called narrow view is more in line with the text of the statutory preemption clause. In other words, a plaintiff cannot use another tort claim that invokes trade-secrets misappropriation. Common victims include conversion and breach of fiduciary duty. But as the Fifth Circuit held in Brand Services LLC v. Irex Corporation, claims based on misuse of confidential information that is not a trade secret do not fall within the preemption provision.

This is a textual reading of the statute, endorsing a narrow view of preemption and rejecting a more pragmatic approach favored by many courts.

The Janitor Non-Compete, This Time for Real

The janitor hypothetical is one of the most timeless aspects of non-compete cases. That is, when illustrating how broad a non-compete is, courts and lawyers alike often resort to a sometimes absurd hypothetical. It often contains some variation of "this non-compete is so broad it would restrict [insert poor sap stuck in litigation] from being a janitor." Feigned outrage and chuckles then ensue.

Only this time, no absurd hypothetical. Enter the combatants. On one side is C&W Facility Services, which provides maintenance services to commercial property owners. On the other side is UG2, a competitor. In the middle sits poor Sonia Mercado, a non-exempt "janitorial supervisor" making $18 per hour at C&W.

C&W is faced with a contract renewal to provide maintenance services at some outfit called Lonza Biologics, a life sciences company. Apparently, Lonza put the maintenance contract out to bid and lost it to UG2. Mercado worked for C&W on-site at Lonza. From her Declaration (unrebutted), she describes her job like this:

"As a supervisor, my job responsibilities differed from clearness only in that I helped to train new staff in how to clean. Otherwise, I was a cleaner. My English is better than some of the other cleaners, and I believe this is why I was made a supervisor."

She continues, again without rebuttal:

"I cleaned in the Carpet World. The Carpet World cleaners, including myself, did vacuuming, cleaning rugs, dusting, emptying trash cans/recycle bins, and periodically washing windows. We had a small room with cleaning supplies." She went so far as to attach a goddamned picture of the room with cleaning supplies."

After C&W loses the services contract to UG2, it presents Mercado with a two-year non-compete agreement. The upshot of the agreement is that Mercado, under the agreement, could not provide services at Lonza for another maintenance company. Mind you, by this time, C&W has lost the agreement and Mercado had no involvement in that process whatsoever.

The circumstances under which Mercado signed the restrictive covenant are questionable. From her affidavit, Mercado says that C&W informed Mercado and others that they would be placed at a new facility (Lindt chocolate...overrated, by the way). Apparently, C&W felt that UG2 would have trouble handling the job and told Mercado that she would be back at Lonza in no time. Weird, but plausible.

Mercado then signs the restrictive covenant along with a bonus agreement, most of which she ultimately returns. She ends up back at Lonza working for UG2, which should have surprised no one.

C&W then takes the inexplicable step of suing Mercado to enforce the agreement. The Verified Complaint is the typical sort of canned pleading we've come to hate, playing up what a total fucking disaster it would be for the company's confidential information to be lost. Mercado had no access to any such information, but the point seems to have been lost on C&W. In fact, the so-called protectable interest allegations, to me, do not pass the smell test. If believed, Mercado's responsibilities as a janitorial supervisor are on par with Lonza's head of operations.

The district court then enters an order of injunctive relief, enforcing the non-compete for four months (not two years) and ordering C&W to pay Mercado a portion of the bonus she returned to C&W. In effect, the court told C&W its non-compete was overbroad, required some modified form of "garden leave," and then struck as unreasonable the fee-shifting clause. The ruling preserved some semblance of sanity, though the court made a grave error. It should have denied the injunction outright.

The overarching problem is the court's complete lack of engagement with the protectable interest requirement. In other words, what was C&W hoping to achieve by preventing a custodian from working for another service provider after C&W already had lost the service contract? The court never says, beyond some unconvincing reference to training costs.

This is a problem in non-compete cases. Judges must be engaged with the facts to understand the rationale behind enforcing the restriction. Too often, plaintiffs get a free pass because they lodge vague generalities about threatened injury that sound just fine on paper, but fall apart in practice. It is unclear where C&W possibly could go from here. This case won't get any better. It's likely to get far worse.

A final word. It seems pretty clear to me that C&W is using Mercado as a pawn in much larger tactical battle with UG2. C&W could care less about her - that much is clear from the mere filing of the suit. Companies that use ex-employees in this way, as well as the "lawyers" representing them, do grave damage to the labor market and the use of human capital. This particular dispute sucks, and it's a total waste of time. C&W doesn't care. No one at UG2 is likely losing sleep. But I guarantee you Mercado cares.

I know people like her. I see them at night when I am working late. I make a point to get to know them and let them know they're appreciated. They work hard, for not much money, and people take them for granted. When my father was a school superintendent, he knew each custodial worker in my high school. He knew them by name. He gave them little things, an old TV comes to mind, knowing how much they'd appreciate it. That always has stuck with me.

Ultimately, it is C&W that will suffer the consequences of this inane and utterly pathetic lawsuit. It will be used as exhibit A for non-compete abuse. It ought to be used as a justification by some future client of C&W to not hire C&W at all.

C&W Facility v Mercado by Ken Vanko on Scribd

Legislative Reform, Non-Compete Agreements, and the Contracts Clause

With increasing frequency, we see state legislatures wade into the hot topic of non-compete reform. Over the past several years, we've seen the States enact laws that govern employee non-compete arrangements in myriad ways.

Below is just a sampling:

• Illinois enacted the Freedom to Work Act, which banned non-competes for employees below a salary threshold;
• New Mexico and California established laws that restrict the use of choice-of-law and choice-of-forum clauses;
• Idaho repealed a statutory rule that created a rebuttable presumption of irreparable harm for certain employees who were subject to non-compete clauses;
• Colorado limited remedies for certain physician non-compete arrangements;
• Hawaii banned non-competes for technology workers; and
• Massachusetts totally revamped its entire law on non-competes at the end of July.

One inevitable feature of these legislative reforms is the prospective application of the new law. For instance, California's amendment to its Labor Code specifically provides that the bar on foreign choice-of-law/choice-of-forum clauses do not apply to any contract entered into before January 1, 2017. The new Massachusetts non-compete bill is basically the same, as it only impacts contracts signed on or after October 1, 2018.

This "prospective application only" obviously requires lawyers to evaluate potentially two different sets of non-compete law, depending on the breadth of the legislative reform. But why do have to worry about this at all? I have had several clients, for instance, who live in California but have Illinois choice-of-law and -forum clauses perplexed at why the legislative reform would just target new contracts, instead of existing ones.\

The answer lies in the U.S. Constitution's Contracts Clause (Art. I, § 10, cl. 1), which provides that no State shall pass any law impairing the obligation of contracts.

Relatively simple language has spawned an impairment test that is anything but easy to apply, however. Not all laws that affect pre-existing contracts violate the Contracts Clause. Instead, courts must look first at whether the state law has "operated a substantial impairment of a contractual relationship." To answer that question, courts consider the extent to which a law undermines a contractual bargain, interferes with a party's reasonable expectations, and prevents a party from safeguarding its rights. Assuming a party can demonstrate this substantial impairment, courts then ask whether the state law is drawn in a reasonable way to advance a significant and legitimate public purpose.

The recent rash of non-compete reform, both big and small, raises the question of just how far States could go to alter contractual rights retroactively if they so choose. For instance, Alabama enacted its Restrictive Covenants Act effective January 1, 2016, but nothing in the Act says anything about prospective application. Indeed, the language of the Act suggests it applies to everything.

Alabama actually serves as a good starting point for analysis. The new law changed some stuff, but perhaps not in a way that impaired existing non-competes in a constitutional sense. For instance, it now lists presumptive periods of reasonableness, but it does not say for instance that a three-year non-compete is void against public policy. Alabama also puts the burden on an employee to prove that a covenant will impose an undue hardship on her, a deviation from prior law that is somewhat significant. But the statute still allows for presentation of the defense (as distinguished from Florida law, which does not).

On the other side of the equation, Hawaii's law banning non-competes for technology workers would constitute the sort of substantial impairment that the Contracts Clause prohibits. So too, Massachusetts now bans non-competes unless they meet a rash of substantive and procedural requirements (including garden-leave pay). No doubt, that law could not be given retroactive application.

But we can imagine tougher calls. Laws that address choice-of-law and choice-of-forum clauses do not necessarily impact contractual rights, but could place a burden on obtaining a contractual remedy. A law that allocates burdens of proof similarly would not constitute a substantial impairment. By the same token, a law that shortened the statute of limitations for enforcement or even for asserting damages claims still would preserve the underlying right. But those that establish a maximum non-compete period, categorically, likely would be unconstitutional because they would invalidate a whole class of agreements.

Prospective application of the law is sort of a bedrock principle of statutory construction. The Contracts Clause was supposed to harden that into a rigid mandate. Like much of constitutional law, the contours of the clause are now a bit fuzzy. Non-compete law, in most states, suffers from the same problem.

Back from Hiatus (Part I): Illinois Case Law Update

I've been uncharacteristically quiet about the subject of restrictive covenants, consumed (somewhat mercifully) by other cases in other areas of the law.

But the flow of non-compete decisions does not stop for those who venture astray, and so it appears I have some catchin' up to do.

I'll start with my home State (for now) of Illinois, where we have high taxes and a high output of non-compete cases. The federal district courts in Illinois churn out a lot of interesting non-compete cases. Those decisions, too, tend to be influential. For instance, most Illinois courts have decided to break from appellate case law on the employee at-will consideration rule that has generated some buzz (and some appellate work for yours truly).

Non-Competition Covenants and Motions to Dismiss

One example of this independence from the federal bench is the case of Medix Staffing Solutions Inc. v. Dumrauf. Judge Sara Ellis granted a motion to dismiss a non-compete claim that Medix brought again a former Director of Business Operations. The decision was notable - and fairly bold - since Illinois courts have suggested that enforceability and overbreadth questions generally are unsuitable for motions to dismiss. True, you see these teed up more often at summary judgment or even through preliminary injunction rulings. But infrequently, the propriety of a motion to dismiss in the context of non-competes appears in the case law.

The court in Dumrauf found that the employer's non-compete was extreme and facially unenforceable when it barred the employee from working within 50 miles of any Medix office for any business that competed with Medix or that offered a product or service in competition with Medix. Of central concern to the court was the non-compete's prohibition on Dumrauf's work in any capacity for a competing enterprise. The case demonstrates the importance of drafting non-competition agreements with a reasonable scope limitation that is roughly commensurate with the type of job the employee performed at the company (or perhaps one that, if not comparable, would threaten the same type of legitimate business interest).

Judge Ellis lastly declined to modify, or blue-pencil, the non-compete, as is typical of most (but not all) Illinois courts. The deciding factor is usually how close the employer came to being reasonable. But here, the non-compete failed terribly so Judge Ellis said no to rewriting it.

Non-Solicitation Covenants and Motions for Summary Judgment

The employer didn't fare a whole lot better in Call One, Inc. v. Anzine, but the case does show that blue-penciling is not always a pipe dream.

The non-solicitation covenant in Anzine had all the hallmarks of a crapshow. It was (a) not limited to the employee's particular accounts, and (b) included something called "prospective" customers, which unhelpfully covered accounts the company solicited or "had plans to solicit."

Judge Matthew Kennelly found the covenant unenforceable, noting along the way that Illinois precedents in the non-compete field are of "less than usual value." This could mean either that the cases are too fact-specific to be helpful in a subsequent case, or that Illinois state appellate courts are not helpful as a general proposition. Or both.

But Judge Kennelly looked to a reformation clause in the underlying agreement, which contemplated that a court could make an invalid clause valid. Many changes skim over that clause for reasons that are obvious. As a result, he fixed some (but in my opinion not all) of the problems in the non-solicitation clause, such that Anzine was still barred from soliciting company customers (and active prospects as of the date she was terminated) and customers for which she had sales responsibility.

One other observation on this case. Anzine sent a couple of work spreadsheets to her personal email account, but Judge Kennelly found that no jury could find that this rose to the level of "misappropriation" of a trade secret. The self-emailing phenomenon is not new, but in and of itself it is no panacea for a trade secrets claim. Here, Anzine appeared to have plausible reasons for what she did, and the e-mailing didn't occur under suspicious circumstances (like, for instance, a forwarding of documents after notice and before departure). The court's discussion of this is worth a read for practitioners who've dealt with this set of facts before.

Non-Competition Covenants, Non-Solicitation Covenants, and Motions to Dismiss (Redux)

And on the opposite end of the spectrum (somewhat), we have American Transport Group v. Power. There, the court denied the defendant's motion to dismiss a restrictive covenants claim even when problems with those covenants were clearly apparent. The theme running through this case was nearly the opposite of Dumrauf, as Judge Virginia Kendall repeatedly noted that the employer must have the opportunity to develop the record on the question of reasonableness.

The non-compete precluded a freight broker's salesman from working for any competitor for three months, regardless of geographic location. I have a lot to say about the freight brokerage business, but that's beyond the scope of this. It is true, however, that geography seems to matter very little for sales people who work the phones contacting shippers (that is, customers) and arranging carriers. So I wasn't terribly bothered by the three-month clause or the lack of a geographical limit, as much as I am bothered by the use of non-competes in this industry entirely.

The non-solicitation clause though was a problem, and I think Judge Kendall should have found it unenforceable. It barred Power, for one year, from soliciting or diverting any customer or carrier of his employer. The court provided little analysis here, but I am uncertain how ATG ever could restrict the employee's use of a carrier (in effect, a supplier) when freight brokers all deal with the same carriers. Seems gratuitous.

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So what lessons did we learn today? Judges reach different holdings on similar facts. Companies still have a lot to learn when drafting agreements. Lawyers will keep getting business because this stuff ain't going away. And your author can't take a month off again, because the cases keep piling up.

Justice Thomas and Questions About Severability

A lot can be said about Justice Clarence Thomas. Some of it bad, but much of it quite good. For those who assert he is one of the worst Supreme Court justices of all time, take that for what it is good. Toxic political commentary and sheer uninformed drivel.

The best of Justice Thomas comes out in the now-familiar lone-wolf opinion, whether concurring or dissenting. His unique views span a wide range of the legal landscape, from the Eighth Amendment to the collateral-order doctrine to qualified immunity. Whether you agree with those views or not, they spark discussion and offer an idiosyncratic viewpoint that often makes a great deal of sense.

He expressed another one of these views again last week in Murphy v. NCCA on the issue of severability, which comes up in the Court's constitutional jurisprudence from time to time.

Put simply, the severability doctrine arises when the Court strikes at least part of a statute as unconstitutional. The question then becomes whether the Court should "sever and excise" the offending parts while saving the remainder.

Justice Thomas would like to reexamine that doctrine and has doubts that it is an appropriate part of constitutional analysis for two reasons: (1) it does not follow statutory interpretation principles, because by definition it requires courts to determine what a legislature would have done had the unconstitutional parts of the statute never been enacted at all; and (2) it requires courts to render an advisory opinion on issues the parties aren't fighting over.

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You may be asking: what the hell does this have to do with non-compete agreements, which is after all sort of the point of this blog.

The connection, however loose or attenuated, is that non-compete law has its own severability principle and it's not all that dissimilar from what Justice Thomas discussed.

In Illinois, the general rule on contract severability is this: a court may enforce the valid parts of an agreement "in favor of a party who did not engage in serious misconduct if the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange." That framework generally parrots the Restatement (Second) of Contracts, Section 184. And to further clarify the rule, whether an unenforceable term is an "essential part" of the contract depends on the relative importance of the term in light of the entire agreement between the parties.

The black-letter formulation of this rule thus invokes some of the concerns Justice Thomas outlined in his Murphy concurrence. Assume the following very realistic hypothetical scenario:

• Employee signs agreement containing broad non-compete clause and narrow non-solicitation of customers clause.
• Employer focuses its case on customer solicitation, but appears to agree that employee can work for competitor despite the nominal presence of the non-compete in the contract.
• Employer is generally successful in showing actual solicitation and that the circumstances render the non-solicitation enforceable.
• Employee proves that the facts make the non-compete gratuitously overbroad.

In such a circumstance, what do we make of the severability rule? It is clear in my hypothetical that part of the agreement is unenforceable, but does that doom the non-solicitation covenant? Under Illinois law, the employee may have a winning argument if circumstances show that the non-compete was integral to the overall contract formation. For instance, she could show the following:

• Employer insisted that it be included, despite the employee's objections to the broader non-compete.
• The contract recitals suggest all provisions of the agreement work in unison, are all needed to protect confidential information, or are each integral to the contract.
• The Employer threatened to enforce the non-compete in an early cease-and-desist letter.

At least if we apply Justice Thomas' reasoning, the severability principle may be a big distraction if the employer isn't attempting to enforce it in court. In other words, the defendant would be addressing a counterfactual: yes, your Honor, but if Employer did try to enforce it, it would lose. Depending on the facts, though, Justice Thomas' stated concerns over an advisory opinion may be overstated. 

The prevailing law on severability then diverges a bit from Justice Thomas' analysis and focuses less on whether the employer would have entered into the agreement with the employee if it had known the non-compete wouldn't have been enforceable and instead more on whether the offending non-compete covenant was an essential part of contract formation. On this score, the analysis does not seem to raise the judicial power concerns Justice Thomas discusses in Murphy and rather focuses on the circumstances at signing. 

The arguments for and against severability are not easy to resolve. Justice Thomas' opinion, though, clarifies in a very straightforward way the tension surrounding them.

Sinclair Broadcast and Its (Alleged) Non-Compete Agreement

Until about a week ago, few of us had ever heard of Sinclair Broadcast Group. That is, until this video went viral.

The video shows local news anchors in a bizarre montage reading precisely the same script about news outlets pushing "irresponsible" stories to push fake news without appropriate fact-checking. Predictably, this generated a response among more prominent news outlets, some of whom took their local broadcast colleagues to task for not standing up to a corporate mandate.

Earlier this week, Bloomberg News reported that there may be a reason why those local anchors did not stand up and quit their jobs. The cost of doing so appears to be fairly steep. Bloomberg News reported that Sinclair employees sign contracts with 6-month non-compete clauses and liquidated damages clauses that call for repayment of up to 40 percent of annual compensation for quitting outside of a notice period.

The Bloomberg News article cites one example where Sinclair attempted to enforce a liquidated damages clause against a Florida news anchor who quit in disgust over some Sinclair tactics. The amount sought was quite low, however. Still, for some seasoned on-air talent, a repayment clause could be enough to deter an employee from quitting on principle.

The non-compete issue is an interesting one as well, though. Many states, including Illinois, prohibit non-compete arrangements in the broadcast industry. Sinclair is trying to buy the Tribune Media group, which means it would own Chicago's revered WGN.

Its apparent use of non-competes would run into a problem with WGN's on-air talent under the Broadcast Industry Free Market Act. That statute prohibits the use of non-compete agreements for television, radio, and cable station talent. It does not apply to sales or management employees. And if Sinclair were to violate the Act, it would be liable for both damages and attorneys' fees.

A number of other states, including New York and Massachusetts, also bar broadcast industry non-competes. California does so too by virtue of its general law banning restrictive covenants in employment.

The Supreme Court of Illinois Is Not Interested in the Non-Compete Consideration Rule

For the third time, the Supreme Court of Illinois has declined to hear a petition for leave to appeal that confronts the question of continued employment as consideration for a non-compete agreement.

For at least the past few years, practitioners have operated under the assumption, perhaps wrongly, that Illinois courts established a bright-line two-year rule under which continued employment may serve as consideration for an employee restrictive covenant agreement. This is the so-called Fifield rule, stemming from a 2013 First District Appellate Court case that appeared to set forth a bright line. The Supreme Court declined to hear an appeal in Fifield, so the lack of interest in follow-on cases is not surprising.

This past week, the Court declined a petition for leave to appeal in the case of Automated Industrial Machinery, Inc. v. Christofilis, 2017 IL App (2d) 160301-U. This was my case, and I represented Tom Christofilis at trial and on appeal. Early on in the litigation, the circuit court had granted our motion to dismiss a breach of contract claim given that Christofilis' former employer, AIM, had required him to sign an afterthought non-compete that lasted only for 5 months before he resigned. The court noted that it was not relying at all on Fifield, rightly stating that not a single case in Illinois endorsed consideration of just 5 months' continued employment.

Illinois' consideration rule has come under criticism from some, who apparently are dissatisfied that courts have tread a middle ground between the absolutist positions. Those positions state either that continued employment is not valid contract consideration for a non-compete, or that it is. Very few states require some sort of meaningful period of employment, and Illinois' "substantial period of time" rule is perhaps the most well-developed line of cases that forges a pragmatic path.

Though I say the cases are well-developed, they could certainly be clearer. I think Fifield is misunderstood because sometimes easy cases make for bad law. In retrospect, the two-year pronouncement was both unnecessary to the case's disposition and simply a product of loose opinion writing. I hate to say that and don't mean to indict the appellate court, but it's simply true.

In the bigger picture, the notion of continued employment as adequate consideration at all for a restraint of trade is just weird. It is ephemeral and in many cases illusory. It fails to account for the adhesive nature of the arrangement and the fact that the employee receives nothing at all comparable to what he or she is giving up. As lawyers, we're stuck with this silly, non-sensical paradigm of analyzing contract consideration that makes very little sense to clients and seems directly at odds with the disfavored nature of non-competes in the first instance.

Legislating this issue will prove difficult. But there's another way. If a court ever took a fresh look (and based on Fifield and Christofilis, I don't see that as imminent), it may want to ask just why continued employment is a permissible form of consideration in the first instance. Or how it comports with the adequacy rule that requires some decent fit between the restraint and the benefit conferred on the party restrained. Inertia is not often a good reason for justifying a legal rule, even if lawyers and judges assume that it is.

Diversity Hiring as a...."Protectable Business Interest"

Just when I think there are few unexplored topics on here, I check my Google news alerts to see what new interesting non-compete stories pop up. And sure enough, we get a real doozy.

IBM has sued its former Chief Diversity Officer, Lindsay Rae McIntyre, who left to join Microsoft. The fulcrum of IBM's suit is plainly stated in its brief seeking a temporary restraining order:

"By taking the identical job at Microsoft, and bringing the highly confidential and competitively sensitive information she knows about IBM's diversity data, strategies, and innovations, McIntyre threatens to disclose and use IBM's valuable business secrets for the benefit of one of IBM's most significant competitors."

The TRO brief goes on--for fifty pages--to say basically the same thing. Workplace diversity is important. IBM is a leader. Microsoft is behind. Customers want diversity in employment. And that diversity leads to greater innovation.

Fair enough.

But is this really a business interest that a company can protect through a broad non-compete?

The concept of workplace diversity is no doubt important (and IBM is apparently very good at it), but wouldn't firms who are successful at recruiting and retaining diverse workforces want to publicize that fact? And wouldn't tech titans want to promote not only top talent that it brought into the fold, but how it was able to get them to the company in the first place?

The IBM filing also reveals a problem in non-compete suits that festers incessantly. It's one thing to identify a broad strategy (here, hiring and retention of diverse candidates) as "confidential." But it's then quite another to introduce evidence that disaggregates something specific from that which is in the public domain already.

This seems especially difficult when the claimed protectable interest concerns broadly stated hiring goals or achievements, at least some of which certainly get into the public domain. The position IBM asserts necessarily assumes a corporate culture that is on par with Microsoft (which its filing suggests is not the case at all) and assumes that the workforces are susceptible to having one crossover employee implement or replicate the same hiring tactics on diversity. And it further assumes that Microsoft will want to copy IBM altogether.

It is relatively unusual to see (sustainable) non-compete cases that involve a protectable interest you cannot directly monetize. Most involve sales executives or managers, or those who create and develop intellectual property or other consumable products. The interest in those actions has a direct nexus to sales and customer goodwill. In IBM's current suit against McIntyre, however, the reference to goodwill is starkly indirect--that is, good hiring practices create a good culture which ultimately strengthens the corporation's overall position in the market.

The interest IBM asserts also invokes the notion of "embedded knowledge"--the collective experience an employee brings to the new job simply by being an employee. That is, knowledge at a very high level is a transferable, natural right that a non-compete shouldn't be able to protect. Many corporations do, to be sure, and a great many attorneys feel right at home arguing that knowledge barriers are just fine and dandy. When those suits arise, and the case becomes one about embedded knowledge, it becomes awfully difficult for a court to deconstruct that abstract or collective knowledge gained from concrete secrets deployable somewhere else.

When that happens, sometimes it is easiest for courts just to pivot back to the most obvious, natural theme--one plainly obvious from the first five pages of IBM's own case. Do we really want to restrict an employee from leaving to help other organizations diversify their workforces? This one is a real head-scratcher.

It's Just Business as Usual for the Year 10 Kick-Off

The more things change, the more they stay the same.

If I had to make three predictions for 2018, they would have been as follows:

(1) Legislators across the U.S. will introduce non-compete bills, which will advance at a glacial pace with incredibly unimpressive results.

(2) Frivolous non-compete and trade secrets suits will continue unabated, and I will break three keyboards writing about them.

(3) Waymo and Uber will end up going to trial, and the court will render a mixed verdict. At some point, Paul Clement will sign an appellate brief for one of the parties.

***

It is January 5, and we seem to have checked the box on numbers 1 and 2.

Representatives in the Vermont General Assembly have introduced a bill that would establish a categorical ban on non-compete agreements, much in the mold of the North Dakota and California statutes. The proposed legislation contains the usual carve-outs for negotiated sale-of-business and partnership-style non-competes. A copy of the bill is available here. This may be the last we hear of it.

Move a stone's throw to the East, and a gaggle of New Hampshire senators have introduced Senate Bill 423, which would ban non-competes for low-wage workers. Similar to the Illinois Freedom to Work Act, the term "low-wage worker" includes those earning the greater of the federal minimum wage or $15 per hour. This is a common-sense reform that probably stands a decent chance of passage. The Senate Bill is available here.

***

The State of Ohio, and people with some connection to the Buckeye State, have produced some pretty terrible trade secrets and non-compete litigation. Which saddens me, because I went to Ohio State.

Well, the trend seems to continue with a company in the business of producing something called "precision braided textiles" filing what appears to be a really crappy suit against a former employee. A&P Technology sued a terminated Phil Lariviere on the theory of inevitable disclosure of trade secrets. Lariviere, a former engineer, sat out his broad, two-year non-compete before obtaining subsequent employment through a recruiter with one of A&P's competitors.

A&P then filed suit claiming that Lariviere's intimate knowledge of everything A&P placed its trade secrets at risk, as if time stood still during the two-plus years Lariviere was gone. The Southern District of Ohio mercifully denied this injunction against Lariviere, despite his relatively hostile attitude to his former employer. The injunction briefing contained some rather amusing exhibits about Lariviere's social media posts, texts, and e-mails. Why? A&P felt that anger and hostility suggested an intent to steal trade secrets.

No reason for this theory appears to be offered, and the court saw through it. According to Judge Black, "Lariviere's mockery of the former employer who terminated him and then sued him is not demonstrative of any actual effort or inclination to violate his contractual obligation to protect the confidentiality of A&P's trade secrets." Maybe this was an unfortunate choice, but I sympathize here with Lariviere. He should be pissed about getting sued on a specious claim after abiding by his non-compete.

An equally interesting aspect of the opinion concerns Lariviere's smart move to force A&P to identify its trade secrets with specificity. The shotgun nature of A&P's claim all but forced Lariviere's hand to proceed this way. And the court was persuaded, ordering A&P to list out its "suspected misappropriated trade secrets" before demanding the same of Lariviere and his new employer. The main impetus for the discovery ruling appears to have been the substantive weakness of A&P's case.

You can review the order and opinion at the end of this post. A further link is available here. It is well worth a read for lawyers and litigants, as the discussion spans a number of substantive and procedural topics likely to recur.

***

In the Waymo v. Uber litigation, the so-called Jacobs letter has received a great deal of attention. The letter was originally part of a dispute between Jacobs and Uber. But it has been interjected into the trade-secrets trial of the century, centered on the conduct of former engineer Anthony Levandowski. The most salacious part of the Jacobs letter was the allegation that former CEO Travis Kalanick had sanctioned trade secrets theft. To be sure, the Jacobs story will be a featured part of the upcoming trial. And to that end, Judge William Alsup, who is overseeing the case, issued a recent Order unlike any I've ever seen.

***

A&P Technology v. Lariviere (Order) by Ken Vanko on Scribd

Year-End Post: A Completely Random Screed, Addressing Topics Near and Dear

Last night, as Christmas '17 drew to a close, my wife and I imbibed with a (very small) glass of Pappy Van Winkle, which, if you know anything about bourbon, is totally epic shit and absolutely the right way to finish off a holiday. As I let the cordial burn the inside of my mouth (and I do mean burn), I thought about a year that was completely random in so many ways. I'll leave aside the declining discourse of our civic life and translate this to the content of this blog, which is non-compete and trade secret litigation.

I thought of the great successes my clients and I have had this year. I began the year arguing in the Third District Appellate Court, site of the Lincoln-Douglas debates, on a non-compete judgment entered in favor of my client, a former staffing industry sales employee, after a bench trial. Work then pivoted to a monster appeal in the Second District, which recently affirmed a bench trial judgment in our favor and affirmed a nearly $1.5 million fee award under corporate indemnification procedures. We now have pending, again in the Third District, a discretionary, interlocutory appeal on an issue of contract interpretation concerning non-competes. We are hopeful that this case, too, will establish precedent and continue to move the ball down the field of rationality.

In the trial courts, my work was no less significant. And again, our results--for awesome clients--continued to be great. We successfully dismissed an inevitable disclosure action in Illinois state court, with a factual and procedural context so utterly inane and bereft of competence that I cannot do it justice. But I tried, in my blog post "38 Minutes of Hell," which garnered a lot of classic feedback.

June and July were consumed with one of the truly weirdest cases I'll ever see, a replevin claim in Cook County Circuit Court, where we prevailed in a bench trial. Next, we headed to the East Coast and defeated a preliminary injunction in the Delaware Court of Chancery, following a failed business acquisition. This time, too, the merits were a real head-scratcher, with the plaintiff pursuing a claim based on a no-hiring clause that limited our ability to hire employees of the potential target company. Problem: we hired an independent contractor. Once again, we see litigation as an ex post attempt to strike a business deal that the parties never adopted. That lawsuit's in the ditch now.

Then we stepped into a federal non-compete and trade secrets case that had been pending for several months. After getting subbed in for defense counsel, I read the file and concluded rather quickly that this case, too, was purely abusive. We then immediately contacted non-party witnesses, obtained statements that undermined the plaintiff's claim of breach (and trade secrets theft) in toto, and served our initial evidence disclosures. You could almost hear the plaintiff back-pedal, as it filed a motion to dismiss the case with prejudice, conditioned of course on the "with each party to bear its own costs and fees." Ain't that easy, partner. We moving for fees. May not get 'em. But we tryin'.

***

We're now in yet another one of these cases, with similarly weak facts from the plaintiff's perspective. And as I'm litigating that one, I can't help but feel we're reaching an inflection point on non-compete cases. What I continue to see is canned pleadings and complaints, invoking the same shop-worn phrases about what it is the plaintiff is trying to protect through covenants both broad and narrow. What is missing from many such cases is a deconstructed analysis of these interests and how the enforcement action is designed to protect them from an unfair competitive threat.

In the main, these business interests sound reasonable and decent. Customer relationships and confidential information, though, are interests only protectable if the facts justify market-distorting protections. I believe that, in opaque industries not intuitively familiar to the average person, the notion of "customer relationships" can be awfully difficult to deconstruct and analyze. Put another way, the term (or the asserted interest girding the restrictive covenants) quickly gets disaggregated from the actual, relevant facts.

Business-to-business relationships, which are what most non-competes are designed to protect, are complex. The question, for instance, of who a customer even is can be iterative, not obvious. Furthermore, we live in an era (call it the post-Industrial era, since no one knows what else to call it) where businesses are becoming more and more fragmented and specialized. This is what I wrote on LinkedIn last week:

...Extreme market fragmentation within industries means that companies once deemed "rivals" now operate in a manner adjacent to, not competitive with, each other. Contractual restrictions on competing in the "same or similar line of business," once thought acceptable, now fail to account for this macroeconomic shift towards hyper-specialization....

I stand by that and think that we need to keep this in mind when assessing whether to file suit and how to defend a suit.

What I see in non-compete cases is this. Plaintiff recycles a complaint with a very nice series of allegations about customer relationships. Those allegations have no fit whatsoever to the industry they happen to be litigating. A trial judge operates under a familiar framework, constrained by time and resources, all the while failing to grasp the nuances of the business that is the subject of the dispute during an emergency hearing. The allegations may be enough to get a plaintiff a few first downs. But ultimately they get three holding penalties in a row, the punter fumbles the ball, and the team is totally blown out by halftime. (As a Chicago Bears fan, the analogy seemed obvious and temporally appropriate.)

So what is my point? The protectable interest question is really, really important. It is not nearly enough to rest on the laurels of past pleadings that survived a motion to dismiss and that invoke the black-letter principles we all now know. What is demanded is a strong look at just how the defendant, who signed a restrictive covenant, can move business in a manner that deprives his ex-employer of a fair chance to compete for the business on an even playing field. After hashing out a number of different tests, standards, or formulations, I think this is the inquiry for whether enforcement of a reasonably drafted non-compete is permissible to protect customer relationships. Anything broader restrains fair competition in the market, despite what the contract says.

To be sure, some industries are more susceptible to allowing enforcement. But many come nowhere close. I guess what I'm saying is this: I'm not tired of non-compete lawsuits. I'm tired of crappy non-compete lawsuits. And I'm absolutely done with lazy lawyering.

***

As I often do, I checked out Russell Beck's Fair Competition Law and learned Pennsylvania legislators have proposed a California-style ban on non-competes. The text of House Bill No. 1938 is available here. Of more interest, candidly, was Russell's hat-tip to a recent article published by Norm Bishara and Evan Starr, The Incomplete Noncompete Picture. Bishara and Starr conclude that some basic questions are left unanswered by empirical research. One area that seems to be problematic for researchers is the ability to track employees over time, in terms of their job advancement and wage rates. And if you think about it, incentives for these employees may change.

For early-stage employees, they are very likely to change jobs and face advancement constraints posed by non-competes that they are unable to litigate. They have, and should have, very coarse feelings about them. But over time, they may change their mind, particularly if they are entrepreneurial and can benefit from restrictive covenants imposed on others.

***

Finally, for this year, I thought the Sixth Circuit's opinion in Hall v. Edgewood Partners Ins. Center, Inc., No. 17-3744, is well worth a read for practitioners and laypersons alike. It addresses a rather common question I face regarding assignability of employee restrictive covenants following an asset sale. I will not deconstruct or case-summarize here, but I do provide a link to Judge Thapar's eminently readable opinion on an issue that is often misunderstood and extremely important to get right.

***

With that, I bow out for 2017. See you in a week or so. And thanks again for reading!

The Reading List (2017, No. 30): Ex Parte Seizure Orders, North Dakota Non-Competes, and 9 Years of Blogging

Non-Compete and Trade Secrets News for the week ended December 15, 2017

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Ex Parte Seizures of Trade Secrets

The Defend Trade Secrets Act's provision for ex parte seizures of property has generated considerable buzz and commentary, much more so than the remedy's narrow application seems to be worth. I am interested in it only in the academic sense, not the pragmatic one.

If you want nuts and bolts as to how it works, look elsewhere. I'm not covering it here. (Though if you're truly jonesing for stuff, e-mail me and I'll send you a white paper on it.) The gist is simple: if a plaintiff feels a defendant has stolen trade secrets, it can petition the court for an order to retrieve the property containing those secrets.

The case law applying the ex parte seizure order is understandably thin, given how new the DTSA is. Still, there's more on this remedy than more conventional ones, simply because it takes longer to try a case to judgment than it does to pursue an emergency interim order. So we have some helpful cases.

The most interesting one so far is Blue Star Land Services, LLC v. Coleman, No. 17-931, a case pending in the Western District of Oklahoma. Of course, it involves an employee departure that appears to have gone completely haywire. And even less surprisingly given the venue, it involves the oil and gas industry.

I am showing at the bottom of this post the district court's original ex parte seizure order. This one is pretty interesting since it involves an application for electronic storage devices and a Dropbox account (really, credentials to get into that account). Misappropriation tools tend to be digital, presenting sticky issues for law-enforcement seizure efforts. Put another way, it's easier to seize a bag of dope than it is a cloud-based folder of PDFs.

The Order below is a bit broad, but perhaps necessarily so. That is, it orders the seizure of "[a]ny computers, computer hard drives, or memory devices in Defendants' possession that may contain [trade secret information]." It further extends to seizure of usernames and passwords, information even less apt to forcible retrieval but obviously related to the instrumentalities needed to facilitate the alleged theft. All in all, I think counsel did a good job proposing this quirky remedy, and the court did a nice job entering it given the difficult aspects of seizing digital assets.

North Dakota Non-Compete Decision

We now move upwards to North Dakota, awash in fracking material but mercifully bereft of non-compete litigation. Tell that, though, to one Dawn Osborne, an office supply house sales representative who signed a two-year non-compete with Brown & Saenger.

The problem for Osborne is that even though she worked in Fargo, her employer was a South Dakota company. And the non-compete agreement contained a South Dakota choice-of-law/choice-of-forum clause. But North Dakota prohibits non-compete agreements along the same lines that California does. The Supreme Court of North Dakota held the forum-selection clause invalid, stating "one may not contract for application of another state's law or forum if the natural result is to allow enforcement of a non-compete agreement in violation of North Dakota's long-standing and strong public policy against non-compete agreements." This shows the importance in non-enforcement states of establishing venue through a declaratory judgment action to challenge a forum-selection clause. Litigants in California and Georgia know this tactic well.

A link to Osborne v. Brown & Saenger, Inc. is available here.

My 9-Year (Blogging) Anniversary

I've been blogging about non-competes longer than I've been married.

If my wife is reading this, it feels like I just got married yesterday and I'm still in the throes of wedded bliss! I can't say the same about blogging, but it has been a fun journey to share my thoughts and ideas on here. When I originally started this, my goal was simply to provide helpful, informative content.

My style has changed a great deal from those first timid days when I wasn't sure what my voice would be. I suspect that's true for most people who provide commentary in this format. I was interested, after 9 years, to see which posts (out of more than 600) were read the most, figuring that there would be some sort of logical pattern.

Nope. Some of the most widely-read posts were fairly predictable, like my attack on one of the worst, if not the worst, non-compete I've seen. Then there were my twin posts (here and here) on Tradesman Int'l v. Black, which discussed an important Seventh Circuit case I litigated on bad faith in trade secrets cases. Among the more popular posts was a discussion on pursuing declaratory judgment actions (much like Ms. Osborne did in North Dakota) and ensuring you have a sufficiently ripe controversy. I get tons of e-mails, messages, and calls on that from other attorneys and potential clients.

By far my most popular post, though, was an assessment of what exactly a "solicitation" is in the context of restrictive covenant litigation. I figured it would be a good one, but the numbers were staggering. But even some really obscure, pedantic posts generated an abnormal number of hits, such as about using contention interrogatories. Or this one involving the mootness rule on appeal. Or for God's sakes this one, with the almost intoxicating title "Some Thoughts on Pursuing Expedited Discovery." Turns out, y'all are civil procedure nerds.

The future of legal blogging is a bit uncertain. In this particular area, it's easy to get drowned out by blogs that are manufactured and designed to attract viewers. Many are unhelpful, uninteresting, and apparently undertaken solely as part of a poorly conceived executive committee marketing endeavor. Still, there are many excellent sources of information online which add context and color to the discussion.

I don't where this, my blog, ends, but I know it does end. And I will know when the time is right. So God willing, it may have started before my marriage, but it won't outlast it. For now, thanks for reading.

Blue Star Land Services v. Coleman - Ex Parte Seizure Order (WD Okl) by Ken Vanko on Scribd

38 Minutes of Hell

I've represented defendants in some pretty stupid lawsuits. But 2017 is proving a banner year.

Earlier this year, I had client get served with a claim for inevitable disclosure of trade secrets. From the outset, the case was a pure head-scratcher because there were no facts that so much as hinted at trade secret misappropriation. And, here's one for ya, my client had a non-compete agreement. In point of fact, he did leave his job to go work for a company in the same industry.

So why on earth would the plaintiff not sue on its non-compete and proceed on the inevitable disclosure claim?

Simple.

The Illinois Appellate Court previously had found this company's non-compete unenforceable as a matter of law. It turns out the company learned nothing and never altered its void non-compete in any meaningful way. So, quite obviously, a contract-based claim would have gone nowhere.

So enter inevitable disclosure - the Kim Jong Un of legal claims. The theory was that my client couldn't work for a competitor on the grounds that he inevitably would disclose his former employer's trade secrets - in effect a diabolical work-around to a non-compete that the employer knew it couldn't enforce.

We had none of it, filed a motion to dismiss, and won. It was not close.

The plaintiff's lead attorneys - probably operating under directions from their client to abuse the legal process and prevent competition - then filed a bad-faith, frivolous amended complaint trying to add facts that would suggest some plausible risk that my client might disclose trade secrets.

The facts in this new complaint were so hopelessly convoluted they took about 3 pages of allegations to explain the theory, an ersatz diatribe laden with a cloak-and-dagger reference to a "Customer 1" (as if this is some sealed indictment). The logic was tortured and made no sense, due in large part to the fact that my client had no contact with "Customer 1" and the sequence of events was totally fucked up.

Luckily for the plaintiff, they had another attorney. A really good one, kind of a local counsel, who had common sense. And I feel this attorney must have put the brakes on all the dicking around after I notified everyone that Complaint 2.0 sucked just as badly as the first version.

So the case settled. The plaintiff released us from the non-compete it had and got zero out of the case except a bunch of obvious representations from my client that he had done nothing wrong. (This, I am quite certain, the plaintiff knew. But who the fuck cares about the truth when your client pays your padded bills?) There's no doubt the plaintiff dodged a sanctions motion (which I would have taken up to the appellate court for free in the unlikely event we lost).

But what did law firm insist on in the settlement agreement? A deposition of my client. That's right - a deposition after the case settled, after the claims had been released, and after the action had been dismissed with prejudice.

Who thinks of this garbage? Is this part of orientation day, where you get schooled on how to maximize the billing opportunities in your file? Or is this client-driven, an attempt to show that, frivolous suits be damned, I'll have the last word by golly!?!?

So the purpose of the deposition? To confirm my client was telling the truth in the settlement agreement when he represented he didn't take anything and wasn't soliciting his former clients. As if he would do that. In yet another epic move, the plaintiff's lawyer calls me and tells me he does this sort of deposition all the time.

By that, I now assume he meant that he files a bunch of stupid cases, dismisses them, and then bills for more work after the case is over. We agreed because we had nothing to hide and just wanted this over.

The deposition went forward yesterday. And that's where the title of this post - "38 Minutes of Hell" - comes in.

It wasn't 38 minutes of hell for me. And it damn sure wasn't 38 minutes of hell for my client. It was 38 minutes of hell for them. Because big law firm (two lawyers) and big corporation got to sit across the table from me and my client and see how utterly fucking stupid their lawsuit was. I hope it was as humiliating as it felt. I know it was.

Why do I share this story?

For all the non-compete apologists out there, another story needs to be told. This kind of bullshit that I just told in this blog post goes on every day. Lawyers who file and maintain frivolous anti-competitive suits need to know that it will not end well. It could be a big fee judgment. Or it may be an appellate court telling them their clients' non-compete is awful.

Or it could be just as satisfying - 38 minutes of hell, pure and utter humiliation, watching a replay of your crappy work before your very eyes.

The Reading List (2017, No. 28): Non-Compete Legislation Proposed in New Jersey and More Non-Compete Nonsense in Florida

Non-Compete and Trade Secrets News for the week ended November 24, 2017

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New Jersey Proposes Non-Compete Reform

New Jersey historically has been a strong non-compete enforcement state. In his terrific article Fifty Ways to Leave Your Employer: Relative Enforcement of Covenants Not to Compete, Trends, and Implications for Employee Mobility Policy, Norm Bishara concluded that New Jersey was the 7th strongest enforcement state.

As Russell Beck breaks down, though, pending legislation would alter New Jersey's place in the overall non-compete landscape. Russell runs through the particular changes that Senate Bill 3518 would make, comparing it to the annual non-compete debate in Massachusetts. I encourage you to jump to Russell's site and review the proposed list of changes.

Florida Court of Appeal Invalidates Non-Compete Injunction

Speaking of pro-enforcement states, Florida sits firmly atop the rankings. But employees are not without hope.

Last week, the Florida Second District court of Appeal in Salazar v. Hometeam Pest Defense, Inc., No. 2D16-4123 invalidated a non-compete injunction imposed on a "pest control technician." The employee's agreement prohibited him from engaging in "pest control, exterminating, fumigating, or termite control business" in five Florida counties after his termination. Salazar, it turns out, was fired. An apparently responsible, enterprising adult, he formed his own business after being tossed out of a job.

His employer sued and obtained an injunction in Florida state court. But the Court of Appeal vacated that injunction because the order failed to comply with clear procedural requirements for awarding this type of relief. It contained no findings at all. Whatever occurred in the trial court appears to be totally inexcusable. Leave aside the merits of this. If you represent an employer and seek injunctive relief, you must understand what the injunction order needs to say. I have had cases similar to Salazar. And it is shocking that this continues to occur.

On remand, I'd be interested to see how Hometeam Pest Defense articulates its legitimate business interest in preventing Salazar from working in his industry. The source of a potential client list for those in need of home pest control seems rather obvious...

You can link to the Salazar opinion by clicking here.

Confidentiality Agreements

Every day, we're witness to the unmasking of sexual harassment and misconduct charges leveled at media figures, politicians, and industry leaders. And the sad reality is that many claims are settled on the condition that the victim is muzzled by a confidentiality clause.

Elizabeth Tippett writes in the San Francisco Chronicle about the two principal uses of confidentiality agreements: ones signed at the start of employment and those signed as part of a settlement. And she rightfully questions how non-disclosure agreements (or NDAs) should not muzzle victims of abuse. I suspect we've reached the tipping point where these NDAs may face legislative scrutiny, at least when they relate to a public figure or use of public funds.

That subject matter is outside the scope of my expertise, but it's certainly an interesting and important one to follow as events unfold in near real time. I do think, however, there may be a spillover effect on the less newsworthy type of confidentiality agreement, the kind I tend to write about.

I have been writing for years that employment-based NDAs can operate like stealth non-competes. The general problem is three-fold:

1. The clauses contain open-ended, malleable terms that do less to define "Confidential Information" and more to reserve discretion for the company to label something confidential without repercussion.
2. Employees may have no way to monitor what information remains confidential and potentially protected once they are gone from a business.
3. The breadth of these clauses (including the lack of a durational limit) may enable an employer to state a colorable claim when competition arises and may open the door to expensive discovery.

Let me be clear: I am not subverting the current debate on sexual harassment-related NDAs in favor of this one. Both are important, but the use of NDAs in settlement agreements is far more troubling and deserves far more scrutiny. All I am saying is that practitioners should not just assume blindly that employment-based NDAs are perfectly legit. In many cases, they serve just as punitive of a restraint on fair competition as more overtly stated non-competes.

The "Inevitable Disclosure" Non-Compete Clause: What is it and for God's sakes...why?

Leave it to lawyers to see an obscure, narrow, and disfavored legal theory and then try to drive a mack f**king truck through it like it's the next great revelation.

To what might I refer? Try a non-compete on steroids, one so hopelessly inane and stupid that, at first blush, it actually has some appeal. Until, of course, you analyze it and put more than three minutes of thought into what you're doing.

I refer to this unicorn (in the eyes of some) as the inevitable-disclosure non-compete, the intersection of obscurity and protectionism. Allow me to explain how this bad-ass of contractual clauses works (until it's declared invalid).

Start with the basics.

An agreement may have several different types of post-employment covenants that bind the employee. You have your standard non-disclosure clause, which limits for a period of time the use of confidential information the employee learned. Then you have your non-solicitation covenant, which may preclude work with a group of valuable clients or recruitment of co-workers.

Hard stop for a second.

Those two types of covenants have some legitimate uses. But lawyers must still draft them reasonably and with sensible scope and time limits, even if a geographical one isn't needed.

I continue.

Your agreement may even have a general, market-based non-compete that bars work in a relevant industry.

Hard stop again.

This type of covenant needs to be even more carefully tailored, given its broad economic hardship on the person agreeing to the covenant. It limits work, not a type of work or a narrow subset of work activity. Here, we need activity limits, probably a shorter duration, and in many (but not all) cases a geographic scope confined to the employee's or company's sphere of influence.

An inevitable-disclosure non-compete is profoundly different. It requires the employee to refrain from accepting employment that may require him to use, disclose, or rely on the employer's confidential information. This precise type of covenant recently was held unenforceable in the case of Sullivan v. Gupta, M.D., LLC, No. 2:17-cv-609 (E.D. La. Aug. 10, 2017), because it failed to comply with the requirements in Louisiana for enforceable restraints of trade. (Among other things, State law requires an identification of which parish the non-compete applies to, and this one didn't cut the proverbial mustard.)

This is by no means the first case to find that a stealth non-disclosure agreement constitutes a non-compete.

I have my own experience with agreements like this, and it hasn't been positive (except for the fact that we've won). I blogged a few weeks ago about our trial and appellate victory in Automated Industrial Machinery, Inc. v. Christofilis, 2017 IL App (2d) 160301-U, where the Second District affirmed a fee award for my client, the defendant, of nearly $1.5 million.

One of the issues in that case concerned a non-compete, which the trial court found invalid for lack of consideration. The Appellate Court affirmed that ruling. But it didn't discuss the terms of AIM's non-compete. Had we not prevailed on the consideration issue, we had a strong argument on invalidity (not to mention lack of breach, for which there was no evidence).

That agreement was a true inevitable-disclosure non-compete, and I reprint below the operative restriction, which is stunning in scope:

Pretty rough start when you call your non-compete clause a "doctrine of inevitable disclosure." Who the hell thought of that one? Way to be pedantic, and nice way to warm up to a judge.

Beyond that titular snafu, look at the terms. Just two low-lights to point out:

(1) It applies in perpetuity if my client "could not help but rely on or use...or would otherwise inevitably disclose Confidential Information." Who makes that call? How is that agreement one containing definite terms, a plain requirement under contract law?

(2) The employee must provide the company with, basically, a job description and then beg for permission to take it. And the company has 20 days to decide whether "such ...employment is prohibited under the doctrine of inevitable disclosure."

So a clause like this, patently unenforceable and overbroad, vests the employer with sole discretion in perpetuity to decide whether a particular position would require the employee to use its confidential information.

This violates every conceivable principle of non-compete law. No certainty at all. Vast amounts of discretion reserved to the employer to veto an employee's career choice. No time limit to speak of (beyond what the employer itself decides is appropriate). Economic protectionism, to be sure, is not a legitimate business interest.

Bottom line: You use an agreement like this, you deserve to lose. And you will.

The Reading List (2017, No. 27): Judicial Rock-Stars,Forum-Selection Clauses, Attorney General Suits, and Worthless Blog Posts

Non-Compete and Trade Secrets News for the week ended November 10, 2017

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Vicarious Liability Ruling in Waymo v. Uber

For those of you following the driverless car technology trade secrets lawsuit between Google and Uber, I urge you to take a break from the day-to-day litigation filings. They're interesting, to be sure. But they ain't as interesting as this article in The Verge about the judge presiding over the case, William Alsup. I can't do it justice. Read it. It is stunning.

On to more mundane topics in this case: vicarious liability. One of the defendants, Otto Trucking, is out of the case. Judge Alsup granted its summary judgment motion, soundly rejecting Waymo's theory of vicarious liability for the actions of its founder, Anthony Levandowski, the former star engineer whose mass download of files is the heart of Waymo's suit. The court specifically relied on Waymo's strategy to divide and conquer, an effort that kept its claims against Levandowski out of court and the other defendants out of arbitration. As Judge Alsup stated, Waymo could not treat the two as "fungible targets."

The issue of vicarious liability doesn't arise much in the case law, at least in terms of nuanced legal analysis. One line of cases holds that respondeat superior, or vicarious liability, is not available under the Uniform Trade Secrets Act on the grounds that it is a common-law remedy preempted by the statute. Other cases take a more flexible, case-by-case approach, relying on the equities. Judge Alsup's idiosyncratic opinion avoids this discussion entirely, and it's bereft of a single case citation. That doesn't make it uninteresting or even wrong.

To me, the better approach - one textually consistent with the state and federal statutes - is to assess each defendant separately and to determine whether the relevant conduct for each amounts to misappropriation. This is, I think, what Judge Alsup is saying. He eschews any reference to statutory preemption, but it's just a different way of getting to the same result.

Maryland Non-Compete Agreements

Judge Paul Grimm, another total judicial rock-star, struck down a five-year, market-based non-competition clause against a high-level engineer, a ruling summarized in Allied Fire Protection, Inc. v. Thai, 2017 WL 4354802 (D. Md. Oct. 2, 2017). The particular non-compete had the feel of being an amalgamation of form clauses, designed specifically to instruct lawyers on how not to draft non-competes.

For starters, the duration was five years - something sure to align the court with the affected employee. Those limits may be acceptable in the sale-of-business context, where there's equal bargaining power, but they almost never have any justification for at-will employees. Then the employer decided to bar the employee from working in a "similar" business with any of the plaintiff's former, current, or future clients. No parameters. No illustration of why. No common sense.

Judge Grimm's ruling that the non-compete was not tailored to protect a business interest, in the main, is not surprising. But it is significant that it arose in the context of a motion to dismiss, and not after the evaluation of evidence at the injunction or summary-judgment stage. These kinds of early, case-dispositive rulings happen all too frequently, but they embody a pragmatic approach sorely needed in litigation featuring an asymmetry in resources. Judge Grimm was careful to note the lack of allegations demonstrating the need for such broad covenants, a point that enabled the early dismissal.

Practice tip: if you're an employer, never lead with a frivolous argument. For reasons that confound, the employer decided it was a good idea to challenge the removal petition - the case originated in State court - on the grounds that removal jurisdiction violated Article I, § 10 of the United States Constitution - the so-called impairment-of-contracts clause. But as Judge Grimm noted, that clause applies to the States, not the federal government (and it was, after the federal government's jurisdiction that was challenged constitutionally). This approach to argument does nothing to endear one to the court.

Forum-Selection Clauses Following Atlantic Marine

On to a more challenging venue issue.

Venue, jurisdiction, and choice-of-law are heavily litigated procedural issues in non-compete and trade secrets litigation. Though it may seem like in-the-weeds, lawyer drivel, questions of procedure can be consequential. For instance, a few years back, Illinois courts held that Florida choice-of-law clauses are unenforceable because they contravene public policy. If that issue weren't litigated, cases may have come out differently.

Venue clauses may be equally as important. The Supreme Court, in Atlantic Marine Construction Co v. U.S. District Court, endorsed forum-selection clauses and has held courts must honor them in all but the most unusual cases. Practically, that means that only certain public interests (outside of any interests the litigants assert) will justify a transfer when a forum-selection clause is present. That means litigants cannot get out of a choice-of-venue clause if it is inconvenient to them. Predictably, district courts have followed Atlantic Marine and have cut back on the number of transfer orders in federal non-compete cases.

The Third Circuit, this Summer, addressed a difficult question under Atlantic Marine: how should courts apply the ruling when some, but not all, defendants are bound to forum-selection clauses that designate different federal districts? Get ready for some freakin' procedure, folks...

According to the court, there's a four-step inquiry (always a BAD sign). First, courts will apply Atlantic Marine to parties with forum-selection clauses, meaning their claims may be severed and transferred to the agreed-upon forum.

Second, courts then consider public and private interests related to the non-contracting parties (such as a corporate defendant with no direct contractual relationship to the former employer). Here the factors may suggest that the same forum is appropriate for both the contracting and non-contracting parties. And that may be enough for the court to kick or keep the whole action.

Third, if the court finds that the first two steps point in opposite directions, then it must consider severing the claims. That means that a court may need to transfer the action as to some defendants while retaining jurisdiction over others. For instance, a court may lack personal jurisdiction over a non-contracting defendant. It couldn't keep the case, in that instance, for efficiency reasons.

Fourth, if the issue of severance is not clear, then the court must evaluate "efficiency" interests and the non-contracting parties' private interests. Here, a court could find that public interests "overwhelmingly" outweigh the parties' interest in upholding the venue clause and thereby decline to enforce it.

The application of this four-step approach is fairly intricate, but the circuit court's analysis will resemble many of the same issues that arise in multi-defendant non-compete litigation, where individuals have forum-selection clauses and the new employer operates in a venue remote from the contractually chosen one. A link to the opinion is available here.

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I am not sure I understand the point of drafting worthless, uninteresting blog posts. But if you are a blogger (or aspiring to start one), then I would highly recommend reading the latest entry on the Employment Trial Report. It's a classic example of what not to do. This post caught my eye when it showed up in a blast e-mail through Lexology and purported to "analyze" a $6.8 million trade-secrets judgment in California. Sounds f**kin' awesome, bruh!

No. For starters, don't waste everyone's time talking about a default judgment involving a defendant who has no legal representation and who "failed to participate in the subsequent damages proceedings." What is the takeaway there? It's good to have a lawyer? It's advisable to contest damages? It's best to show up in court for a hearing?

And then don't tell us how the judgment demonstrates that companies "need to be vigilant and act quickly and decisively when it appears" there's theft by an insider. Has anyone ever counseled an employer that, in such a situation, companies should be sluggish and move slowly and equivocally?

Sorry, but you clog up the blogosphere and so you deserve some opprobrium. Take a stand. Say something interesting. Offer a viewpoint. Don't spew drivel. And I could care less if the mandate from the firm's Executive Committee was to fill up the site with more posts...

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Thad Felton over at Greensfelder in Chicago writes about the Attorney General's non-compete lawsuit against Check Into Cash of Illinois, Inc., calling the move "somewhat unusual." A better description would have been "entirely appropriate." The Freedom to Work Act, signed into law effective January 1, 2017, bars employers from using covenants not to compete against so-called "low-wage employees." This is a move that has gained traction across the United States, as State legislatures seek to pare back the use of overbroad restraints that do nothing to promote economic freedom and serve only to stifle competition.

According to the Attorney General's suit, brought under the Freedom to Work Act, the common law, and the Consumer Fraud and Deceptive Business Practices Act, the affected employees were store clerks, assistant managers, and managers, many of whom were paid on an hourly basis. The non-compete, recited in a pain-staking block quote, is oppressively overbroad and disconnected to any legitimate business interest. It's obviously unenforceable, despite the thatchy, semantic jungle in which the contractual language is buried.

A copy of the Attorney General's complaint is available here.