National Non-Compete Update – March 2018

IBM & Its Diversity Trade Secrets: IBM had sued its former Chief Diversity Officer for moving to Microsoft and breaching a non-compete agreement. At issue: IBM claimed that Lindsay Rae McIntyre was privy to “trade secrets” regarding IBM’s efforts to promote and retain diverse talent. I call bullshit. Somewhat shockingly, the SDNY issued a temporary restraining order pending a full-blown preliminary injunction hearing.  That’s pretty drastic, especially (1) under NY non-compete law (which is more employee friendly) and (2) federal procedural law of injunctions. The case subsequently settled. It appears that IBM and Microsoft agreed to a 6 month restricted period. The TRO dictated the outcome of this one. In my view, New York law does not support enforcement of a non-compete agreement in this context. The judge got it wrong (as judges often do in non-compete cases) and treated the matter as a breach of contract situation rather than a restraint of trade situation. It’s surprising to see that happen in the SDNY under NY law.

North Dakota Rejects Choice of Law: Citing North Dakota’s strong public policy against non-compete agreements, the North Dakota Supreme Court refused to apply foreign choice of law in a non-compete dispute. Instead, the court applied North Dakota law and invalidated the non-compete. The takeaway: Certain jurisdictions are fundamentally opposed to employee non-compete agreements. If a situation involves contacts with such a jurisdiction, contracting for a friendlier, foreign choice-of-law is not a silver bullet. The case is Osborne v. Brown & Saenger, Inc., 2017 ND 288.

Colorado Appellate Court Refuses to Enforce Physician Non-Compete: Member of Denver-based Greater Colorado Anesthesia took a vote on merging with a larger practice. Dr. Michael Crocker voted against the merger. His partners outvoted him and proceeded with the merger. Crocker was dissatisfied with the new, post-merger employment terms. He left and went to work with another practice. GCA sued to enforce his non-compete agreement, which contained a liquidated damages provision. Based on the totality of circumstances, including Crocker’s dissent to the merger and the geographic scope of the non-compete, the Colorado Court of Appeals ruled the non-compete unreasonable and therefore unenforceable.

Utah Targeting TV Employee Non-Compete Agreements: News broadcasters and tv reporters frequently have non-compete agreements. That’s a bit ridiculous. There are no trade secrets at issue and protectable customer relationships. The only argument: Station X paid Joe Smith to be a broadcaster and allowed him to build up a following. It would be unfair if Joe Smith – who now has a following – moved to Station Z. I call bullshit. If Joe Smith became a popular broadcaster, it’s because of Joe Smith. That’s like saying Lebron James should have had a non-compete— that he only became big-time because of Cleveland’s investment in him. Utter nonsense. So, Utah will vote on banning certain non-compete agreements in broadcast media. Under the proposed bill, non-competes would be banned outright for broadcast employees earning less than $47,500. There would be some other protections for employees earning more than that, but non-competes would be permissible for those employees on a more limited basis. Naturally, the news companies are up in arms, moaning about how they’re being unfairly targeted. The bill passed the house, got out of senate committee and is now on the Utah Senate floor.

Pennsylvania Weighing Outright Ban of Employee Non-Competes: That’s right. There’s a bill in the Pennsylvania house that would ban employee non-compete agreements outright. The logic: Non-compete agreements stifle innovation and employee mobility and are particularly bad for small businesses. This is 100% true. But don’t get your hopes up: The bill has virtually no chance of passing. The bill was sponsored by Democrats and PA’s legislature is controlled by Republicans.

Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. He maintains a nationwide practice litigating complex non-compete, trade secret, trademark and unfair competition matters. He has been quoted on related matters in the New York Times, the Wall Street Journal, Bloomberg, FundFire, Law360 and PBS NewsHour. A frequent CLE presenter, lecturer and panelist, he routinely speaks on competition issues, particularly the intersection of non-compete agreements and antitrust. His office can be reached at 954-332-2380.