The Future of Drafting and Defending Non-Competes for American Workers and Workplaces

Episode Notes

Transcript

Eric Tate:

The enforceability of various provisions can get very complicated because you have questions of, well, which state law is going to apply Because you can have a company based in X State, you can have the employee based in Y state, but all kinds of different factors.

Matt Greer:

Hello, hello, hello, and welcome to the A BA Labor and Employment Law podcast. I’m your host, Matt Greer. When I’m not hosting the podcast, I work for the Washington State Public Employment Relations Commission, the agency charged with impartially administering Washington’s public sector collective bargaining laws. I serve as a mediator hearing examiner, arbitrator and trainer, always as a neutral like you. My focus area is pretty specialized and I’m enjoying spending time in this podcast learning about what’s going on in a wider world of labor and employment law from distinguished lawyers in the field. On today’s episode, I’m very happy to welcome Joe Ahad and Eric Tate for a conversation on restrictive covenants and employment, including what’s going on with the Fair Trade Commission’s, recent efforts to outlaw many non-compete agreements on a nationwide basis. Eric and Joe are expert attorneys with extensive experience advising and representing clients in these types of cases. Eric represents tech and other companies as a partner at Morrison Forrester based in California, and Joe represents executive level employees as a partner at the A ZA law firm based in Texas. It’s truly an honor having them both on the podcast to share their knowledge and wisdom with us. Be sure to check out their full bios in the show notes. So thank you so much for joining us, Eric and Joe, welcome to the show. How are you doing today?

Eric Tate:

Thanks, Matt. Good, thank you Matt. Happy to be here.

Matt Greer:

Very happy to have you on this very timely topic of non-competes and it’s been the news lately. So I thought maybe we would start off by just talking about what non-competes are. Some people in our audience may not have heard about them or talk about ’em too much lately. Some people in the audience may be experts, but for those folks who are kind of getting back into the mind frame about what these things are, I thought maybe Eric as the employer kind of rep, what are non-competes and what’s going on with them that our employers are trying to get from those types of provisions?

Eric Tate:

Sure. Happy to address that, Matt. So we can very quickly get into really nerdy minutiae about non-competes and restrictive covenants, but I’ll try to avoid that for as long as I can. At a very base level, non-competes are contractual restrictions that prohibit an employee from working for a competitor of their employer after they terminate employment and they can go for different durations. And they are generally subject to what’s called a rule of reason.

Matt Greer:

Rule of reason. Okay? Is that us? Are we the people who have reason or

Eric Tate:

They just have to be reasonable, reasonable and reasonable in scope and geographic applications and

Matt Greer:

Duration?

Eric Tate:

And they’re generally supposed to be tailored to protect what the courts call a protectable interest. And there’s different types of protectable interests. And where Joe and I sometimes would be on opposite sides is, well, all of those the above. So are the restrictions reasonable? Is it long enough, is it too long? Is it protectable interest, really important enough, et cetera. But that’s a very high level overview.

Matt Greer:

No thanks Eric. I appreciate you sharing that. Yeah. Joe, what do you think you think to add on to that?

Joe Ahmad:

Well, yeah, I mean the problem here is, and obviously I fight a lot in non-competes, is they are supposed to be used to protect a protectable interest, legitimate business interest to the employer. But when we talk about the rule of reason and how non-competes have to be reasonable, remember that means a court has to determine that, right? And so oftentimes they get used if not for the outright purpose, but certainly for the effect of preventing employees from leaving kind of as a punitive retention tool. Because you don’t know how accords can interpret reasonability. You have to spend money to challenge it. Hopefully if you’re going to a new employer, your new employer will cover that cost, but not always. And so you may or may not have the funds to actually challenge it. So yeah, that is the purpose. That is supposed to be the purpose. I think in effect from the employee’s perspective, sometimes the effect of it at least can go unfortunately beyond that and into preventing people from leaving.

Matt Greer:

Right.

Eric Tate:

Matt, I just chime in really quick if I could. And

Just for full disclosure, in most of my employment law practice, I am on the management side, and that’s usually the defense side and would be looking to enforce various contractual provisions in this area where I’m basically an employment trade secrets lawyer. And with respect to restrictive covenants, I represent companies, but those companies could be the ones that are seeking to enforce a non-compete. They can also be a company that hired an employee or executive from another company who has a non-compete and is challenging the reasonableness or enforceability of the non-compete. So basically I’m on both sides of the V in these sorts of disputes. And Joe, I think that is in that situation as well sometimes.

Joe Ahmad:

That’s right, that is true. I think maybe one other thing, just to follow up, there is a lot of discussion sometimes on what a protectable interest is and things like that and what triggers it. The most common thing we see is protecting your confidential information or trade secrets. Typically confidential information is defined by contract and generally defined broader than trade secrets, which can be very narrow, but you can understand legitimately why a company doesn’t want an employee to leave with all that confidential information. Sometimes you see specialized training, you’ve trained the employee and give them specialized training, and now they’re able to take it sometime with some jurisdictions, cash options, stock, et cetera.

Matt Greer:

Yeah, no, it’s really easy to see the interests that are being from both sides, what the employers and prospective employers, recruiting executives who might be, or employees who are subject to non-competes other places trying to address that and getting good folks on their team and vice versa.

Eric Tate:

And I think Matt also in sort of just laying the groundwork on non-competes, and we’ll talk about it more later, but what is a non-compete? That can mean a lot of things. So it can mean what I just said just to keep somebody from competing, but it can be, courts will look at other restrictive covenants. So non-solicitation restrictions, right? You can’t solicit, you can go work for a competitor, but you can’t solicit the customers that you used to service for your predecessor employer. When you go to the new place, you can’t, similarly, maybe there’s employee non-solicit, you can’t recruit your former coworkers to go over to join you at NewCo. And there’s a lot of activity these days. And frankly, an area that when we nerd out on this I think is very interesting is the extent to which a confidentiality agreement or an NDA might be deemed as Joe referenced by courts to act as a non-compete. So there’s a lot of

Matt Greer:

Nuance and detail, a lot of

Eric Tate:

Nuances and a lot of variations. When you hear a non-compete, it can mean a lot of things. And then the last thing I’ll say before we move on is in terms of the protectable interest point, A big one for companies is trade secrets. And I note that because we’ll be talking about the FTC ban and other things, but it’s of interest to me in the context of the FTC folks who support the ban and whatnot, the FTC refers to, oh, you’ve got these trade secret statutes that are already in effect, so why would you need a non-compete? But there are cases where courts have actually, and I cite them in other literature that prepared, but where courts have recognized, Hey, look, if you really wanted to protect your information, you should have got a non-compete.

Matt Greer:

Kind of a double-edged sword there, right? Right,

Joe Ahmad:

Exactly.

Matt Greer:

So Eric, you kind of highlighted the FTC rule. I think for many of our listeners, they may, even if they’re just casually watching the news from a few months ago, saw that the Fair Trade Commission did attempt to pass a rule that would essentially, from my understanding, ban non-competes on a nationwide basis. But to be honest, I didn’t know much more level of that than why I saw on the news there. So I thought maybe we would pivot to that and maybe kind of focus our conversation about what was that rule about in my practice area, I certainly don’t see the FTC too much in the labor and employment world. So I was interested to see that being another agency that might be involved here, but what were they trying to do with that? And I guess what’s the current status of that rule right now?

Eric Tate:

Sure. So the FTC had actually, you have to go back years, but in January, 2023, the FTC had issued a proposed rule and notice of proposed rulemaking. And that rule would ban all non-competes for almost all US workers. It would only apply in the industries that the FTC actually governs. So not banks, for example. Right. And that band would be subject to certain exceptions. So there was a sale of business exception, for example, and there were a couple of others. So when that happened in January, it opened a public comment period, and that was supposed to go for a few months, but then that got extended because they had, I think it was probably almost 30,000 comments ultimately, which is, I understand it’s a lot

Matt Greer:

People were interested in the topic, it sounds like.

Eric Tate:

Right? And the purpose that the FTC noted multiple ones, but it was along the lines frankly, of what Joe had described earlier, how non-competes, purportedly kept American workers down, and they had statistics about bunch of zeros with the dollars that would be saved and et cetera. So then what happened in April of this year, the FTC actually concluded its review of the various comments, and then they voted on April 24th of this year, they voted along sort of political party lines and they voted the ban into effect and it was supposed to take effect September 4th.

Matt Greer:

So what was the ban going to be? Was it going to be for all non-competes in every industry that the FT C has jurisdiction over and all level of employees, was it going to just be a blanket ban even for high level executives perhaps? Right. Okay.

Joe Ahmad:

Yeah, and there was a lot of commentary. I mean, some people were suggesting kind of a salary level where if you make a certain amount of money, but ultimately they only had very limited exceptions. I think Eric gave the sale of business exception. So it was a pretty broad ban as they came out with it.

Matt Greer:

That kind of explains why there was so much interest and so many comments on it, I’m guessing so at least part of it.

Joe Ahmad:

Yeah, full disclosure, I helped draft at least one commentary from an employee side group in favor of carrying through with the ban. So yeah, I mean I did understand why the FTC wanted to do it because I think we have all seen the abuses, so

Matt Greer:

We kind of let the cat out of the bag a little bit. But the FTC rule has been enjoined my understanding. Is that right? Is that kind of the current status right now? Yeah.

Eric Tate:

Yes. So for somebody who doesn’t really practice in this area, you seem to know a lot.

Matt Greer:

It wasn’t the news,

Eric Tate:

But so what happened is April 24th, the FTC voted in the ban and literally that day the first lawsuit was filed to challenge it the next, literally the 25th, there was another one. So there were multiple, and there’s some after that lawsuits filed to block the ban and the very first one was filed in the great country of Texas and the damn right. And that judge on August 20th of this year ultimately issued an order that enjoined on a nationwide basis the implementation of the ban. And so that’s where we stand right now. The FTC has, if my counting is correct, until October 19th of this year, if it wants to appeal, the FTC has indicated that it’s considering an appeal. There are other cases about the FTC ban in other parts of the country in Florida and Pennsylvania. And so there’s action in those cases as well about what should be done or not be done with the litigation of those cases during the pendency of the well potential appeal. But that’s where we stand now. And just by way of background, there has always been a significant question as to whether the FTC actually had the authority to implement this ban in the first place,

And it’s on that grounds largely that the ban has been enjoined.

Matt Greer:

So current status, it’s enjoined. So Joe, if you want to add anything on top, I’m curious what you think might be happening if it is appealed. I mean obviously it might be kind of tied in with the political situation and the election year and everything. I imagine that might have some impact on what might happen with that, but I’m curious if you have any thoughts about what might be happening with that nationwide band?

Joe Ahmad:

Yeah, I’ll be blunt, I think it’s dead as a nationwide band doesn’t necessarily give me a lot of joy. But I mean, being realistic, I mean, I got all these calls from employees about their non-compete when the band came out and they were all excited saying, well, does this mean I don’t have to honor my non-comp compete? And I was like, well, hold your horses. The courts are going to have their say. And I think it’s very doubtful. And then of course the northern District of Texas banned enforcement of the band and the appeal will go to the fifth circuit, which they have been overturning regulatory agency actions and interpretations left. And I really can’t see them reversing this holding and honestly, under Supreme Court, the recent case of a Lober Bright, I think the writing is on the wall, they basically knocked out what we call Chevron deference, giving deference to agency interpretations. And that has further caused doubt among not just regulations, but rules, frankly, even regulations that we thought were rock solid and we’ve been adhering to for years. So I think it’s dead. I don’t think that’s the end of the story. I think FTC actually, I think I read in a blog that Eric did points out that yeah, that’s how I learned it, right?

I hadn’t really thought about it, but they can kind of cherry pick maybe the most abusive situations and bring individual actions. So I don’t think it’s dead as far as trying to do that. I think it’s a nationwide blanket ban. I’ll be very shocked if it gets overturned.

Matt Greer:

So Eric, do you want to make any news and disagree with that underlying assertion there? I don’t know, go against your blog post?

Eric Tate:

Well, actually there are a few areas in which Joe and I do agree.

Matt Greer:

Okay

Eric Tate:

One is yes, I agree that I think it’s ultimately dead, that the ban is dead. The FTC, as Joe had noted, we had observed, they’ve been very open that regardless of what the courts do, we firmly believe that we have the legal authority to do this and we’re willing to make it clear to the courts. So they’re saying they may appeal, but they’ve also been on record, as Joe had alluded to. Basically they believe that they still have the ability to pursue individual enforcement, so if not on a nationwide basis, individual enforcement. So that is another reason that employers still need to be careful about these things.

Matt Greer:

So wasn’t a kind of letting on free parking kind of a thing with the enjoyment of that. There’s still are things more complications out there that employers and employees who are subject to non-competes need to think about. Correct. So this might be a good time for a quick break when we come back, Eric and Jill, let’s finish up that conversation, but I also want to talk about what’s happening at the local level, state and local jurisdictions who might be addressing this in other ways, and also maybe the more specialized enforcement of this, even though there’s no nationwide band, but what should people be thinking about on those levels? So we’ll be right back. Alright, welcome back. Thanks for the great conversation here going on. Talk about the FTC rule, which sounds like it’s likely going to be not in the picture for a while for a nationwide band on non-compete.

So I don’t know if either of you wanted to close out any conversations or thoughts about the FTC rule, the nationwide piece, but I wanted to kind of maybe pivot and talk about what’s happening at the local level. Some states have already kind of addressed this in some levels, and we have a California and a Texas lawyer here, and I don’t know, I imagine there may be some differences in those jurisdictions and how they handle this. So I’m curious in your practice areas, what you might be seeing out there in your geographical area. Because we joked earlier, but we were talked about the plan is like where’s there some tension points? We agree on a lot, but there are different differences in the different states and how they kind of handle this. And so what’s going on out there that you can share with us?

Joe Ahmad:

Well, this is what makes it exciting, right?

Matt Greer:

Okay.

Joe Ahmad:

It’s a creature of state law and you have all kinds of different laws in Texas and California, I think it’s fair to say are polar opposites.

Eric Tate:

I was going to say night and day or oil and water, maybe the oil reference for Texas.

Joe Ahmad:

We know you guys have oil too, right? We do actually. You do. I know, I know. That’s what’s kind of tricky, right? Because if you’re a nationwide company, I mean, look, it’s easy if you’re a localized company in Texas, you can get a handle on Texas law, which basically says we’re going to enforce non-competes. And they’re pretty aggressive about enforcing non-competes. And I think that’s by the way, why the case against the FTC ban was brought in Texas. But remember when you’re a nationwide company, now you have to deal with all these other jurisdictions. And for example, if you have an employee, and there are companies that might have employees in Texas could have employees in California, Colorado, Louisiana, Oklahoma, and some of these states like Oklahoma and California, by and large don’t allow non-compete, certainly not like Texas does. So you have to be very careful.

And if that employee, my understanding is, but I want to hear from Eric on this, is if you have somebody that is going to work for an employer in California, even if your choice of law and your non-compete says Texas, which generally employer has a choice, they’ll pick on a favorable state. California law will displace it and prevent enforcement many times of the non-compete in the law in terms of what’s called the blue pencil rule, which is allowing for reformation, in other words, allowing courts to modify an unreasonable non-compete. When we talked about reasonability, some courts will allow you to modify it, other courts say, Nope, we’re going to interpret it as is. And if it’s unreasonable, it gets struck down completely. So as a result, you will see different wording in different contracts if they’re being careful, but it can be a trap for the unwary. And by the way, there’s a lot of changes going on generally speaking in the states. And so not only are there different jurisdictions, but you got to keep up with it because Texas is probably not going to be one of those areas that changes. But a lot of these states, you’re seeing action in Massachusetts and other states, so you got to keep up.

Matt Greer:

Yeah, interesting. So Eric in California, it’s one of the states that my understanding has been head a restriction on non-competes for a long, long time. And so what is the status there and do you see any trends out there in terms of the restrictions on non-competes in the various states?

Eric Tate:

Sure, lots of action in California and lots of action everywhere. And I just want to underscore one thing that Joe said in terms of the keeping up. So I’m a California based lawyer. Joe is based in Texas, but I know we both litigate these non-compete issues all over the country. Literally you pick a state, we’ve been in them fighting over these contractual provisions. It is critically important that you do keep up. And certainly with the increase in the remote workforce and people moving and whatever, making decision determinations about the enforceability of various provisions can get very complicated. You have questions of, well, which state law is going to apply? Because you can have a company based in X State, you can have the employee based in Y state, but then that employee, how much does that employee go to X state and all kinds of different factors.

So these are tough questions. There is a lot of action and California is just one of several states that California has had a general ban on non-compete subject to certain statutory exceptions for decades and has been probably the most well-known state to have that. But nonetheless, there are a number of other states that have come along. Joe mentioned Massachusetts, Illinois, Minnesota just came on Colorado, DC Washington obviously. So a number of states that are really narrowing the ability to enforce non-competes in California. We actually just put into effect this year two amendments to our non-compete statute. And on this point, one of them, our SB 6 99 literally says, and this is something that we’re watching closely and it’ll be interesting to see if and how it will be enforceable, but it literally says an employer or a former employer shall not attempt to enforce a contract that is void under this chapter and here wait for it regardless of whether the contract was signed and the employment was maintained outside of California.

So we also have a little thing called extraterritoriality and that doctrine. So we’ll see where those two, if you want to talk about tension, well, there’s some tension right there. But that happened. And we have another statute that literally required by Valentine’s Day of 2024, required companies who had non-competes that would violate our non-compete band. They were supposed to notify current employees and then former employees going back to 2022 that had those bans in their agreements that they were not going to be enforced and that they were not viable. That’s another thing that we’re looking at is, okay, now as the months passed by, are we going to see claims based on a failure to provide such

Matt Greer:

Notice? Interesting. So kind of affirmative obligation to let even former employees know that those are not enforceable. It’s interesting.

Eric Tate:

Yeah, there’s some more bells and whistles with that one, right? There’s one of the amendments expressly indicated that there would be a cause of action, a right of action for violation and including under our unfair competition statute. This is in professions code 17 200. That’s really important because one of the things when in the non-compete restrictive covenant space you deal with is that sometimes companies will say, you know what? Yeah, let’s just put it in. Let’s put this non-compete language in. It may or may not be enforceable. And this is one of the horror stories that Joe and the other people in the plaintiff’s bar, they tell at the wherever the coffee getting bottle, whatever it is that these terrible employers are doing, just stick it in there. They won’t know the difference. And you know what? If we get sued or something, we’ll just fix it. No worries. So my clients aren’t doing that, but to the extent that might happen, the statute, it’s important because it very clearly says you can have liability if you have it in your agreement, if you try to enforce it. And then there’s again, business and professions goes 17 to hundred cause of action that you could bring and then that could potentially be brought on a group of employees. So that’s even scarier.

Joe Ahmad:

Yeah, I mean that’s a great law and it’s fine and dandy, but I will tell you when you get places outside of that, for example in Texas, I mean when I talked about the deterrent effect, well California is providing something to protect employees from that deterrence effect, but a lot of states, most states don’t have that. So there’s no penalty oftentimes to enforcing or trying to enforce an overbroad. And I wish a lot of these people would go to Eric, but some of them apparently don’t, and they go hog wild on some of these non-competes.

Matt Greer:

So what do you do? How do you advise your clients if you’re in a jurisdiction that doesn’t have those provisions in ’em or has a wide open non-compete landscape? I mean, what do you do as you represent those employees? Do you have any tips for them to maybe push back on some of those more over restrictive provisions?

Joe Ahmad:

Well, yeah, I mean, first of all, you want to make it as narrow and short of time as possible. If you can get it, the ideal world would be you get an itemization of the competitors you can’t work at. You want to be narrow in terms of the kind of work you can’t do because there is a doctrine in the non-compete world known as a janitor rule, but a lot of these overall non-competes are worded so that you can’t do any work of any kind for competitor IE, you can’t even be a janitor. So you want to tighten that up. I’d like to get some severance, even if it’s under a good cause standard where if you’re terminated not for cause, you get something to cover the period of the non-compete. Otherwise you can essentially be prevented largely from working at least working in the field that you’ve traditionally worked, getting to keep some of your past relationships kind of maybe in a non-solicit setting where if you brought certain customers into that employment relationship, you can keep them. These are great things to get if you can get them. Unfortunately, a lot of employees simply don’t have the bargaining power to get these kinds of things.

Eric Tate:

And Matt, one of the tension areas just at a high level with non-competes if it’s not obvious, is from the employer perspective. If you look at the statistics in terms of, I’ll call it information theft because it could be trade secrets, it could be information that’s not quite the level of a trade secret, but still very valuable to a company competitively sensitive.

The main, let’s say culprit in an information theft situation is an employee. So when you’re looking at it from the employer perspective, once you disclose that X information, that trade secret or that really sensitive information to somebody, you’re pretty much on the honor rule at that point because you’re at their whim If you’re hoping, you’re relying on the goodwill of people to actually not tell and to abide by their contractual obligations. And that only goes so far because people are human. And when it gets to, they want to go to a new company and say maybe they want to hype up their sales because that’s what they were brought over to do. There’s a thing called temptation, right? So you’re kind of without a non-compete, let’s say you’re pretty much really exposed if you’re an employer. So there is another side to this whole non-compete issue.

Matt Greer:

Yeah. One of the things we want to talk about is the non-compete world is obviously kind of talked about that a little bit, but are there other kind of restrictive covenants that might cover that? And maybe you’re touching on that a little bit Eric, but are there other tools out there even in places where non-competes an option perhaps that could protect those interests?

Joe Ahmad:

Oh, I will say this. When I hear Eric say this, I can’t help but thinking a good confidentiality agreement and a non-solicit ought to take care of that. And yeah, are they bad eggs or employees? Of course. But there are likewise a number of employers that will accuse employee of theft who don’t actually take anything or they take stuff that is inconsequential and really not confidential and they just use the lawsuit as a club against them. So yeah, I mean, look, are there abuses on both sides? Sure. I do think particularly if you’re in a non-compete state that bars non-competes. I think non-solicit and confidentiality can go a long way to protecting what you need to protect. And given that Eric is in such a state, I’m sure he does that all day long, right?

Eric Tate:

Yeah, we are, California is the prototypical state, but it’s pretty clear with the number of trade secret misappropriation cases that get filed that we’re still having problems with employees abiding by their even contractual confidentiality obligations. So I would just want to make that pretty clear. One area that’s interesting to me is there clearly is a need for contractual restrictions on folks. Again, there’s human nature, and so how do you go about drafting them? I think that’s key. And my general rule of thumb is just get what you need. Just put in what you need. So if you, for example, and what an employer needs can vary from employee to employee to industry to industry. But for example, if you’re an employer and somebody says, okay, well we want this non-compete or employee non-solicit or customer non-solicit or whatever it is to be for three years, okay, three years.

Well, in a sale of business circumstance courts will be more sympathetic to that. But if it’s not, and I’ll say even if you’re talking in California, if you’re talking in Texas or wherever, you want to ask, well, do you really need three years? I mean, is that really because once you get past a year or two, courts are going to really start scrutinizing that temporal, that duration element of a non-compete. Do you really need it for every single employee in the company or would it be sufficient to have it applied if it’s an employee non-solicit to just the employees that the individual worked with? Or similarly with customers, does it have to be every single customer in the company that the company has, or would you be sufficiently protected by barring this employee from soliciting the customers that they solicited while they worked for you?

Matt Greer:

Yeah, I mean, Joe, I’m curious, are those the same types of provisions that you might be looking at in terms of when you’re advising your employee level clients, when they’re bargaining, if they can, these types of provisions?

Joe Ahmad:

Well, I mean, look, it’d be a great start to have somebody like Eric on the other side because he’s a reasonable person and all these things he’s talking about are very reasonable. I just wish it were always that way. It’s not, right. I mean, some employers just want the most overbroad they can get. And so yeah, like I said, I mean ultimately you don’t always have perfect bargaining power. And I do a lot of work with executives, especially if they’re, they’re with a company, but they’ve got another place on the way out they want to go and they’ve got somebody that will pay their legal expenses. But even on the hiring end, if you are representing executive, you probably have some more bargaining power to say, no, I don’t want to agree to that. And I do want to narrow non-compete. And normally executive contracts have severance clauses with good cause, and so you’ve got some bargaining power and hopefully if you have somebody that’s reasonable on the other side, like Eric, you can work it out and there won’t be abuses on either side. And Eric’s clients get the protections, which I will acknowledge. And I do work sometimes for companies too. I will acknowledge companies have a legitimate business interest that I think a lot of times can be protected with non-solicit and confidentiality. But there’s no doubt, there is no doubt that they need protection and that there have been bad eggs, temptation. Some people don’t believe that non-competes are even enforceable. Another one is some employees think that all the work that they did for a company is actually their property.

And I have to inform ’em that is actually works out. I will deal with it in the medical world where they’re doing research and they think that their research is theirs. And I’m kind of like, no, actually it’s not. Everything you do for the benefit of the employer is the employers. And so I get it. And it is something frankly that I think, yeah, is there temptation? Sure. But a lot of it is just frankly, ignorance of the law and thinking you have certain property that you don’t have.

Matt Greer:

So I’m curious, Joe, I don’t want to put you on the spot too much here, but for somebody who’s listening in who may be an employee who’s being asked to sign a non-compete, but they don’t have the resources to go to you or get legal advice, do you have a tip for them? Is there one thing they can look at when they’re looking at those non-competes to look for, maybe suggest an improvement on? Is there any one tip you might give them?

Joe Ahmad:

Well, number one is if you’ve got a prospective employer, hopefully get them to pay for your fees. Unfortunately, the fact that you have a non-compete by itself and are asking for fees may be a disqualifier for getting that job, but a lot of times not. But otherwise, yeah, I think you just want to narrow down the non-compete as much as you can look at it and determine, and half the battle is just instead of taking this long contract and thinking it’s a bunch of legalese and just signing it at the end, actually looking at it, it’s hard if you don’t have a lawyer because written in legalese. But if you can look at it from a perspective of this is what I want to do potentially with my career and try to get it as narrowed, get the time periods to be as short as you can possibly get ’em.

Matt Greer:

So Eric, I’m curious if you have any perspective on that or for an employer who maybe doesn’t have the access to legal resources, who wants a non-compete or is looking at long, long competes, do you have any tip for them?

Eric Tate:

I do, Matt, several, but what I said earlier is just get what you need. So in terms of restrictions that you’re looking at, if you’re looking at applying, whether it’s a non-compete or a lesser restrictive covenant, just really think long and hard about what is it that you really need. You can ask for a lot or you can present a broader scope of restriction if you want. But I think that in general, it’s better from if you ever get sued, if your restrictive covenant ever gets challenged. And from probably a market perspective in terms of just being able to recruit people and being looked at as somewhere where folks want to work. If you look at your restriction and just sort of think about what you need, do you really need three years or will one year suffice? And so some of the examples that I mentioned earlier, and then just from a drafting perspective, one of the things that we encounter with our clients, as Joe had noted, a lot of companies operate all over the place, multiple states and have employees all over the place. And so choice of law is something that’s pretty important.

So I would just, one tip is to really, while these contracts can seem boilerplate and certain provisions can seem boilerplate like a choice of law or an integration provision or something, my tip would be to actually look at that provision in particular a choice of law provision and be thoughtful about it and think about what’s realistic, what the choice of law should be given where you’re at, where the employees are at, where they’re going to work. Because in a lot of these cases, the choice of law that’s applied can be the determining factor. The laws are different.

Matt Greer:

Great tips. And we are getting a little close to the end of our time here. So I did want to give you both a chance if you had any kind of closing thoughts or tips that you didn’t get a chance to talk about so far or anything that you wanted to kind of cover here as we kind of close out the conversation. So Joe, do you have anything you want to share as we close out here?

Joe Ahmad:

Well, I think we covered this a little bit, but I’ll give you just a scenario. Employer sues employee, maybe on an overroad, non-compete, it becomes tough to fight it and employee can’t fight back. But also think about the message that it sends to have a public lawsuit against an employee to all the other employees that have non-competes. It can be quite the deterrence effect. I think it’s important, and I mentioned this before, if anybody can afford even a consult with a lawyer to actually go to a lawyer and have them review the contract, too many employees don’t read them. Even if they do read them, they can’t understand it. And as a result, they end up signing things that perhaps they later regret.

Matt Greer:

Eric, what do you think? Any closing thoughts?

Eric Tate:

Sure. I’d say a few things. One, I’d say from the employer perspective, and I’d say this is from whether you’re employer hiring employees and you may have a greater interest in avoiding restrictive covenants, let’s say, and whether you’re potentially losing employees and have a greater interest in enforcing them, I think it’s important to really consider the restrictive covenants not in a vacuum, but consider them as one part of an overall trade secret protection process or protocol or program part and parcel with how you onboard employees, how you offboard employees, because that is true that it’s a contract, but there are a lot of other, based on your protectable interests, there are a lot of other things that need to be going on. You can have a great contract, but for example, if you’re not collecting people’s laptops or whatever, or you’re not track of what people have, if you don’t have procedures in place that sort of narrow the disclosure, the scope of the knowers, et cetera, with respect to certain information that then by the time they leave, you’re cooked potentially, right? You’re really exposed. So I would definitely say again, non-competes are part and parcel of other programs and considerations.

Matt Greer:

Yeah, there’s clearly a lot of nuance and detail and what goes on, but that holistic approach that you both laid out there from both perspectives I think is really an intriguing way to look at it. So I appreciate that whole listeners did as well.

Eric Tate:

And Matt, if I could, I also wanted to just maybe start a list. And Joe, you can jump in here too of, we’ve talked about a lot and at a certain higher, more specific levels. But in this area, there’s a lot of open questions, a lot of open questions, and we’ve talked about the FTC, but you’ve got the NLRB, for example. You’ve got the DOJ who’s very active in, they’ve had a lot of losses lately at the DOJ in particular in going after the no poach. But then NLRB has been very active in this space and looking at, and they’re very much looking at confidentiality agreements and the extent to which confidentiality agreements and NDAs may have some sort of anti-competitive or non-compete effect. That’s going to be interesting. In California, we’re known for having the general rule against non-competes, but courts in California have enforced non-competes in the context of fixed term employment agreements.

And I don’t want to get too detail about that, but that’s something that is out there. That’s an option. There’s pros and risks to that, but that’s something you don’t hear a ton about. There has been recent case law, A MN healthcare in 2019 about employee. So for a long time it’s been understood that customer non-solicit were off limits. But there was a question as to whether employee non-solicit were continuing to be viable. And it’s interesting, A MN healthcare said no, there are a bunch of state court cases that said no, but there are still cases, I was looking at one just a few months ago that they’re evaluating whether a current employee non-solicit still might be viable. So there’s trends, but they may not be dead yet. And there are a lot of other things that are going on,

Matt Greer:

A whole can of worms out there that may be good fodder for future episodes, I’m guessing. So do you have anything else to add to that list as we close out here?

Joe Ahmad:

I mean, yeah, it’s a lot of can of worms. I mean, just one thing to emphasize is just a choice of law issue. That in itself when you’re looking at this contract and you’re realizing you’re likely to go into litigation, trying to figure out, I mean, okay, maybe there’s a contractual choice of law, will it be enforced? Maybe there’s not. Some contracts don’t have a choice of law. What do you do with people? A lot of people work remotely and maybe the company’s based in Illinois, but you’re working in San Saba, Texas, rather. I mean, what law is going to apply? And that can make a huge difference, right?

Matt Greer:

And the whole remote work and work from home stuff kind of playing into that. Yeah, it’s really interesting.

Joe Ahmad:

Absolutely. And so it’s an interesting time and then of course you have all the changes going on, so it’s an interesting time to be a non-compete lawyer.

Matt Greer:

Yeah, definitely. And I really appreciate you both sharing some of that interesting stuff as we kind of have this conversation. I feel like we could talk for at least another hour going through all this, but we are close to the end of our time here. I want to thank you both, Joe and Eric for joining us. I learned a lot and I appreciate you sharing your knowledge and wisdom with us. And thank you also to our listeners for taking the time to join us. I hope you found the conversation as interesting and informative as I did. So the A Labor and employment Law section is very excited to launch this podcast. Please help us get out the word by sharing the show with your friends and colleagues. Also, give us a follow on Apple Podcast, Spotify or your favorite podcast player. And while you’re at it, give us a rating and review and share a topic that you’d like to hear about. You can also find more information in the latest episodes on the podcast website, which is ambar.org/lel podcast. We’ll include that link as well as a link to the Labor and employment law section in the show notes. Thanks again for joining us and talk to you next time.

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