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Want to Protect Your Trade Secrets? Update Your Employment Agreements!

October 11, 2019

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Since 2016, the Defend Trade Secrets Act (DTSA) has provided employers with a federal cause of action against employees, former employees and other bad actors who misappropriate trade secrets.  In addition to injunctive relief, DTSA remedies include civil seizure, compensatory damages, punitive damages and attorney fees.  However, in order to preserve the right to seek punitive damages and attorney fees from an employee or former employee, the employer must have provided notice of the whistleblower-protection provisions of the Act.  Those provisions protect employees and former employees from criminal or civil liability for disclosure of trade secrets made (a) in confidence to a government official or an attorney for the purpose of reporting or investigating a suspected violation of law, or (b) under seal in a judicial proceeding.

Notice of the whistle-blower protection provisions must be included “in any contract or agreement with an employee that governs the use of a trade secret or other confidential information.”  This would commonly include, for example, employment agreements, confidentiality or nondisclosure agreements, noncompetition agreements, and separation agreements.  The notice requirement applies to all such contracts entered into or revised after May 11, 2016.

The notice may be provided by including the whistleblower-protection provision in the agreement or by cross-referencing a policy that contains the required disclosure.  It is unclear whether paraphrasing the statutory language will be sufficient.  Therefore, the safer course is to quote the pertinent text, such as:

Notwithstanding the foregoing, 18 U.S.C. §1833(b) provides, in part: “(1) An individual shall not be

Preparation and Training Critical as Illinois Employers Face New Legal Landscape

Illinois employers must begin preparing now for the host of new legal requirements impacting the workplace beginning in 2020.  With legal changes on topics ranging from hiring practices and pay equity to drug testing and severance agreements, employers should not only review and revise their policies, practices and expectations, but also ensure that their Human Resources and management personnel receive training to ensure compliance.

Amendments to the Illinois Human Rights Act (“IHRA”)

Under new amendments to the IHRA, more employers are now subject to the IHRA, more protections are now provided to employees (and others), sexual harassment training is now a requirement, and employers now have reporting obligations to the Illinois Department of Human Rights (“IDHR”) regarding adverse judgments, administrative rulings, and settlements.  Specifically:

  • Beginning July 1, 2020, rather than applying only to employers with 15 or more employees, the IHRA applies to all employers with one or more employees in Illinois during 20 or more calendar weeks. Newly covered employers should ensure that HR personnel and managers are aware of the areas in which the IHRA is broader than federal anti-discrimination laws, including but not limited to: (1) pregnancy accommodation requirements; (2) prohibition of discrimination based on sexual orientation, gender identity, military status, marital status, and order-of-protection status; and (3) the potential for individual liability of harassers.
  • Beginning January 1, 2020, the scope of protection provided by the IHRA will expand. HR personnel and managers must be aware of the new protections so that they appropriately recognize and respond to concerns. 

Recharacterization of the Relationship Between a Delivery Driver and a Digital Platform as an Employment Agreement

In a judgment dated 28 November 2018, the French Supreme Court (Cour de Cassation) ruled for the first time on the characterization of the agreement between a delivery driver and a digital platform. The French Supreme Court granted the status of employee to a former delivery driver of Take Eat Easy.

The French Court of Appeal had rejected the employee status because, among other things, the driver remained free each week to determine the time slots during which he wished to work. The French Supreme Court considered, basing itself on objective elements, that the “geo-tracking system which enabled the company to monitor in real time the position of the driver and the number of kilometers covered by him” allowed the company to sanction the driver (via a bonus and malus system). It therefore ruled that the existence of a power of direction and control over how the driver provided his services created a relationship of subordination, and annulled the judgment of the French Court of Appeal.

For several years now, litigation related to digital platforms such as Uber has emerged both in France and abroad; the decisions rendered by the courts however differ.

In France, several Uber drivers filed proceedings to recharacterize their Uber agreement as an employment agreement. On 29 January 2018, the French Labor Court dismissed a former Uber driver’s request on the grounds that the driver was “entirely free to work according to the hours and days that suited him”, and that “this total freedom in the

States Continue to Revise Non-Compete Laws

Following the “Call to Action”[1] that was issued by the White House and the U.S. Department of Treasury in October, 2016 concerning what the Obama Administration perceived as overuse of non-compete agreements, a number of states have revised their laws regarding non-competes.

In 2016, prior to the “Call to Action,” Idaho passed a law that established a presumption that an employee’s breach of a non-compete agreement caused irreparable harm to the employer.  However, the legislature reconsidered that move.  In July of this year, the Idaho legislature repealed the presumption, placing the burden back on the employer to prove that it suffered harm to a legitimate business interest.

In 2016, Utah imposed numerous requirements and restrictions on non-compete agreements.  Rather than the previous common law requirement that the agreement only restrict a former employee for a reasonable time, the new law voids any agreement that restricts a former employee for longer than one year.  Now, two years later, Utah continues to reassess its non-compete law.  Earlier this year, the state enacted a law prohibiting non-competes for employees working in the broadcasting field and making less than $913 per week or $47,476 per year, aside from a few exceptions.

Massachusetts has also taken action.  Earlier this month, Massachusetts enacted a law bill regulating non-competes, which will go into effect on October 1, 2018. The new law requires that certain criteria be met or the agreement will not be enforced.  The agreement must be in writing, must be signed by both

New developments on time restricted employment contracts – more “red tape” and further restrictions

The “Große Koalition” (the Grand Coalition) recently concluded a variety of legislative projects which will result in additional headaches, administrative hurdles, thresholds and new deadlines for HR professionals and employment experts. Traditionally, labor and employment laws in Germany have tended to be employee friendly. Now it appears that the few remaining employer-friendly laws enacted in the early 1980s to improve overall employment in Germany will also be reversed.

One area subject to challenge is time restricted employment. Until now, German employers could use time restricted employment even without substantive reasons for up to two years. This concept, known by the somewhat technical German term “sachgrundlose Befristung”, became extremely popular due to wide coverage which extended outside the legal press.

Federal Constitutional Court narrows use of time restricted employment contract

In June 2018, the Federal Constitutional Court in Germany (“Bundesverfassungsgericht”) overruled a 2011 judgment of the Federal Labor Court (“Bundesarbeitsgericht”). The Federal Labor Court had ruled that the employer could conclude unfounded time restricted employment contracts provided the employee had not been previously employed by the employer within a three year period. This ruling went beyond the law itself which does not provide for a concrete threshold period but rather prohibits an unfounded time restricted employment contract if the employee was “previously employed” with the same employer.

The Federal Constitutional Court has rejected this approach, holding that setting a three year threshold period is not the role of the judicative power but must be laid down by legislation. Therefore, the three

Supreme Court Upholds Class Action Waivers

On May 21, the United States Supreme Court held that mandatory arbitration agreements containing class action waivers are to be enforced as written.  In Epic Systems Corp. v. Lewis, a trio of consolidated appeals, the Court rejected arguments by employees that section 7 of the National Labor Relations Act (“NLRA”) – which permits employees to engage in “concerted activity” for the purposes of “collective bargaining or other mutual aid or protection” – grants employees a statutory right to assert legal claims (such as claims under federal and state wage and hour laws) on a class or collective basis.

This decision is significant for employers nationwide. Since 2012, the National Labor Relations Board (“NLRB”) has asserted that such waivers violate the NLRA, forcing employers to choose whether to (a) risk violation of the NLRA, (b) implement an opt-out procedure that some courts had concluded might comply with the NLRA, or (c) abandon their class-action waivers and face the threat of class and collective wage and hour suits.

In response to the NLRB’s position, some courts (including the Ninth Circuit Court of Appeals) had refused to enforce mandatory arbitration agreements with class action waivers on the grounds that they were unlawful under the NLRA and, therefore, fell within the savings clause under the Federal Arbitration Act (“FAA”).  That clause permits courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”  In reversing the Ninth Circuit and rejecting the NLRB’s

Post-Contractual Non-Competes – a never ending story

April 30, 2018

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There are few clauses in employment contracts more heavily debated than Non-Competition Clauses (post-contractual non-competes). While employers tend to include them rather easily in order to protect company secrets beyond the term of an employment, strict and mandatory provisions under German law differ from those found in most other jurisdictions. For post-contractual non-competes to be enforceable, an entire catalogue of requirements must be met, including a mandatory compensation payment of at least 50% of the employee`s total earnings for the maximum term of two years – to name just the two most prominent requirements. Because of the potential financial impact on employers, it is highly advisable to carefully consider whether post-contractual non-competes are necessary at all and, if so, whether they will be enforceable.

Two recent decisions in January 2018 by the Federal Labor Court/ BAG (10 AZR 392/179) and by the Appeals Court/ LAG Düsseldorf (Az: 7 Sa 185/17) are worth noting:

“Vorvertrag” – Keeping your options open

It is a common situation (and sometimes a true dilemma) for the employer to decide at the beginning of the employment relationship whether to agree on a post-contractual non-compete. While it is easy at that point to negotiate a non-compete, the employer might not be sure whether the circumstances and the unclear future developments justify the investment in a (potentially) costly non-compete. LAG Düsseldorf confirmed that it could be valid for an employer to agree on a post-contractual non-compete in the form of a preliminary contract (“Vorvertrag”) that grants the employer

Serious changes for fixed-term employment in Germany announced

The formation of a new government in Germany has not yet been completed however since February 7, 2018, the coalition agreement has been signed. Such political guidelines were consistently implemented during the last legislative periods.

The changes affect fixed-term contracts which require no objective grounds for limitation. The maximum permissible duration of such fixed-term contracts will be reduced from 24 to 18 months. While previously a three-time extension of these contracts was allowed, this should now be possible only once within those 18 months.

The permitted number of such fixed-term employment contracts will also be limited. Employers with more than 75 employees should only be allowed a maximum of 2.5 percent of the workforce for non-material fixed-term contracts. Exceeding the quota leads to the ineffectiveness of any further fixed-term employment contract, and to permanent employment contracts.

Fixed-term contracts with objective grounds for limitation, in practice used if the employee has been previously employed or the maximum duration of fixed-term employment contracts as per above has expired, are also affected by the new regulations. If the employee previously had an indefinite, or one or more fixed-term employment contracts with a total duration of five years or more with the same employer, a renewed time limit is prohibited – even if there are recognized objective grounds for the limitation. An important point to note is: The maximum period of five years, also includes periods during which the employee was lent to the employer by other companies.

The announced changes to the law

Paving the Way for Unpaid Interns: Trump Administration Relaxes the Standards

Internships are often a great way for students and young people to get their foot in the door and land their first job. But employers must ask themselves: is your unpaid intern actually an intern, or is the “intern” really an employee entitled to wages? Last week, the Department of Labor (“DOL”) aimed to provide clarity and flexibility when it revised its guidance for determining whether an unpaid intern is an “employee” who must be paid under the federal Fair Labor Standards Act (“FLSA”).

Unpaid internships have been the focus of some legal uncertainty over the past several years. The source of that uncertainty may be the FLSA’s simplistic definition of “employee” as “an individual employed by an employer.” The Supreme Court has yet to fully address the difference between unpaid interns and paid employees, but in 1947, the Court recognized that unpaid trainees should not be treated as employees for purposes of the FLSA. In Walling v. Portland Terminal Co., 330 U.S. 148 (1947), the Court relied on several factors in determining that certain railroad trainees were not “employees,” including that the trainees did not displace any regular employees, their work did not expedite the employer’s business, they did not expect to receive any compensation, and they would not necessarily be hired after completing training.

Despite the obvious changes in the workforce since 1947, the DOL and federal courts have continued to rely on the reasoning in Portland Terminal ever since. For example, in 2010, under the Obama

Tips for Drafting Executive Employment Agreements – Tip #4 – Beware of 409A

August 7, 2017

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This article continues with another tip for drafting executive employment agreements and the importance of consulting counsel.

For every well drafted executive employment agreement in the business world, there seem to be multiple, poorly drafted agreements.  Too often, employers simply copy and paste from older agreements without knowing anything about the identity or qualifications of the author of the original agreement, the jurisdiction, or circumstances in which the agreement was intended to be used.  Moreover, employers sometimes borrow terms from an agreement that was heavily negotiated by an executive with considerable leverage.  Under such circumstances, the agreement likely will contain terms that are less favorable to the employer than those that can be negotiated with another executive.  Most employers do not realize their mistakes until they are consulting an employment attorney regarding their rights and obligations with respect to an executive who has engaged in misconduct or is simply performing poorly.  The purpose of this series is to provide tips for drafting executive employment agreements and to highlight the importance of consulting counsel before tendering an agreement to an executive for consideration.

Tip No. 4:  Beware of 409A

When drafting executive employment agreements, it is imperative to consider the potential implications of Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”).   Section 409A is a U.S. tax law which governs the payment of deferred compensation (i.e., compensation earned in one year that is payable in another year).  This law generally regulates the time, form and manner

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