McDonald's Noncompete AgreementMcDonald’s recently announced it terminated its chief executive, Steve Easterbrook, for having a consensual relationship with an employee. This termination presents a buffet of employment law and HR issues upon which one could devour. However, I want to focus on the non-compete restriction that Mr. Easterbrook ultimately agreed to upon ending his employment.

The Background for the Termination

For background purposes, Mr. Easterbrook was terminated after having a relationship with an employee. This relationship violated McDonald’s company policy, which prohibits employees with “a direct or indirect reporting relationship” from “dating or having a sexual relationship.” Such policies, sometimes called nonfraternization policies, have become standard for employers.

There are many perspectives on this firing. The New York Times, for example, reports that Mr. Easterbrook was not the first (nor will he be the last) executive to be removed for violating this sort of policy. And, Forbes provides three good reasons for why this termination made sense. See “Fair Or Foul? McDonald’s CEO Fired For Love.” And NPR analyzed the significant pay gap between compensation at the top and the bottom of the corporate ladder.

McDonald’s Non-compete Severance Agreement

But I found the non-compete restriction interesting and relevant to issues my clients regularly address. Specifically, how broadly can a non-compete restriction be drafted before it becomes unenforceable?

Here, McDonald’s post-employment restriction puts Mr. Easterbrook on the employment “side-lines” for two years. He is prohibited from working anywhere in the world for a “Competitive Company.” So what is a “Competitive Company?” The obvious suspects are listed in the agreement, such as Burger King, Jack-in-the-Box, Wendy’s, Arby’s, and Taco Bell.

But McDonald’s also expanded the definition of a “Competitive Company” to nonobvious fast-food restaurants like Domino’s Pizza, Papa John’s, Pizza Hut, Jamba Juice, Long John Silver’s, and Panera. Here is the full non-compete restriction:

Competitive Companies” shall mean any company in the restaurant industry (whether informal eating-out or ready-to-eat) that competes with the business of McDonald’s, including any business in which McDonald’s engaged during the term of your employment and any business that McDonald’s was actively considering conducting as of your Termination Date. Examples of Competitive Companies include, but are not limited to: Arby’s, BoJangle’s, Burger King/Hungry Jacks, Caffè Nero, Checker’s, Chick-fil-A, Chipotle, Costa, Culver’s, Denny’s, Domino’s Pizza, Dunkin’ Brands, Five Guys, Greggs, Hardee’s, In-N-Out Burger, Jack-in-the-Box, Jamba Juice, Long John Silver’s Quick Service Restaurant Holdings (and all of its brands and subsidiaries), Panera Bread, Papa John’s, Popeye’s Chicken, Potbelly, Q-doba, Quiznos, Seven-Eleven, Sonic, Starbucks, Subway, Tim Horton’s, WaWa, Wendy’s, YUM Brands, Inc. (including, but not limited to, Taco Bell, Pizza Hut, Kentucky Fried Chicken and all of YUM Brands, Inc.’s subsidiaries) and their respective organizations, partnerships, ventures, sister companies, franchisees, affiliates or any organization in which they have an interest and that are involved in the restaurant industry (whether informal eating-out or ready-to-eat) anywhere in the world, or that otherwise compete with McDonald’s. You agree to consult with McDonald’s General Counsel, Jerry Krulewitch, or his successor, for clarification as to whether or not McDonald’s views a prospective employer, consulting client or other business relationship you may have or have had in the restaurant industry (whether informal eating-out or ready-to-eat) not listed above as a Competitive Company.

So is this sort of post-employment restriction enforceable? For Mr. Easterbrook, probably. He was the CEO of the company, and he agreed to receive substantial compensation in exchange for signing the agreement. CBS reports his severance payout may be worth $70 million and could increase if McDonald’s meets certain financial targets over the next three years.

But would a similar restriction be enforceable for your average manager or employee getting little to no severance pay? That is a different story.  An employer would probably have difficulty in convincing a judge such a broad restriction is necessary to protect a reasonable competitive interest. And such an interest is the touchstone for non-compete enforceability.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article or want to discuss the enforceability of your non-compete agreement. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.

Grand Rapids Business CourtOn October 23, 2019, the Michigan Supreme Court announced that the Hon. Terence J. Ackert has been assigned to the Kent County Business Court docket. Judge Ackert will join Judge Christopher Yates who also presides over this docket. Prior to this assignment, Judge Ackert presided over cases in the Family Division of the Circuit Court.

Judge Ackert is a graduate of the University of Michigan and the University of Toledo College of Law. He became a judge on September 1, 2015.  Before taking the bench, he worked in private practice from 1984 through 2015. As a practicing attorney, Judge Ackert mostly serving as business counsel and trial attorney for closely held and family-owned businesses.

The Michigan Business Court Experiment Continues

The Michigan Business Court docket began in October 17, 2012, under Public Act 333. Under this Act, Michigan circuit courts with three or more judges were required to create a “specialized business court docket.”  Any case that meets the definition of a “business” or “commercial” dispute must be placed on the business docket.

The reasoning behind Michigan’s Business Courts is that it provides a case management structure intended to facilitate “more timely, effective, and predictable resolution of complex business cases.”

What does the assignment of a New Business Court Judge Mean?

Here are three points to consider about this business court assignment.

First, Judge Ackert will be in good company with Judge Yates. Our firm routinely represents clients in business disputes throughout Michigan. And with this experience, Judge Yates is at the top of the list when it comes to fair and effective Business Court Judges.

Third, for some time, Judge Yates had been the only business court judge for a busy Grand Rapids docket. Somehow he and his staff did not let this workload adversely affect the progress of cases. But the addition of Judge Ackert is probably very appreciated when it comes to moving cases toward resolution.

Second, Judge Ackert’s professional experience before taking the bench as legal counsel in a range of business matters – both transactional and litigation – is appreciated. Personally, I find judges who have experience in the “trenches” tend to be more effective when it comes to understanding the interplay of litigation and substantive law. Hopefully Judge Ackert will continue to prove this judicial theory to be true.

Michigan unemploymentThe Unemployment Insurance Agency (UIA) is implementing changes intended to make it easier and more convenient to obtain unemployment benefits. On August 22, 2019, the UIA will update its customer contact center using the leading phone technology to provide greater efficiency and more contact options. For both employers and individuals using the UIA’s system, this (probably) is good news.

More About the UIA

Michigan’s Unemployment Insurance provides temporary income to unemployed workers who lost their job through no fault of their own. The unemployment taxes paid by employers are the funding source behind the program. The UIA offers an array of online services to both unemployed workers and employees, but clients can access the organization via phone, an online account, or in person at one of 13 local offices statewide.

The Last Time the UIA “Improved” the System.

The last major update to the UIA occurred under the Snyder Administration in 2013. However, court filings revealed that Michigan’s $47 million program to “improve” the UIA had to be “scaled back” after thousands of people were wrongfully denied benefits or hit with fraud claims. See Inside Michigan’s faulty unemployment system that hit thousands with fraud. Worse, these wrongful denials resulted in a cascade of financial issues for these individuals, including improper penalties and bankruptcies.

Needless to say, there is a high ceiling for improving the UIA’s system.

What Is Changing?

But the current changes appear to focus on improving access and customer service. Specifically, the changes to the UIA include:

  • Consolidating multiple phone lines into one main customer service number for employers.
  • New menu options will guide callers to the customer service unit most suited to addressing the caller’s need. This system should streamline the process for those contacting the agency and better direct them to compatible agents.
  • A new enhanced callback feature is intended to reduce the burden on callers previously forced to sit in call limbo, i.e., put on hold. Callers will have the option to hang up and receive a call back when their turn in the queue has been reached.
  • A real-time chat application will also be added to the Michigan Web Account Manager. This upgrade enables callers to avoid phones and messages and chat with customer service live in real-time. Those seeking to contact the UIA can find this convenient option within their Michigan Web Account Manager (MiWAM) to connect with customer service representatives during normal business hours.

New Contact Information and Hours for the UIA

The UIA’s new call-in number is 1-855-484-2636. It will handle all inbound calls going forward. You can reach UIA Employer Customer Service at 1-855-484-2636 Monday through Friday from 8 a.m. to 5 p.m. For the hearing impaired, TTY service is available at 1-866-366-0004. You may also send a message online through the Michigan Web Account Manager or use the upcoming live chat feature beginning August 22.

If you are an employer who has questions about this article or for responding to a claim for unemployment benefits, use this link to contact Michigan attorney Jason Shinn. Our law firm collaborates with employers to assess when to oppose an unemployment claim and to best-position the company for successfully obtaining a denial of benefits.

Criminal background check

Criminal background checks are routine for job applicants. But in 2012, the Equal Employment Opportunity Commission (EEOC) disrupted that routine when it issued guidance for how and when criminal background checks should be used by employers. But – at least in Texas – the Fifth Circuit Court of Appeals restored the status quo; It ruled the EEOC cannot enforce the guidance against Texas to disqualify applicants with criminal convictions. Here’s a link to the Fifth Circuit Court of Appeals August 6, 2019, decision (Texas v EEOC).

The EEOC’s criminal background guidance reasoned that using criminal convictions to disqualify applicants could lead to race and national origin discrimination. Accordingly, it recommended employers eliminate policies and practices that exclude people from employment solely based on any criminal record conduct. Instead, employers were told they should conduct individualized assessments of the job requirements and applicants to determine specific offenses that may demonstrate unfitness for performing the job.

Texas responded to the EEOC’s 2012 guidance by suing the federal government. It argued the EEOC exceeded its authority and that the guidelines conflicted with Texas laws barring the employment of workers with felony convictions for certain positions. Texas also argued it should be able to impose categorical bans on hiring workers with criminal backgrounds.

The Fifth Circuit Court of Appeals upheld an order blocking the EEOC from enforcing its guidance against Texas. Admittedly, this conclusion omits significant procedural twists and turns between the initial suit by Texas and the Court of Appeals decision. See the opinion for this discussion. The Fifth Circuit concluded the EEOC’s guidance was a substantive rule. As such, the EEOC was enjoined from enforcing it because federal law does not authorize the  Agency to promulgate substantive rules to implement Title VII.  So the Court modified the district court’s injunction, which prohibited the EEOC’s guidance “until [it] complied with the notice and comment requirements under the [federal Administrative Procedure Act (APA)] for promulgating an enforceable substantive rule.”

One interesting quirk to the Fifth Circuit’s ruling was the dichotomy between the interests of the Trump administration’s Justice Department and that of the EEOC it was representing. The DOJ’s brief stated: “Neither the Department of Justice, nor any other government agency is bound by the guidance … [the DOJ] disagrees with the approach and analysis of the EEOC in numerous respects … [there is] no material probability the DOJ would seek to enforce the EEOC’s guidance …” Reading between the lines, the EEOC guidance is often described in terms of being an “Obama-Era Restriction.”

What does this mean for Michigan Employers?

As we have previously noted, the EEOC’s criminal conviction guidance closely parallels legislative actions taken by state and local governments that have implemented rules prohibiting the use of criminal convictions to exclude applicants. This initiative commonly referred to as “ban the box.” In fact, Michigan, under former Gov. Snyder, an executive order prohibited state departments from initially asking job seekers if they’ve been convicted of a felony. See Michigan “Bans-the-Box” for State Job Applicants. Similar to the EEOC’s guidance, a criminal history review could still happen later in the hiring process, just not as an initial screen for State of Michigan job applicants.

However, this ban of the EEOC’s guidance is of limited present value to Michigan employers; the Fifth Circuit does not include Michigan (it is in the Sixth Circuit). Even so, the Fifth Circuit expressly declined to prohibit the EEOC from challenging criminal background checks for allegedly violating Title VII (e.g., under an adverse impact theory); it just cannot enforce Title VII using the guidance to interprete Title VII violations. Of more interest, the court’s analysis provides a roadmap for employers to challenge other EEOC “substantive” rules issued (arguably) in violation of the APA.

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article, or complying with Michigan or federal employment laws or litigating claims under both. Since 2001, Mr. Shinn has represented companies and individuals in employment discrimination claims under federal and Michigan employment laws.

Is “continued employment” sufficient “consideration” to support the enforcement of a non-compete agreement? It is an issue present in many non-compete disputes. But it is also an issue that may be overlooked or (incorrectly) assumed to be a “non-issue.”

If you need a refresher course on what consideration is and why it matters, we’ve got you covered.

As to how consideration plays out in non-compete disputes, I ran across a recent Illinois Court of Appeals decision where a lower court that dismissed an employer’s non-compete claim because continued employment was found to be sufficient consideration.

Specifically, in Axion RMS v. Booth (2019 IL App), the Court agreed with the trial court’s reasoning, which was as follows:

… where restrictive covenants are supported by adequate consideration based exclusively on continued employment, the employee’s employment must continue for at least two years after execution of the restrictive covenant … Booth’s [the former employees] employment for less than a year after he entered into the employment agreement at issue was insufficient to constitute adequate consideration … due to the lack of adequate consideration, the noncompete clause between Axion and Booth was unenforceable.

Since my matter involved Michigan law, the Axion case was relegated to a footnote because it was not “binding authority.”

Rather than going through the legal underpinnings for this conclusion, just take my word that a court opinion from another state’s judge is not binding on a Michigan Judge. It would be like someone from the Northeast telling a Michigander that a carbonated beverage is correctly called a “soda, not a “pop,” which is still way less weird than the South calling any carbonated beverage a “Coke,” even if it isn’t (do they really call a “Pepsi” a “Coke?”). In any event, in Michigan, pop is pop and you can’t tell me otherwise because that’s just crazy. The same concept applies to out-of-state court opinions … or does it?

Is Continued Employment Good Consideration in Michigan? Wait, ask Iowa?

So turning to Michigan law, attorneys who do not regularly deal with non-compete issues almost always assume the issue of continued employment as a basis for enforcing a non-compete law is a settled issue. But as we’ve previously noted, Michigan’s Supreme Court has never ruled on this issue.

Instead, the case frequently cited as support for this point comes from a 1991 federal case decided in the Eastern District of Michigan, Robert Half Int’l, Inc v Van Steenis. In Robert Half, the federal judge decided that in Michigan, continued employment was sufficient consideration to support a non-compete restriction. So you may be thinking, “ok, it’s not a ‘Michigan State judge” making the decision, but at least it was a judge sitting in a courtroom in Michigan carefully researching and analyzing Michigan law before deciding what the law should be in Michigan, right?”

Wrong! the Judge in Robert Half reached this conclusion based on (drum roll) ….. a 1983 Iowa court opinion (I can only assume if the judge had relied on Ohio law, the decision would have been overturned and Michigan politicians would have called for impeachment hearings). Yet this conclusion is often regurgitated without further thought – by attorneys and even judges (see QIS, Inc. v. Industrial Quality Control, Inc. (2004)).

How Does Continued Employment Affect your Noncompete Issue?

Does this mean your non-compete agreement is null and void because you signed it after your employment begin? If you are an employer adding non-compete or other post-employment restrictions to existing employment relationships should employees be given a bonus or other “consideration” beyond “continued employment?” The safe answer is “maybe.” The better answer is to talk to an experienced non-compete attorney who regularly deals with non-compete issues. But as the above cases make clear, it is not necessarily a settled answer under current Michigan law.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.

noncompeteMichigan’s Attorney General (AG) Dana Nessel joined 17 other State Attorneys General to respond to the Federal Trade Commission’s (FTC) request for public comments. These comments concern the FTC’s public hearings on Competition and Consumer Protection in the 21st Century. Ms. Nessel’s response echoes a growing concern across the United States about the use and enforcement of non-compete restrictions: See Employees Are Winners in Push-Back Against Non-compete Restrictions

Among the recommendations made by Attorney General Nessel and her colleagues is for the FTC to scrutinize post-employment restrictions. Here’s the AG’s full recommendations and report: State Attorneys General Comments on Labor Issues in Antitrust. Specific to non-compete restrictions, the AGs recommend:

At a minimum, we recommend that the FTC use its authority to ban intra-franchise no-poach agreements and noncompete agreements for low-wage workers. … We further propose the FTC consider a ban on non-competes involving multi-sided platforms [referring to “gig” employees who depend on an app or platform that connects different groups of users of the platform].

Kinds of post-employment restrictions employees face.

The recommendations are in response to various post-employment restrictions that employees increasingly must enter into as a condition of employment. As we’ve reported, such restrictions often extend to low-wage workers. These restrictions may be summarized as follows:

  1. A non-compete agreement between an employer and an employee restricts an employee’s ability to work for a competitor after leaving their employer.
  2. Under a non-solicitation agreement, the employer and employee agree that if the employee leaves the company, she will not solicit other employees from the old company to join the new company.
  3. Agreements between employers to not hire each other’s employees are called horizontal agreements. These restrictions between competitors reduce competition for labor. However, such limits are almost always illegal
  4. “No-poach” agreements are another post-employment restriction. These are similar to horizontal agreements but are between related organizations. An example would be a franchisor and a franchisee. Under these restrictions, the franchisee agrees not to hire employees of other franchisees. Notably, employees may not know of or consent to such restrictions because they are between employers.

Is more scrutiny needed for enforcing Noncompete restrictions?

The AGs offer detailed and well-supported arguments for why assessing such restrictions are needed.

Critics suggest good counter-points. But they also too easily dismiss the recommendations as an interference “with state contractual rights.” Or they downplay the argument that “the agreements can harm workers by limiting their employment options and ability to seek higher-paying jobs.”

I agree to some degree that non-compete and other post-employment restrictions have a rightful place in business. Admittedly, we routinely represent employers in drafting, implementing, and enforcing non-compete and related restrictions. But such representation is generally limited to important business interests, e.g., executives, sales representatives, buyers or sellers in business transactions, or similar considerations are involved. And we encourage our business clients to carefully consider which employees/positions are subject to post-employment restrictions. So throwing the proverbial “baby” out with the bathwater is not the answer.

But requiring all employees – irrespective of position or other meaningful assessment is also the wrong answer. This is because egregious misuse of post-employment restrictions abounds, something even the most entrenched critics favoring unfettered enforcement of post-employment restrictions acknowledges.

Wage suppression through non-solicitation restrictions.

Further, post-employment limitations are increasingly misused for anti-competitive purposes that do not protect legitimate business interests. In this regard, we have been in the “litigation trenches” representing numerous clients against questionable to outright unlawful non-compete litigation.

Case in point, we recently resolved a lawsuit filed by an employer who claimed its former employees “damaged” the plaintiff by “attempting” to solicit away employees ranging from a used car salesman, “insurance personnel,” “billers,” and other auto dealership employees. The former employees had joined a new entrant into the new and used car dealership business.

The damages; Plaintiff did not lose a single employee (outside the defendants who ended their employment for other opportunities). But the plaintiff claimed it was “forced” to offer more compensation to retain those individuals allegedly solicited by defendants. The price-tag: almost $250,000.00 in damages (or so the story goes).

In other words, the plaintiff was using its non-solicitation restriction to suppress its workforce wages. Such damages, however, were not convincing (it resolved for nuisance value). Nonetheless, the individuals lost good-paying jobs with the new employer (who wanted nothing to do with a lawsuit) and they incurred legal and mediation fees.

Leveling the playing field for enforcing post-employment restrictions.

The common denominator in lawsuits like the preceding is that the former employer rarely needs to “win.” Or, a minimal investment of time and resources is all that is required; merely threatening litigation. Such actions are generally enough to scare off a competitor or start-up from hiring the worker away. See Running out the Clock in Non-compete Disputes: A Frustrating Reality for Employees.

One recommendation that could temper such abuses without invalidating non-compete and other post-employment restrictions would be to amend statutes concerning the enforcement of non-compete agreements to include a bad-faith provision. Such an amendment could be similar to Michigan and other states’ that allow for the statutory recovery of attorney’ fees in bad-faith secret misappropriation claims. While no silver bullet, at least this would create some mechanism to compel a company to carefully scrutinize its liability before pursuing post-employment restrictions for improper purposes, e.g., suppressing wages or eliminating legitimate competition.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.

LGBT Discrimination The U.S. Supreme Court is scheduled to hear a trio of cases involving the protection of lesbian, gay, bisexual, and transgender (LGBT) employees from discrimination in the workplace. The Court’s decision will likely eliminate or clarify what protections LGBT employees have under Title VII.

Michigan Employer Fires Transgender Employee

In 2016, we covered one of the cases before the U.S. Supreme Court, EEOC v. R.G. & G.R. Harris Funeral Homes, Inc. In this case, a transgender woman was fired by her Michigan employer because she told her employer she was transitioning. The Michigan district court ruled for Harris Funeral Homes, citing the Religious Freedom Restoration Act (RFRA) and denying the EEOC (Equal Employment Opportunity Commission) their application of Title VII to the case. The EEOC argued that Title VII should have been applied because its ban on sexual discrimination includes discrimination based on gender identity.

The district ruling was appealed to the Sixth Circuit Court of Appeals, which overruled the lower court decision. Specifically, the Court concluded the (i) Funeral Home engaged in unlawful discrimination against its employee based on her sex; (ii) the Funeral Home failed to establish that applying Title VII’s proscriptions against sex discrimination to the Funeral Home would substantially burden its shareholder’s religious exercise, and therefore the Funeral Home is not entitled to a defense under the Religious Freedom Restoration Act (RFRA); and (iii) even if the shareholder’s religious exercise were substantially burdened, the EEOC established that enforcing Title VII is the least restrictive means of furthering the government’s compelling interest in eradicating workplace discrimination.

Businesses Show Support in Prohibiting Discrimination Against LGBT Employees

We predicted that the EEOC v. R.G. & G.R. Harris Funeral Homes, Inc. case would work its way up to the U.S. Supreme Court, and we explored the details and conflicts of the RFRA and Title VII. Moreover, as a legal matter that could have important ramifications for businesses, we expected companies to be interested in the outcome of such a case. As this case has run its course, hundreds of companies have expressed their support for protecting LGBT employees against discrimination in the workplace; this outpouring of businesses responding favorably to the LGBT matter was largely unanticipated.

On July 3 of this year, 206 companies filed a brief as amici curiae with the U.S. Supreme Court, urging the Court to protect LGBT employees under Title VII. These companies explain their position as follows:

The 206 businesses that join this brief as amici collectively employ over 7 million employees, and comprise over $5 trillion in revenue… Amici support the principle that no one should be passed over for a job, paid less, fired, or subjected to harassment or any other form of discrimination based on their sexual orientation or gender identity. When workplaces are free from discrimination against LGBT employees, everyone can do their best work, with substantial benefits for both employers and employees.

While these 206 companies have voiced their shared stance on prohibiting discrimination against LGBT employees and Title VII, federal courts remain divided over what protection looks like for LGBT workers under civil rights laws. President Trump’s Justice Department is expected to urge the Supreme Court to deny federal civil rights protections to LGBT employees.

With various opinions across the board on how to address LGBT employees, Title VII, and the RFRA, it’s impossible to tell how the Supreme Court will rule on the matter. We will have to wait and see what comes in this next year, and we will continue to follow this case as it comes before the Supreme Court in October.

If you have questions about this article, complying with state and federal employment laws, or litigating claims under such employment laws, use this link to contact Michigan attorney Jason Shinn. Mr. Shinn has been representing companies and individuals since 2001, specializing in employment discrimination claims under both federal and Michigan employment laws.

Best practice noncompete enforcementA recent non-compete related law in Oregon caught my attention. Specifically, Oregon law (HB 2992), provides that noncompete agreements entered into after January 1, 2020, will only be enforceable against Oregon employees if the employer provides the departing employee with a signed copy of the agreement within 30 days after the employee’s date of termination.

For more information about this Oregon law, see attorney Lindsey Reynolds’ coverage, New Requirement for Noncompetition Agreements in Oregon.

A Law that Should not be Necessary but is Needed

This amendment to Oregon’s noncompete statute caught my attention because it is both a law that should not be needed but is. Let me explain:

First, giving a departing employee a copy of his or her non-compete or other post-employment restrictions should be every employer’s practice. This “reminder” should be provided at or shortly after the employee’s exit interview and documented in writing. But for numerous practical and strategic reasons, companies should already do this without legal compulsion.

Second, this law is needed, because in reality companies do not consistently provide this notice.

Third, individuals often forget (intentionally or otherwise) that they signed a non-compete agreement or lose the copy of the agreement by the time they depart. This is understandable; an individual joins a new employer and signs various documents and acknowledgments at the beginning of the employment relationship. But then years later, that individual departs for another opportunity. By this time, their copy of the agreement is often misplaced or forgotten.

Fourth, Oregon has several other statutory requirements that employers must follow to have an enforceable non-compete agreement. But this addition seems to add a harsh result that doesn’t fit the crime; Why should a signed and otherwise enforceable, permissible agreement that was (presumably) provided to the employee at one point now be rendered unenforceable simply because it is not provided to one party after their employment ends? It would seem a more appropriate penalty for failing to follow this notice requirement would be to exclude any damages during the time the individual was not provided notice.

Closing Thoughts

Oregon’s recent efforts to tinker with its non-compete laws is part of the trend we discussed in an earlier post. See Employees Are Winners in Push-Back Against Non-compete Restrictions. In that article, we discussed various State initiatives to add hurdles or outright restrict the enforcement of non-compete agreements.

In regard to Michigan, there have been no amendments to its non-compete statute, which allows for such restrictions if certain threshold requirements are met. Thus, any impediment to enforcing a non-compete restriction remain in the hands of Judges to parse out whether an employer met its burden for establishing an enforceable non-compete agreement.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.

employee mobilityPush-back by State Attorney Generals and state lawmakers against n0n-compete agreements may mean improved wages for employees.

Specifically, the Wall Street Journal, by Harriet Torry, reported on May 18, 2019, that Resistance to Noncompete Agreements Is a Win for Workers. To support this conclusion, the WSJ article cited various state initiatives, including:

  1. Washington passing a law making noncompetes unenforceable for certain workers, including employees earning less than $100,000 a year;
  2. In 2015, Hawaii banned non-compete agreements for technology jobs. The State reasoned such restrictions discouraged entrepreneurship;
  3. Earlier in 2019, New Hampshire’s Senate passed a bill banning noncompete agreements for low-wage workers;
  4. Legislators in Pennsylvania and Vermont proposed to ban noncompetes with few exceptions; and
  5. Attorneys general in Illinois and New York have successfully challenged noncompete agreements so certain companies agreed to limit their use.

Noncompete Use and Abuse

Traditionally, non-compete restrictions have been the go-to resource from the company toolbox for protecting confidential and trade secret information. But these restrictions are now frequently imposed at all levels within a company (Remember Jimmy Johns’ requiring delivery drivers to sign noncompete restrictions?).

In our own experience, we’ve represented hair-dressers, massage therapists, and others in minimum-wage jobs who were sued over non-compete restrictions. These and similar lawsuits rarely involved the reasonable competitive interest appropriate for protection through non-compete restrictions.

Limiting Competition and Wage Growth

The WSJ article reaches similar conclusions we discussed in a May 4, 2019, post about slow wage growth being caused by non-compete enforcement. See Is Interference from Over Aggressive Noncompete Litigation to Blame for Slow Wage Growth?

And now with historic unemployment lows, non-compete restrictions are increasingly a means to avoid paying employees a higher wage. For example, NPR’s Planet Money recently discussed in the “Quit Threat,” how employees have leverage to negotiate higher wages.

When unemployment is low, workers can threaten to quit and their bosses have to take that threat seriously. That’s what leads to raises.

But that leverage does not exist if the employee can’t work within his or her field. See Running out the Clock in Non-compete Disputes: A Frustrating Reality for Employees. Bolstering this conclusion that post-employment restrictions suppress wages, a study found that after Hawaii enacted its ban employee mobility increased by 11% and wages for new hires increased by 4%.

Scaling Back Noncompete Use

Non-compete and similar post-employment restrictions serve a legitimate purpose in protecting company trade secrets, confidential information, and protecting against unfair competition. But increasingly they are used – either by design or as an unintended consequence – to suppress employee wages. And if employers are not careful about how they used non-compete restrictions more states may follow to limit their use.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, Michigan non-compete law, or litigation enforcing or defending against non-compete claims. Since 2001 he has represented companies and individuals in drafting, negotiating, and litigating non-compete disputes.

Misappropriating trade secretsAn Ohio funeral home sued another funeral home and its former employee for alleged trade secret misappropriation. The plaintiff is also suing for defamation and tortious interference with its business expectancies.

As to the trade secret claim, reporting from the Tribune Chronicle, by Renee Fox, indicates the plaintiff funeral home alleges its client list meets the statutory definition for a trade secret. The suit goes onto claim that the list was used by its former employee to contact plaintiff’s customers (presumably those customers who had not already used the plaintiff’s services).

What is a “trade secret?” 

Since 2001, I’ve collaborated with clients on trade secret issues and litigation. And it is always interesting the learn what clients or opposing parties consider “trade secrets.” But simply saying information is a “trade secret” does not make it so.

Instead, a true “trade secret” requires meeting certain statutory requirements. For example, under Michigan law (for anyone looking for free legal research, that law is MCL 445.1902(d)), a party claiming information should be classified as a “trade secret” must show it:

  1. Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
  2. Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

And there are risks for asserting a party has misappropriated information claim to be “trade secret.” Returning to Michigan law, if a party makes a trade secret claim in bad faith, that party could be subject to sanctions in the form of paying attorney fees.

For example, we represent several parties sued for allegedly misappropriating trade secrets. In one case, we have a pending motion arguing the misappropriation claim was brought in bad faith and entitles our client to their attorney’s fees. As to the other cases, we are pursuing discovery likely to support similar motions.

This is not to suggest that the funeral home has made a bad faith trade secret claim. However, it is important to understand that factual issues may undercut the ability to satisfy the statutory definition of a trade secret. Those issues should be addressed before pursuing litigation.

So what should your company do about trade secrets?

Before pursuing trade secret misappropriation claims, it is important to know whether you can meet the statutory definition for a trade secret. Ideally, this determination will have been made in advance of suing for misappropriation.

In this regard, management should take steps to audit their company information to determine what can and cannot be protected as a “trade secret.” From here, you can assess whether appropriate steps to protect the secrecy of the information have been taken. If not, you will need to address what additional protections should be implemented.

Use this link to contact Michigan attorney Jason Shinn, if you have questions about this article, trade secret protection, or litigating misappropriation claims.