Department of Labor Proposes Increase to Salary Threshold for White Collar Exemptions

Related imageOn March 7, 2019, the United States Department of Labor (DOL) issued a new proposed rule that would raise the minimum salary threshold for “white-collar” employees under the Fair Labor Standards Act (FLSA).

Under the proposed rule, the minimum annual salary an employee must earn to qualify for either the executive, administrative, or professional exemption under the FLSA would increase from $23,660 ($455 per week) to $35,308 ($679 per week). At the same time, the minimum annual salary necessary to meet the definition of a “highly compensated employee” would increase from $100,000 to $147,414. The new proposed rule does not contain any changes to the primary duties employees still must perform to qualify for one of the white-collar exemptions.

In announcing the new proposed rule, Secretary of Labor Alexander Acosta stated, “At my confirmation hearings, I committed to an update of the 2004 overtime threshold, and today’s proposal would bring common sense, consistency, and higher wages to working Americans.”

The DOL last proposed an increase to the salary threshold for the white-collar exemptions in May 2016 when, under the Obama Administration, it proposed increasing the threshold to $47,476. On November 22, 2016, just before the new threshold was to take effect, the United States District Court for the Eastern District of Texas enjoined the DOL from implementing it. Since that time, the DOL has been developing the new proposed threshold.

The DOL expects to issue a final rule on the new salary threshold in January 2020. Until then, employers should remain vigilant in classifying their employees properly under the current threshold. Once a new threshold is finalized, employers should be prepared to either adjust salaries to meet the new threshold or reclassify affected employees as non-exempt.

eck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Quick Guide to Massachusetts Noncompete Law

On August 10, 2018, Governor Charlie Baker signed into law a bill governing noncompetition agreements. The new law, G.L. c. 149, S. 24L, is officially titled the “Massachusetts Noncompetition Agreement Act.”

This guide discusses the new law and provides helpful practice tips for employers.

FAQs

  1. Does the new law apply to all restrictive covenants?
  2. What workers can and cannot be covered by noncompetes under the new law?
  3. Are independent contractors covered by the law?
  4. When may an employer provide a noncompete to a new hire?
  5. When may an employer provide a noncompete to a current employee?
  6. Is there any specific language that must be included in the agreement?
  7. What consideration must the employer provide in order to support a noncompete?
  8. Does the new law place any limits on the duration, geographic reach, or scope of enforceable noncompetes?
  9. Does the law change Massachusetts’ status as a permissive “reformation state”?
  10. Can employers contract around the new law using choice of law and choice of venue provisions?

Answers & Discussion

1. Does the new law apply to all restrictive covenants?

No. The new noncompete law only applies to noncompete agreements (including forfeiture for competition agreements) entered into in the employment context on or after October 1, 2018.

The law does not apply to:

  • nonsolicitation agreements
  • no-hire agreements
  • noncompete agreements made with owners in connection with the sale of a business
  • forfeiture agreements
  • nondisclosure or confidentiality agreements
  • invention assignment agreements
  • garden leave clauses
  • noncompetes made in connection with the separation of employment, if the employee is given seven (7) business days to rescind acceptance
  • agreements by which the employee agrees not to reapply for employment after termination
  • any agreement entered into before October 1, 2018

Common law will continue to govern those agreements.

Statutory referenceG.L. c. 149, S. 24L(a).

Practice Tip

As referenced above, the new law does not apply to noncompete agreements made by owners in connection with the sale of a business. The law does this by defining noncompetition agreements to exclude:

“noncompetition agreements made in connection with the sale of a business entity or substantially all of the operating assets of a business entity or partnership, or otherwise disposing of the ownership interest of a business entity or partnership, or division or subsidiary thereof, when the party restricted by the noncompetition agreement is a significant owner of, or member or partner in, the business entity who will receive significant consideration or benefit from the sale or disposal[.]”


An employer entering into a noncompete agreement with an employee in connection with a sale of business should carefully and expressly tie the noncompete to the sale transaction (not the employment relationship) if it wants to avoid the requirements and restrictions imposed by the new law, including its 12-month cap on noncompetes.

2. What workers can and cannot be covered by noncompetes under the new law?

The new law expressly states that noncompetes shall not be enforceable against the following types of workers:

  • employees who are classified as nonexempt under the Fair Labor Standards Act
  • undergraduate or graduate students working in an internship or are otherwise in a short-term employment relationship with the employer
  • employees who have been terminated without cause or laid off
  • employees who are 18 or younger

An agreement containing an unenforceable noncompete may be enforceable as to its other terms.

In addition, a court may impose noncompete restraints on any protected worker (listed above) through preliminary or permanent injunctive relief or otherwise as a remedy for a breach of another agreement or statutory or common law duty.

Statutory referenceG.L. c. 149, S. 24L(c).

Practice Tips

Public policy considerations as to protected workers: Although the law applies only to noncompete agreements entered into on or after October 1, 2018, it may affect courts’ willingness to enforce noncompetes against low-wage earners and other protected workers as a matter of public policy. Employers should consider possible public policy arguments when deciding whether to litigate their existing noncompetes against these types of workers.

Springing noncompetes as a judicial remedy: The law permits courts to impose noncompete restrictions against protected workers who have breached their other contractual, statutory, or common law duties. Employers should therefore consider including language in their employment agreements that expressly provides for the judicial remedy of a noncompete in the event of a breach of the employee’s other restrictive covenants (e.g., nonsolicitation, no-hire, and nondisclosure agreements).

Layoffs and other terminations not “for cause”: With respect to layoffs and other terminations not “for cause,” employers may elect to include noncompetes in their severance agreements (in which case they will likely have to negotiate a severance payment). In this case, the employer may avoid application of the noncompete law by providing the employee with seven (7) days to rescind acceptance of the noncompete (in which case, common law will apply).

3. Are independent contractors covered by the law?

Yes, the law defines “employee” to include independent contractors.

Statutory referenceG.L. c. 149, S. 24L(a).

Practice Tip

Because of the expansive application to independent contractors, workers should review any form service contracts that include noncompetes.

4.When may an employer provide a noncompete to a new hire?

With respect to new hires, an employer must provide the noncompete at the earlier of either: (a) at or before the time of a formal offer or (b) 10 business days before the commencement of employment.

Statutory referenceG.L. c. 149, S. 24L(b)(i).

5. When may an employer provide a noncompete to a current employee?

With respect to current employees (not in the context of a separation of employment), an employer must provide 10 business days’ notice before the agreement is to be effective.  Additionally, the new noncompete must be supported by “fair and reasonable consideration independent from the continuation of employment[.]”

Statutory referenceG.L. c. 149, S. 24L(b)(ii).

6. Is there any specific language that must be included in the agreement?

The new law sets forth some specific requirements for a noncompete agreement:

  • The agreement must be in writing
  • It must be signed by both the employer and employee
  • The agreement must expressly state that the employee has the right to consult with counsel prior to signing

Statutory referenceG.L. c. 149, S. 24L(b)(i)&(ii).

7. What consideration must the employer provide in order to support a noncompete?

The law states that noncompetes shall be supported by garden leave (continued salary payment during the noncompete period) orother mutually-agreed upon consideration between the employer and the employee, provided that such consideration is specified in the noncompetition agreement.”

The law is silent as to what constitutes “mutually-agreed upon consideration between the employer and employee.”

For employers that choose the garden leave option, the law specifies that garden leave: (a) must be paid on a pro-rata basis for the duration of the noncompete period; (b) must comprise at least 50 percent of the employee’s highest annualized base salary paid by the employer during the last two years of the employee’s employment; and (c) may not be unilaterally discontinued by the employer absent a breach by the employee. Additionally, the law provides that, in the event the restricted period is extended because the employee has breached his or her fiduciary duty to the employer or unlawfully taken the employer’s property, the employer is not required to pay garden leave during the extension of the restricted period.

With respect to noncompetes executed during the course of employment (after hire), the law requires that the noncompete be supported by “fair and reasonable consideration independent from the continuation of employment.” The law, however, is silent as to what “fair and reasonable” means.

Statutory referenceG.L. c. 149, S. 24L(b)(ii)&(vii).

Practitioner’s Note

Because the law is silent as to what (besides garden leave) would be sufficient to support a noncompete, the issue is poised to become a hot-button topic in litigation.

For current employees, continued employment, alone, is no longer sufficient to support a noncompete. What is “fair and reasonable,” however, is open for interpretation by the courts. For now, employers should consider expressly pairing their noncompetes with a promotion or some other benefit (e.g., a bonus) for current employees.

With respect to new hires, there is some ambiguity in the statute as to what comprises consideration to support a noncompete. Noncompete agreements for new hires should expressly state that the employee’s employment and the benefits that come with employment (i.e., compensation, bonus(es), stock options, receipt of employer’s trade secrets) are made in consideration for the employee’s noncompete. Employers might also consider expressly pairing the noncompete with a sign-on bonus.

8. Does the new law place any limits on the duration, geographic reach, and scope of enforceable noncompetes?

Yes. The new law places a 12-month cap on noncompetes (subject to an extension up to one year to address instances in which the employee has breached his or her fiduciary duty to the employer or unlawfully taken the employer’s property).

The law also creates a presumption of reasonableness for noncompetes that: (a) are limited to only the geographic areas in which the employee, during the last two years of employment, provided services or had a material presence or influence; and (b) are limited to the specific types of services provided by the employee during the last two years of employment.

Additionally, as it was under the common law, noncompetes must be no broader than necessary to protect the employer’s legitimate business interests (trade secrets, confidential information, and goodwill). The law creates a presumption of necessity where the legitimate business interests at stake cannot be adequately protected through an alternative restrictive covenant.

Statutory referenceG.L. c. 149, S. 24L(b)(iii)-(vi).

Practitioner’s Note

Aside from imposing a 12-month cap, the law does not substantially change common law requirement that noncompetes must be reasonable in duration, geography, and scope.

9. Does the law change Massachusetts’ status as a permissive “reformation state?”

No. The law expressly preserves courts’ ability to, in their discretion, “reform or otherwise revise a noncompetition agreement so as to render it valid and enforceable to the extent necessary to protect the applicable legitimate business interests.”

Statutory referenceG.L. c. 149, S. 24L(d).

10. Can employers contract around the new law using choice of law and choice of venue provisions?

No. The new law specifically limits the ability of employers to restrict the application of the new law by using more favorable choice of law or choice of venue provisions. The law states:

No choice of law provision that would have the effect of avoiding the requirements of this section will be enforceable if the employee is, and has been for at least 30 days immediately preceding his or her cessation of employment, a resident of or employed in Massachusetts at the time of his or her termination of employment.

All civil actions relating to employee noncompetition agreements subject to this section shall be brought in the county where the employee resides or, if mutually agreed upon by the employer and employee, in Suffolk county; provided that, in any such action brought in Suffolk county, the superior court or the business litigation session of the superior court shall have exclusive jurisdiction.

Statutory referenceG.L. c. 149, S. 24L(e)&(f).

This article was written by Hannah T. Joseph.

For up-to-the-minute analysis of legal issues concerning non-compete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

eck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

 

Massachusetts Raises Minimum Wage in “Grand Bargain”

On June 28, 2018, Massachusetts Governor Charlie Baker signed into law the “Grand Bargain” bill, that, over the next five years, will gradually raise the minimum wage to $15.00 per hour, require paid family and medical leave for Massachusetts employees, and phase-out Sunday and holiday time-and-a half pay for certain retail employees.

Minimum Wage Increase

The first minimum wage increase will take effect on January 1, 2019, at which time the minimum wage will increase from its current rate of $11.00 per hour to $12.00 per hour.  Thereafter, it will increase by 75 cents on January 1st of each year until it reaches $15.00 per hour in 2023.  Over the same five-year period, the minimum cash wage applicable to tipped workers will increase from $3.75 per hour to $6.75 per hour, with the rate of pay increasing by 60 cents each January 1st from 2019 to 2023.

Paid Family and Medical Leave

The new law also establishes one of the most generous family and medical leave programs in the nation, which will be phased in over several years.  While administrative regulations from a newly-created state agency, the Department of Family and Medical Leave, will be forthcoming and will provide more specific guidance to employers with regard to implementation of the law and obligations regarding family and medical leave, the key provisions are evident.

Effective July 1, 2019, employers must post a notice of benefits available under the act and provide employees with a similar written notice of the benefits within 30 days of the employee’s date of hire.  As of July 1, 2019, employers will also start contributing to the Family and Employment Security Trust Fund, which will fund the leave program, at a contribution rate of 0.63 % of each employee’s wages, which is subject to annual adjustment.  Employers may require employees to pay a portion of the contributions.  Employers with fewer than 25 employees in Massachusetts are not required to pay the employer share of the contributions.

Effective January 1, 2021, eligible employees will be able to take up to 12 weeks of paid family leave per benefit year and up to 20 weeks of paid medical leave per benefit year, with a maximum of 26 total weeks of paid leave per benefit year.  Employees are eligible for medical leave if they have a serious health condition.  Employees are eligible for family leave:

  1. To care for a family member with a serious health condition;
  2. To bond with a child during the first 12 months after the child’s birth or placement for adoption or foster care; or
  3. To attend to exigent circumstances arising out of a family member’s active military duty or impending call to active military duty.

Note that if leave is taken to care for a family member with a serious illness arising out of military service, up to 26 weeks of leave may be taken in a benefit year.  Paid family or medical leave under the law will run concurrently with any leave available to the employee under the Family Medical Leave Act or the Massachusetts Parental Leave Act.

After a seven-day waiting period (during which an employee can use accrued sick or vacation time), the employee will be entitled to wage replacement from the Family and Employment Security Trust Fund equal to 80% of their wages, up to a maximum of 50% of the state average weekly wage, and 50% of their wages above that amount, up to a maximum of $850 per week or an adjusted amount that equals 64% of the state average weekly wage.

The law also includes a notable anti-retaliation provision.  Retaliation against employees for exercising their rights under the new law is prohibited.  Significantly, any negative change in the terms or conditions of employment that occurs during a leave or within six months of the leave creates a presumption of retaliation.  Employer can rebut this presumption only by clear and convincing evidence of a non-retaliatory and independent justification for the change.  The law also provides for a private right of action with a three-year statute of limitations.  Available remedies include reinstatement, payment of three times the employee’s lost wages and benefits, and reasonable attorneys’ fees and costs.

Gradual Elimination of Sunday Premium Pay

Currently, the Massachusetts “blue laws” require that most non-exempt employees who work in retail establishments must be paid time-and-a-half  on Sundays and certain holidays.  This requirement will be gradually phased out over the coming years.  On January 1, 2019, the premium rate will decrease to 1.4 times the regular rate of pay.  Thereafter, it will decrease by 0.1 each January 1, until it is eliminated altogether on January 1, 2023.

Next Steps

As a result of the “Grand Bargain,” Massachusetts employers will want to prepare for the wage adjustments to minimum wage and Sunday premium pay that begin to take effect on January 1, 2019 and will continue annually until 2023.  Although the law’s provisions regarding paid family and medical leave are not fully effective until 2021, regulatory guidance is expected in 2019 and certain provisions are effective in July 2019 as well.  Employers are well advised to review their current leave policies, explore and anticipate procedures and practices to meet the leave law requirements, and remain abreast of any forthcoming guidance and regulations.

eck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Reminder: Employers must use new Form I-9 by September 18 (2017)

On or before September 18, 2017, all employers must begin completing the recently updated Form I-9, Employment Eligibility Verification for each new employee hired in the United States, including citizens and noncitizens.  Form I-9 is used for verifying an individual’s identity and authorization to work in the United States.

The updates to the new Form I-9 include additions to the list of acceptable documents that employers can use to verify an employee’s identity and employment authorization. The revised Form I-9 does not change an employer’s storage and retention obligations. Form I-9 can be stored on paper, on microform, or electronically.  In addition, an employer must retain a Form I-9 for the duration of the employee’s employment and after termination for either three years after the date of hire, or one year after the date an employee’s employment is terminated, whichever is later.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

 

Supreme Court Specifies Limits on Personal Jurisdiction

n June 19, 2017, the United States Supreme Court in Bristol-Myers Squib Co. v. Superior Court of California, issued an 8-1 decision clarifying the bounds of specific jurisdiction over multi-state corporations. Following the trend established by the Supreme Court in its 2014 Daimler AG v. Bauman decision, the Court applied established principles of civil procedure to reach a decidedly pro-business holding that limits specific jurisdiction to cases where the facts at issue arise directly out of defendant’s presence in the forum state.

Background

Over 600 plaintiffs filed suit in state court in California against Bristol-Meyers Squib Co. (“BMS”) claiming that one of BMS’s drugs, Plavix, had injured consumers. Of the 600 plaintiffs, only 86 were California residents – the rest had no connections with California at all (they did not purchase or ingest the drug in California, and were not injured in California). However, each plaintiff’s claim was essentially identical.

BMS moved to dismiss the claims brought by the out-of-state plaintiffs for lack of personal jurisdiction. During the Court’s deliberation on the jurisdictional issue, the Daimler decision came down, effectively foreclosing general jurisdiction as an option in this case.  Instead, the California Supreme Court granted specific jurisdiction over the out-of-state plaintiffs, applying what they termed a “sliding scale approach to specific jurisdiction” in which the exercise of jurisdiction was allowed “based on a less direct connection between BMS’s forum activities and plaintiff’s claims than might otherwise be required.”

Certiorari was granted to determine whether this novel “sliding scale” approach violated BMS’s due process rights.

The Majority Holding

he majority of the Supreme Court held that the California Court’s sliding scale approach did violate the Due Process Clause of the Fourteenth Amendment (characterizing it as a “loose and spurious form of general jurisdiction”) and found that California courts lacked specific personal jurisdiction over the out-of-state plaintiffs under the traditional “arising out of” analysis.

Writing for the majority, Justice Alito explained that what is needed for a finding of specific jurisdiction “is a connection between the forum and the specific claims at issue.” Since the out-of-state plaintiffs had no personal connections to California, there was no reason to submit BMS to the “coercive power of a State that may have little legitimate interest in the claims in question.”

The Dissent

In a dissenting opinion, Justice Sotomayor focused on the apparent unfairness of the majority’s position, noting that the decision could have the effect of making it more difficult to “aggregate the claims of plaintiffs across the country whose claims may be worth little alone.”  In particular, the dissent took issue with the level of relatedness required for a finding of specific personal jurisdiction, arguing that the majority holding narrowed this standard to an unworkable and unfair degree.

Takeaways

n its 2014 Daimler decision, the Supreme Court greatly limited corporate exposure to general jurisdiction by taking an extremely narrow view of where a corporation is “at home.” Now, in BMS, the Court has taken a similarly pro-business approach, this time to specific jurisdiction, and limited the exposure of companies who operate nationwide.

The impact of this decision on class action claims, foreign corporations, and multi-defendant litigation is yet to be seen. If this holding plays out as Justice Sotomayor believes, however, such claims will be severely curtailed, if not entirely stifled. This decision gives a protective shield to corporate defendants, and shifts the burden to plaintiffs to figure out whether and where the appropriate forum exists.

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Lauren Corbett, the author of this case summary, is an associate at Beck Reed Riden LLP, focusing her practical on complex commercial litigation and employment disputes.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Massachusetts Court Warns Employers Not to Coast on Forum Selection Clause

he Business Litigation Session of the Massachusetts Superior Court recently dismissed a noncompete case against a California employee on the basis of forum non conveniens, notwithstanding a Massachusetts forum selection clause and a Massachusetts choice-of-law provision in the defendant’s employment agreement. The case is titled Oxford Global Resources, LLC v. Hernandezand it was issued on June 9, 2017.

This decision calls into question the enforceability of forum selection and choice-of-law provisions in employment agreements with California employees. The decision also characterizes employment agreements (especially with low-level employees) as “contracts of adhesion” that may be subject to more careful judicial scrutiny. Finally, as discussed below, the Hernandez opinion takes a dim view of what constitutes an employer’s “confidential information,” highlighting existing tension in Massachusetts case law.

Background

efendant Jeremy Hernandez was a California resident who was recruited, hired, and employed by Plaintiff Oxford Global Resources, LLC, in California. Hernandez’s employment with Oxford was conditioned on his signing a “protective covenants agreement,” which contained confidentiality, noncompete, and nonsolicitation obligations, as well as a Massachusetts choice-of-law provision and a Massachusetts forum selection clause. Oxford filed the case claiming that Hernandez breached his agreement when he used Oxford’s confidential information to solicit its clients on behalf of a competitor. Hernandez moved to dismiss the case on the basis of forum non conveniens.

As an initial matter, the Court found that because Hernandez had no meaningful opportunity to negotiate the terms of his employment agreement, it was a contract of adhesion that was subject to careful scrutiny. The Court based its finding on the following facts:

  1. Oxford would not have hired Hernandez if he did not sign the agreement.
  2. Oxford did not allege or offer any evidence suggesting that the parties negotiated the choice-of-law or forum selection provisions, or that Oxford had even demonstrated a willingness to discuss the issues.
  3. Hernandez started as an entry-level employee at $50,000 annual salary.
  4. Hernandez possessed no prior industry skill or experience that would have given him bargaining power to negotiate the agreement.

Notably, the Court did not give any weight to “boilerplate language” in the agreement stating that Hernandez had read the agreement and had the opportunity to have his own lawyer review it.

The Court next found that enforcing the agreement’s Massachusetts choice-of-law provision would result in “substantial injustice” to Hernandez. Because Hernandez was a California resident who was recruited, hired, and employed there, California law (generally voiding noncompetes) would otherwise govern the dispute absent a choice-of-law provision. The court ruled that enforcing the provision would deny Hernandez the protections of California law and subject him to a noncompete.

Although some California courts recognize a trade secret exception that permits the enforcement of agreements that are “necessary to protect the employer’s trade secrets,” the Court nevertheless found that the agreement, which provided that Hernandez could not compete against Oxford using its trade secret information, was not enforceable because it defined confidential information so broadly as to include the identities of Oxford’s customers, prospective customers, and consultants. The Court stated:

The non-competition restriction that Oxford seeks to enforce therefore goes far beyond what is permitted under California law or, for that matter, under Massachusetts law.

An employee is free to carry away his own memory of customers’ names, needs, and habits and use that information, even to serve or to solicit business from those very customers. Such “remembered information” is not confidential because the information itself, as distinguished from an employer’s compilation of such information into a list or database, is known to the customers and thus not kept secret by the employer

The Court concluded that:

Since the mere identity of customers is not confidential, the Agreement that Oxford seeks to enforce is the kind of non-competition agreement that is void under California law. Accordingly, the Court held that the choice-of-law provision was not enforceable.

Finding that it was evident that Oxford sought to include a Massachusetts forum selection clause in order to avoid the application of California law, the Court also held that the forum selection clause was not enforceable under California law.

Ultimately, the Court dismissed the case on grounds of forum non conveniens, finding that it would be unfair to compel Hernandez to defend in Massachusetts and that California had a stronger interest in the case.

Import of the Hernandez Decision

ernandez not only underscores the difficulty of enforcing restrictive covenants against California residents, but also generally calls into question the validity of choice-of-law and forum selection clauses, especially where the employee has had no meaningful opportunity to negotiate the terms of his employment agreement.

Notably, in characterizing the employment agreement as a “contract of adhesion,” the Court in Hernandez gave no weight to the affirmative representations in the agreement (stating that the employee had read and had opportunity to have his attorney review the agreement). Historically, the Superior Court has given varying degrees of weight to these types of affirmative representations.

Moreover, Hernandez adds to the argument that (in some instances) employees are permitted to use their employer’s confidential information concerning client names, needs, and habits, as long as that information is “remembered” rather than compiled into a list or database. In this respect, Hernandez highlights the tension that exists in Massachusetts case law regarding confidential information that is stored in an employee’s memory.

Given the evolving case law on these issues, businesses seeking to protect their confidential information should consult with their attorneys before drafting or enforcing these types of agreements.

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Hannah T. Joseph, the author of this article, is a lawyer in the firm’s litigation practice, whose work in intellectual property has been recognized by, among others, the Boston Bar Association (where she serves as Co-Chair of the Boston Bar Association’s Intellectual Property Committee). Thank you to Monika Zarski for contributing to this article.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Matal v. Tam: SCOTUS Brings a New Slant to Disparaging Trademarks

On June 19, 2017, in an 8-0 ruling, the United States Supreme Court in Matal v. Tam struck down the Lanham Act’s disparagement clause, prohibiting the registration of disparaging trademarks, as unconstitutional under the First Amendment’s Free Speech Clause. 582 U.S. __, No. 15-1293, 2017 WL 2621315 (U.S. June 19, 2017).

Following Tam, the U.S. Patent and Trademark Office (USPTO) may no longer deny trademark registrations on the basis that the marks may be disparaging. Accordingly, Tam will undoubtedly have far-reaching consequences in the business community (and, not to mention, finally resolve the Washington Redskins case).

The Lanham Act’s Disparagement Clause

Prior to Tam, the Lanham Act’s disparagement clause prohibited the registration of trademarks “which may disparage . . . persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute . . . .” 15 U.S.C. § 1052(a).

The USPTO would find a prima facie case of disparagement where (1) the trademark referred to “identifiable persons, institutions, beliefs or national symbols,” and (2) a substantial percentage of the referenced group, “in the context of contemporary attitudes,” would consider the mark to be disparaging. Once a prima facie case was made, the burden shifted to the applicant of the mark to prove that the mark was not disparaging. An applicant’s good intentions for the trademark, and his or her status as a member of the referenced group, would have no impact on the USPTO’s analysis in this regard.

The Case

Simon Tam is the lead singer of “The Slants,” an Asian-American rock band. He chose the name “The Slants,” a variant of an ethnic slur, in order to reclaim stereotypes about people of Asian ethnicity.

In 2010, Tam applied to register the band name with the USPTO’s principal register. The USPTO rejected the application, finding that “there is . . . a substantial composite of persons who find the term in the applied-for mark offensive.” Tam contested the decision before the examiner and the USPTO’s Trademark Trial and Appeal Board (TTAB), but was denied.

Tam took the case to court, and the Federal Circuit ultimately held that the disparagement clause was facially unconstitutional under the First Amendment’s Free Speech Clause. The court held that the clause engaged in viewpoint-based discrimination, regulating the expressive component of trademarks which cannot be treated as commercial speech, and that the clause could not survive strict scrutiny.

The government filed a petition for certiorari, which the U.S. Supreme Court granted on the issue of whether the disparagement clause is facially invalid under the First Amendment.

Supreme Court Rules that the Disparagement Clause is Unconstitutional

As a threshold matter, the Court addressed Tam’s argument that the disparagement clause did not apply to marks that disparage racial or ethnic groups. Tam argued that the clause prohibited the registration of marks that disparage “natural persons,” not groups. The Court dismissed Tam’s definitional interpretation as “meritless” and refuted by the “plain terms” of the clause (noting that “every person is a member of a ‘non-juristic’ group, e.g., right-handers, left-handers, women, men, people born on odd-numbered days, people born on even-numbered days”). The Court also found that the clause applied broadly to encompass not only marks that disparage natural persons, but also marks that disparage “institutions” and “beliefs.”

Next, the Court addressed the government’s arguments that: (1) trademarks are government speech, (2) trademarks are a form of government subsidy, and (3) the disparagement clause should be tested under the “government-program” doctrine.

With respect to the government’s first argument, the Court unanimously held that trademarks are private, not government, speech” that are entitled to free speech protections. The Court specifically found that, because the government does not create, edit, or have the authority to arbitrarily reject marks, trademarks are not government speech and federal registration does not constitute approval of a mark. The Court stated: “it is far-fetched to suggest that the content of a registered mark is government speech. If the federal registration of a trademark makes the mark government speech, the Federal Government is babbling prodigiously and incoherently . . . For example, if trademarks represent government speech, what does the Government have in mind when it advises Americans to . . . ‘Just do it’ . . . ?”

As to the exact basis upon which to strike down the disparagement clause, the Court was evenly split, 4-4.

Justice Alito, joined by the Chief Justice, Justice Thomas, and Justice Breyer, rejected the government’s next argument that this case was governed by cases in which the Court had previously upheld the constitutionality of government programs that subsidized speech expressing a particular viewpoint. Those cases stand for the rule that, while the government “may not deny a benefit to a person on the basis that infringes his constitutionally protected . . . freedom of speech,” the government “is not required to subsidize activities that it does not wish to promote.” If the government could convince the Court that the federal registration of a trademark was a type of subsidy that the government could withhold, it might be able to salvage the disparagement clause on this basis. Justice Alito rejected the argument, however, reasoning that federal trademark registration is nothing like the programs at issue in the subsidies cases (e.g., tax benefits). In this vein, Justice Alito observed that the USPTO does not pay applicants seeking to register a mark – rather, applicants pay the USPTO filing and other fees.

The Alito Opinion similarly found that “government-program” cases involving the collection of union dues by public employers were inapplicable to the registration of trademarks.

Finally, Justice Alito addressed the parties’ dispute regarding whether or not trademarks are commercial speech, which should be subject to relaxed scrutiny. Justice Alito declined to resolve the issue, instead finding that the disparagement clause could not even withstand a relaxed scrutiny analysis. Specifically, Justice Alito held that the disparagement clause was not sufficiently “narrowly drawn” to “drive out trademarks that support invidious discrimination.” Because the clause applied to trademarks that disparage any person, group, or institution, and would therefore apply to trademarks like “Down with racists,” “[i]t is not an anti-discrimination clause; it is a happy-talk clause.” “In this way, it goes much further than is necessary to serve the interest asserted.”

Concluding its opinion, Justice Alito noted:

There is also a deeper problem with the argument that commercial speech may be cleansed of any expression likely to cause offense. The commercial market is well stocked with merchandise that disparages prominent figures and groups, and the line between commercial and non-commercial speech is not always clear, as this case illustrates. If affixing the commercial label permits the suppression of any speech that may lead to political or social “volatility,” free speech would be endangered.

In his concurring opinion, Justice Kennedy agreed with Justice Alito that the disparagement clause constituted viewpoint discrimination, “a form of speech suppression so potent that it must be subject to rigorous constitutional scrutiny.”

Joined by Justice Ginsburg, Justice Sotomayor, and Justice Kagan, Justice Kennedy wrote separately to submit that, because the disparagement clause constituted viewpoint discrimination, the Court need not entertain the government’s other arguments.

The Kennedy Opinion emphasized:

At its most basic, the test for viewpoint discrimination is whether—within the relevant subject category—the government has singled out a subset of messages for disfavor based on the views expressed. . . . In the instant case, the disparagement clause the Government now seeks to implement and enforce identifies the relevant subject as “persons, living or dead, institutions, beliefs, or national symbols.” 15 U.S.C. § 1052(a). Within that category, an applicant may register a positive or benign mark but not a derogatory one. The law thus reflects the Government’s disapproval of a subset of messages it finds offensive. This is the essence of viewpoint discrimination.

Justice Kennedy continued:

The First Amendment’s viewpoint neutrality principle protects more than the right to identify with a particular side. It protects the right to create and present arguments for particular positions in particular ways, as the speaker chooses. By mandating positivity, the law here might silence dissent and distort the marketplace of ideas.

For these reasons, the Kennedy Opinion held that, “the Court’s cases have long prohibited the government from justifying a First Amendment burden by pointing to the offensiveness of the speech to be suppressed.”

Justice Kennedy reasoned that, because the disparagement clause constituted viewpoint discrimination, regardless of any “corporate speech” or “federal subsidy” designation, it must be subject to heightened scrutiny – a test it could not survive.

Justice Thomas, who mostly joined the opinion of Justice Alito, added “I continue to believe that when the government seeks to restrict truthful speech in order to suppress the ideas it conveys, strict scrutiny is appropriate, whether or not the speech in question may be characterized as ‘commercial.’”

Import of the Decision

With the disparagement clause of the Lanham Act struck down, the USPTO may no longer reject trademark registration applications because the trademarks are disparaging or offensive to a specific group, institution, belief, or symbol. This will undoubtedly result in the registration of myriad words, phrases, and marks that are considered by many to be derogatory. This also leaves the door open for the government to draft a more narrowly-tailored disparagement clause if it chooses to do so.

The Tam case also signals a new chapter that calls into doubt other aspects of well-established trademark law. See 15 U.S.C. § 1052(a) (addressing immoral, deceptive, or scandalous matter). The full import of this case and its effect on the future of trademark law is uncertain.

Related Reading: Landmark SCOTUS Decision Opens Door to “Immoral or Scandalous” Trademarks

***

Hannah T. Joseph, the author of this article, is an attorney with the firm’s litigation group, whose work in intellectual property has been recognized by, among others, the Boston Globe and at the Boston Bar (where she serves as Co-Chair on the Boston Bar Association’s Intellectual Property Committee).

eck Reed Riden LLP is Boston’s innovative litigation boutique. Our hand-picked team of lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment, and are recognized as a leading authority in trade secret, noncompete, and unfair competition law. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Trade Secrets Laws and the UTSA – A 50 State and Federal Law Survey

Beck Reed Riden LLP is pleased to share its 50 State and Federal Survey of Trade Secrets Laws compared with the Uniform Trade Secrets Act.

The chart is a state-by-state comparison of every state’s trade secrets laws (and the Economic Espionage Act, as amended by the Defend Trade Secrets Act of 2016) to the 1985 version (i.e., the most recent version) of the Uniform Trade Secrets Act.

Screen Shot 2014-04-21 at 7.29.02 PMchart is viewable here. (It was originally prepared on August 14, 2016. The chart is regularly updated and remains current as of this month.)

In addition, for a comprehensive summary of recent trade secrets and noncompete legislative reforms and efforts at reform around the country, please see Russell Beck’s analysis here: Changing Trade Secrets | Noncompete Laws

This 50 State and Federal trade secret law survey is intended both as a stand-alone resource and a companion to Beck Reed Riden LLP’s 50 State Survey Chart of Noncompete Laws. Beck Reed Riden LLP’s nationwide study of noncompete laws has been relied upon by the White House and the United States Department of the Treasury.

For up-to-the-minute analysis of legal issues concerning noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

Beck Reed Riden LLPis among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience. The Wall Street Journal and The New York Times have both cited Beck Reed Riden LLP’s noncompete agreement experience.

Russell Beck’s work in this area is well recognized; it includes:

  • Over 25 years of working on trade secret, noncompete, and unfair competition matters

  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (5th ed., MCLE, Inc. 2015), used by other lawyers to help them with their noncompete cases

  • Authoring the  book Trade Secrets Law for the Massachusetts Practitioner (1st ed. MCLE 2019), covering trade secrets nationally, with a focus on Massachusetts law
  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law

  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law

  • Founding and administrating the award-winning blog, Fair Competition Law

  • Establishing and administrating the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 2,000 members around the world

  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, each year since 2018, Russell and the firm were honored in Legal 500, which called the firm “a ‘highly sought-after gem of a firm’ . . . renowned for its restrictive covenants expertise” and noted that Russell is a ‘terrific’ practice head and ‘top-notch strategist’ . . . who is also ‘extremely effective and incredibly professional, with deep substantive knowledge’.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

50 State Noncompete Chart

Beck Reed Riden LLP is pleased to make available its updated 50 state (plus DC) survey chart of noncompete laws. The chart is a summary of employee noncompetition laws and applicable standards throughout the country.

Both the White House and the United States Department of the Treasury have relied upon this nationwide study of noncompete laws.

In addition, recent articles in the New York Times and The Wall Street Journal feature Beck Reed Riden LLP’s expertise in noncompete and trade secret issues.

The chart covers the following:

  • Whether noncompete agreements are permitted in the state

  • Governing statutory authority, if any

  • Identification of the protectable interests (also known as legitimate interests or legitimate business interests)

  • Applicable standards for enforcement

  • Industries or professions exempt from noncompete agreements

  • Whether the state follows the reformation rule (also known as “judicial modification,” the “rule of reasonableness,” the “reasonable alteration approach,” and the “partial-enforcement” rule), the blue pencil doctrine, or the red pencil doctrine (also known as the “all or nothing” rule)

  • Whether noncompete agreements are enforceable against at-will employees whose employment was terminated without cause

The chart is available for download here.

Created in 2010, the chart was the first of its kind, and is regularly updated. This version was updated as of July 21, 2022.

Check back for periodic updates or email us at info@beckreed.com, and we will automatically send the latest updates as they become available.

Please note that the chart is not legal advice, nor is it a substitute for proper legal research and advice. It is provided for informational purposes only.

For up-to-the-minute analysis of legal issues concerning noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law. Beck Reed Riden LLP is also pleased to share its FAQ on the Massachusetts noncompete law.

is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our professionals have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

MA Noncompete Agreement Reform Clears First Major Hurdle

State-house.pngOn June 29, 2016, the Massachusetts legislature moved one step closer to reforming noncompete agreements. With 150 votes for the legislation, and no votes against, the Massachusetts House of Representatives passed “An Act relative to the judicial enforcement of noncompetition agreements.”

If this noncompete bill becomes law (it’s not there yet—it would still need to be passed by the Senate and signed by the Governor by the end of July for that to happen), then there will be a dramatic shift in the way employers are permitted to use noncompete agreements in Massachusetts.

Significantly, the House of Representatives’ noncompete bill would:

  • Cap the noncompete period to 12 months from the date of termination;

  • Restrict employers from enforcing noncompetes against nonexempt (hourly) workers, student interns, and employees under 18; and

  • Prevent enforcement of noncompete agreements against employees who have been terminated without cause or laid off.

The 12-month cap can be extended for up to two years in the event the employee breaches a fiduciary duty to the employer or if the employee unlawfully takes the employer’s information or property.

Screen Shot 2014-10-19 at 11.33.00 AMne controversial aspect of the new bill is the so-called “Garden Leave” clause, which would require employers to pay half the salary of employees for the duration of their noncompete period after they leave. But there’s a major caveat to the Garden Leave provision: The bill gives employers the option of providing some “other mutually-agreed upon consideration . . . provided that such consideration is specified in the noncompetition agreement.”

The bill would not affect nonsolicit agreements that bar employees from transacting business with employers’ customers, clients, or vendors. The bill also maintains the status quo for the courts’ ability to modify noncompete agreements by giving judges discretion to reform or otherwise revise a noncompete agreement so as to render it valid and enforceable.

According to the House’s legislation, in order for a noncompete agreement to be valid, new hires must be given prior notice that they will be bound by such an agreement – either with the delivery of the offer of employment or 10 business days before the employee starts work, whichever is earlier. There is also a 10-day notice provision for current employees who are asked to sign new noncompete agreements.

Separate from the noncompete aspects of the bill, if passed, the bill will adopt the Uniform Trade Secrets Act. The impact of that is, as a practical matter, limited.

Russell Beck recently spoke on a panel at the Boston Bar Association’s symposium about the Massachusetts non-compete agreement reform legislation. For up-to-the-minute analysis of legal issues concerning noncompete agreements and trade secrets in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

Beck Reed Riden LLPBLF 2014_Silver_Generalis among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law andbusiness litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience. The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. Recently, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Russell Beck’s work in this area is well recognized; it includes:

  • Over sixteen years of working on trade secret, noncompete, and unfair competition matters

  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (5th ed., MCLE, Inc. 2015), used by other lawyers to help them with their noncompete cases

  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law

  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law

  • Founding and administrating the award-winning blog, Fair Competition Law

  • Establishing and administrating the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 750 members around the world

  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, Russell was honored for his work in this area of law in the 2014 Chambers USA Guide, which explained that “Russell Beck of Beck Reed Riden LLP specializes in noncompete litigation and is a trade secrets expert. He comes highly recommended by his peers for his nationwide practice in this niche. ‘He’s fantastic,’ sources say.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging fromFortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

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