Sarah Tishler Featured in Law360 on Noncompete Choice-of-Law and Venue Rules

Sarah Tishler’s article about the challenges presented by choice-of-law and venue provisions in noncompete statutes was published by Law360 under the title, “Minn. Noncompete Ban May Add To Nat’l Venue Choice Tangle.”

The article, reprinted in full below, follows Minnesota’s outright ban on noncompete agreements and focuses on the choice-of-law and venue provision designed to protect Minnesota-based employees.

s of July 1, employee noncompete agreements are no longer valid in the state of Minnesota.

While the law does not apply retroactively to existing employee noncompetes, as of its effective date, Minnesota has joined just three other states — California, North Dakota and Oklahoma — in banning noncompetes entirely.[1]

The outright ban on noncompetes has made headlines for good reason. But also contained in the statute is a significant choice-of-law and venue provision designed to be as protective as possible for Minnesota-based employees.

Subsection 3 of the statute provides that an employer “must not require an employee who primarily resides and works in Minnesota” to agree to a contract — not just noncompetes — that would

  1. require the employee to adjudicate out of Minnesota a claim arising in Minnesota; or
  2. deprive the employee of the substantive protection of Minnesota law with respect to a controversy arising in Minnesota.

Any contractual provision violating the foregoing is “voidable at any time by the employee,” and if such a provision is rendered void, the dispute “shall be adjudicated in Minnesota and Minnesota law shall govern the dispute.”

The subsection also explicitly provides that in addition to injunctive relief and any other remedies, “a court may award an employee who is enforcing rights under this section reasonable attorney fees.”

With this provision, Minnesota joins at least California, Colorado, Louisiana and Washington in providing explicit statutory choice-of-law and venue rules for state resident employees.[2]

With the passage of this law, Minnesota will consider any noncompete agreement signed after July 1 to be voidable by the employee if the agreement requires the employee to adjudicate a dispute outside of Minnesota or deprives the employee of “the substantive protection of Minnesota law,” i.e., the new ban against noncompetes. The Minnesota law goes further than some other states, however, by providing in the statute itself reasonable attorney fees for any employee enforcing rights under that section.

he clear intent of the statute is to prevent employers from avoiding the new ban against noncompetes by inserting another state’s law and venue into contractual choice-of-law and venue provisions. Nonetheless, this type of statutory protection has received entirely mixed treatment in the courts when judges are confronted with the inevitable — and messy — question of whether state or federal law governs the validity, and enforcement, of forum selection clauses in diversity cases.

Of course, that fact pattern is precisely how the question presents itself in the first place.

To offer one example: An employee from Massachusetts, California or Minnesota signs an employment agreement with a company containing a forum selection clause choosing New Jersey. That employee quits and begins working for a competitor in direct violation of the employment agreement. Where will the parties be ordered to litigate?

In Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp. in March 2022, the U.S. Court of Appeals for the Ninth Circuit said that, in this exact scenario, state law decides the validity of a forum selection clause and choice-of-law and venue clause, and therefore the noncompete clause was void under California Labor Code, Section 925.[3]

In contrast, in Howmedica Osteonics Corp. v. Howard in 2020, the U.S. District Court for the District of New Jersey had come to the polar opposite conclusion under the same forum selection clause in the same employment contract, rejecting arguments that Section 925 invalidated it.[4]

The lack of uniformity persists in other jurisdictions that have considered the same issue.[5] In the related areas of venue transfer and forum non conveniens, similar issues appear.

While some jurisdictions consider the existence of a state forum selection statute to be evidence of the state’s strong public policy, other jurisdictions merely shrug. In support of the former, in AG Resource Holdings LLC v. Terral, the Delaware Chancery Court held in 2021:

The Louisiana [forum selection] laws cited above are clear pronouncements by the Louisiana legislature regarding its public policy on matters of employment and competition. Under the circumstances, Louisiana’s interests must be respected and enforced.[6]

On the other end of the spectrum, in Hilb Group of New England LLC v. LePage, the U.S. District Court for the Eastern District of Virginia in May 2022 wrote:

No Massachusetts court has held that the [Massachusetts Noncompetition Agreement Act, which mandates that all cases involving Massachusetts residents must take place in Massachusetts] manifests the state’s strong public policy. Thus, the enforcement of the Agreement’s forum selection clause would not go against a strong public policy of Massachusetts.[7]

A clear path out of this jumble of precedent appears unlikely. In late 2022, the U.S. Supreme Court denied certiorari in the Howmedica case from the Ninth Circuit, leaving the circuits to go their own way.

As more states seek to ensure that their residents are indeed protected by the state laws that pass their legislatures, employers operating in multiple states and employers with remote work forces must proceed with caution and stay abreast of the rapid changes to state laws.

Otherwise, the law chosen in a given noncompete or employment agreement may not be the law eventually applied by a court — sometimes with dramatic results.


Sarah Tishler is a commercial litigator whose practice focuses on complex business disputes in state and federal courts, including intellectual property, breach of contract, and fraud claims.


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.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers 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.


Footnotes:

  1. Stay tuned for what New York Gov. Kathy Hochul will do with Bill No. S3100A, the bill passed by the New York State Senate and Assembly that would ban all noncompetes.
  2. See, e.g., Massachusetts Noncompetition Agreement Act, M.G.L. 149 § 24L(e)-(f):
    1. 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.
    2. 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.
  3. Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956 (9th Cir. 2022).
  4. Howmedica Osteonics Corp. v. Howard, 2020 WL 1102494, at *3 (D.N.J. Jan. 17, 2020), report and recommendation adopted, 2020 WL 1082601, at *1 (D.N.J. Mar. 5, 2020).
  5. See, e.g., Terral v. AG Res. Holdings LLC, 54,156 (La. App. 2 Cir. 3/9/22), 335 So. 3d 1009, 1016-17 (invalidating Delaware choice-of-law provision in favor of Louisiana statute); Zeppelin Systems USA Inc. v. Pyrolyx USA Indiana LLC, 2020 WL 1082774, at *4 (S.D.N.Y. Mar. 5, 2020) (upholding validity of forum-selection clause under federal law, despite an Indiana law that would render the clause invalid); NuMSP LLC v. St. Etienne, 462 F. Supp. 3d 330, 345 (S.D.N.Y. May 22, 2020) (“in determining whether a forum selection provision is invalid, the Court focuses on the public policy of the forum state, not some other state”).
  6. AG Resource Holdings LLC v. Terral, No. CV 2020-0850-JRS, 2021 WL 486831, at *5 (Del. Ch. Feb. 10, 2021).
  7. Hilb Group of New England LLC v. LePage, No. 3:21-cv-757, 2022 WL 1538583, at *4 (E.D. Va. May 16, 2022).

Russell Beck Publishes Article on Proposed Noncompete Ban

Russell Beck‘s article about the Federal Trade Commission’s proposal to essentially ban noncompete agreements was published by Law360 under the title, “Companies Must Brace For FTC’s Overbroad Noncompete Rule.”

The FTC’s proposed rule follows President Biden’s Executive Order on noncompete agreements

In the article, Russell reports that:

On Jan. 5, the FTC proposed a rule called the Noncompete Clause Rule, which would essentially ban all employee noncompetes, as well as any other restrictive covenant — including nondisclosure agreements — that can be interpreted by the FTC as a de facto noncompete.

The proposed rule would bar new noncompete agreements, and retroactively invalidate all existing noncompetes

ussell observes that the FTC’s

throw-the-baby-out-with-the-bathwater approach is a mistake. While a bright-line rule provides clarity and certainty, the unintended consequences are likely to be extreme and can potentially dwarf the benefits of a complete ban.

For example, the rule would almost certainly result in more trade secrets being unlawfully taken to a competitor. The theft of trade secrets is already estimated to cost the economy hundreds of billions of dollars a year and was a principle driver of the 2016 enactment of the Defend Trade Secrets Act.

Given the FTC’s move to ban noncompete agreements, Russell says the time to act is now:

Immediate action is required.

First, become part of the discussion. The FTC has requested public comment on virtually everything in its 218-page notice. Whether you use noncompetes or oppose their use, if you have something useful to add to the discussion, add it. This is the time to voice your opinion before it’s too late. But I encourage an honest debate with supportable facts and argument, not rhetoric and hyperbole.

This has been a four-plus year process that is crescendoing now. This will be the last chance for companies and individuals to provide input. If you have any, provide it. And do it now. You have 60 days from the date the notice is published in the Federal Register. While the FTC is almost certainly going to promulgate a rule, it has signaled a willingness to consider shifting to a more balanced approach.

In addition to the suggestion to give comments to the FTC, Russell also suggests that companies should stop using noncompete agreements for low-wage workers.

Russell concludes that

The FTC’s proposed rule needs to be a wake-up call. Companies need to immediately take steps to provide their input to the FTC and, simultaneously, brace for its impact — which may be far from certain for many months to come.

_____

For up-to-the-minute analysis of legal issues concerning trade secrets and noncompete 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.

Russell Beck’s work in this area is well recognized, and includes:

  • Over thirty years of experience working on trade secret, noncompete, and unfair competition matters
  • Assisting the Obama White House as part of a small working group to develop President Obama’s Noncompete Call to Action
  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (6th ed., MCLE, Inc. 2021), used by other lawyers to help them with their noncompete matters
  • 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 administering the award-winning blog, Fair Competition Law
  • Establishing and administering the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 1,660 and 870 members, respectively, 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 2020 Chambers USA Guide, which stated that Russell Beck is “an expert in the field of trade secret and restrictive covenant law,” and is also noted for his “ability to adjust and come up with successful solutions.” Chambers noted that Russell “basically wrote the new Massachusetts statute on noncompetes” and that “he’s an expert in employee mobility and nonrestrictive covenants.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers 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.

Russell Beck Featured in Law360 on FTC Noncompete Regulation Efforts

Russell Beck‘s article about a recent Federal Trade Commission and U.S. Department of Justice workshop focused on noncompete agreements was published by Law360 under the title, “What New FTC Workshop Revealed About Noncompete Regs.

The FTC workshop follows President Biden’s Executive Order on noncompete agreements

In the article, Russell observes that:

Although the scope of the workshop was wide-ranging, there was a clear focus on noncompete agreements.

Indeed, the topic of noncompetes came up repeatedly throughout the course of the full, two-day workshop.

The discussion began with FTC Chair Lina Khan referencing noncompetes as “take-it-or-leave-it agreements.” And in the closing remarks Karina Lubell, assistant chief of the DOJ’s Competition Policy and Advocacy Section, noted that, like other vertical restrictions, noncompetes are harmful, “especially for low income and other workers ill positioned to negotiate” the restrictions “or later challenge them in court.”

During the workshop, panelists shared divergent perspectives and referenced various studies on the effects of restrictive covenants. In this regard, Russell writes that, “[w]ith so much conflicting information — studies contradicting other studies, evidence disproving studies, misplaced assumptions about the rise in use of noncompetes, etc. — and such high stakes (nothing short of the impact on the U.S. economy), regulators need to be extremely careful how they proceed. These issues are plainly more complicated than they appear, and there seems to be a general understanding that additional research is required.”

Russell’s article discusses a new study issued by the Federal Reserve Bank of Philadelphia that was not discussed during the workshop. In that study, the Federal Reserve Bank of Philadelphia’s study found “little support for the widely held view that enforcement of non-compete agreements negatively affects the entry rate of new firms or the rate of jobs created by new firms.”

Russell writes:

To the contrary, the study — which focused on Michigan’s 1985 elimination of a ban on noncompetes — found that increased enforcement [of noncompetes] had no effect on the entry rate of startups, but a positive effect on jobs created by these startups in Michigan relative to a counterfactual of states that did not enforce such covenants pre- and post-treatment. Specifically, we find that a doubling of enforcement led to an increase of about 8 percent in the startup job creation rate in Michigan. We also find evidence that enforcing non-competes positively affected the number of high-tech establishments and the level of high-tech employment in Michigan.

According to Russell, “[t]his study thus raises the serious prospect that bans on noncompetes intended to help startups will do precisely the opposite.”

____

Russell frequently writes about current federal efforts to regulate noncompete agreements. He was featured on NPR discussing President Biden’s Executive Order. In April 2020, Russell Beck and Erika Hahn’s article about the FTC’s investigation about whether it should regulate noncompetes was published by Law360. In July 2019, Law360 published Russell Beck’s analysis of misconceptions in the noncompete debate. In December 2019, Law360 also published an article by Russell Beck and Erika Hahn about federal noncompete reform efforts.

For up-to-the-minute analysis of legal issues concerning trade secrets and noncompete 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.

Russell Beck’s work in this area is well recognized, and includes:

  • Over thirty years of experience working on trade secret, noncompete, and unfair competition matters
  • Assisting the Obama White House as part of a small working group to develop President Obama’s Noncompete Call to Action
  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (6th ed., MCLE, Inc. 2021), used by other lawyers to help them with their noncompete matters
  • 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 administering the award-winning blog, Fair Competition Law
  • Establishing and administering the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 1,660 and 870 members, respectively, 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 2020 Chambers USA Guide, which stated that Russell Beck is “an expert in the field of trade secret and restrictive covenant law,” and is also noted for his “ability to adjust and come up with successful solutions.” Chambers noted that Russell “basically wrote the new Massachusetts statute on noncompetes” and that “he’s an expert in employee mobility and nonrestrictive covenants.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers 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.

Beck Reed Riden LLP in Law360 for Preliminary Injunction Win

An article in Law360 higlights Beck Reed Riden LLP’s success in defeating a bid to enforce a noncompete agreement. The article is titled “Facebook Beats AI Startup’s Bid To Shield Trade Secrets.”

The article summarizes a decision by the United States District Court for the District of Massachusetts:

An artificial intelligence startup has failed to prove that its first employee ran off with the company’s trade secrets when he took a job at Facebook, a Massachusetts federal judge said, denying the firm’s request to block the former worker’s ongoing research at the social media giant.

U.S. District Judge Denise J. Casper … denied Neural Magic’s bid for an injunction, saying it wasn’t clear whether the work that Aleksandar Zlateski did for Facebook even qualifies as a trade secret.

The article explains that:

Aleksandar Zlateski is represented by Russell Beck, Stephen D. Riden, and Hannah Tso Joseph of Beck Reed Riden LLP.

The case is Neural Magic Inc. v. Facebook Inc. et al., case number 1:20-cv-10444, in the U.S. District Court for the District of Massachusetts.

The article is by Brian Dowling.

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.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers 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’ legaland 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.