Labor and Employment

Rich is part of the Wilmer & Lee, P.A.'s labor and employment group, which is among the most experienced in Alabama. Wilmer & Lee Attorneys in this practice group help clients develop and implement policies that will reduce risk of employment claims and litigation, and achieve the best possible outcomes when litigation does occur. Wilmer and Lee, P.A.'s attorneys assist employers and employees with advice and counsel on all manner of defense of discrimination claims, FMLA matters, ADA claims and trade secret and non-compete law; and our experienced litigators have successfully litigated numerous cases involving restrictive covenants, trade secrets, and misuse or misappropriation of businesses' intellectual property. Two attorneys from the group are consistently selected as AV Preeminent® rated by Martindale-Hubbell®, Best Lawyers® in America by U.S. News and World Reports and Alabama's SuperLawyers® by SuperLawyers®. Another chaired the State Bar Labor and Employment Section. Yet another is a past President of the Alabama Lawyers Association. John Wilmer, one of the firm's co-founders, has been named "Lawyer of the Year" for Huntsville in Litigation - Labor and Employment by Best Lawyers®.
Wilmer and Lee Employment Lawyers, left to right, Rich RaleighJohn WilmerKimberly RuckerWalter Kelly.
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The landscape of employment law is always changing, and you have questions about what policies apply, what changes you need to make, and how to protect your business and position it for success.

The Attorneys of Wilmer & Lee's Labor and Employment group stay well-versed in the current laws affecting your business. We are committed to fairness and represent employers, business leaders and executives in all practice areas.

A Huge Change in Business Relationships

The National Labor Relations Board (NLRB) in a 3-2 decision last Thursday gutted more than 30 years of legal precedent when it changed the joint employer standard in business relationships in a case involving Browning-Ferris Industries (BFI). Under this decision, contractors and subcontractors, franchisors and franchisees, and employers and staffing companies (and others) may all be deemed to be joint employers and each subject to the NLRB and its decisions. This ruling is a part of an overall strategy of the Obama NLRB to change the business model to favor unions.

    The National Labor Relations Board (NLRB) in a 3-2 decision last Thursday gutted more than 30 years of legal precedent when it changed the joint employer standard in business relationships in a case involving Browning-Ferris Industries (BFI). Under this decision, contractors and subcontractors, franchisors and franchisees, and employers and staffing companies (and others) may all be deemed to be joint employers and each subject to the NLRB and its decisions. This ruling is a part of an overall strategy of the Obama NLRB to change the business model to favor unions.

    In this case, the NLRB found that BFI and Leadpoint Business Services (LBS) were joint employers of LBS' employees. Significantly, BFI's employees were already represented by a union, and the same union wanted to add LBS' employees to the bargaining unit. The decision turned on the agreement with LBS. Thus, the agreement with the temporary agency is critical.

Here are a few of the takeaways from the decision that can now show a joint employer relationship:

Having the ability to reject temporary employees or to ask the agency to remove employees

Establishing the qualifications of the temporary employees

Requiring a drug test of temporary employees

Requiring a maximum wage scale to be paid to temporary employees

Requiring that only the primary employer can establish the work shift

Requiring the temporary employees to comply with the primary employer's safety and training procedures

Having the primary employer's supervisors supervise the temporary agency's employees

    Changing the test of who the employer is in a business relationship has huge implications. The NLRB rewrites the law and liberalizes the standard that makes "two separate and independent entities a joint employer of certain employees." According to the dissent, "This change will subject countless entities to unprecedented new joint-bargaining obligations that most do not even know they have, to potential joint liability for unfair labor practices and breaches of collective-bargaining agreements, and to economic protest activity…."

If this decision stands, all employers should review all relationships and contracts with third parties and discuss them with their labor counsel for labor law compliance and strategy. For insight on the next best steps to take, contact me.

Alabama’s New Non-Compete Law

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Provides Clarity to Employers and Employees

By Richard Raleigh

         On January 1, 2016, Alabama’s non-compete law will receive its first real update in years.  I was honored to be a part of the group that drafted the update.  Alabama Code Section 8-1-1 is entitled, “Contracts restraining business void; exceptions,” and it defines what types of covenants not to compete will be enforced, and how they will be enforced.  The New Section 8-1-1, passed by the Alabama Legislature this past session and signed by Government Bentley on June 11, 2015, was the result of years of work by a committee of the Alabama Law Institute, a legislative agency that operates with volunteers whose goal is to clarify and simplify the laws of Alabama, to revise laws that are out-of-date, and to fill in gaps in the law where there exists legal confusion.

            The main goal of the update was to take the existing statute, along with the multitude of cases that interpreted the law, and clarify things for employers and employees.  In the past, the lack of clarity has made it difficult for employers and employees to determine in advance whether the agreements they entered into would actually be enforced by a court.  The result was many hundreds of lawsuits.  The existing general proposition is unchanged - “Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind otherwise than is provided by this section is to that extent void.”  However, the update to Alabama Code Section 8-1-1 lays out the exceptions (six of them) that presently can generally be found only by going through the facts of the appellate court decisions that interpret the present act.  For example, non-competes are permitted when the party “holds a position uniquely essential to the management, organization, or service of the business” and when someone sells a business they can agree with the buyer to not carry on or engage in a similar business inside a designated geographic area.  They are subject, however, to restrictions concerning time and place.

            Another place the New Section 8-1-1 adds clarity is in defining that “[r]estraints of one year or less are presumed to be reasonable.”  This presumption may be rebutted.  But, whereas employees, employers, and lawyers previously had to sift through hundreds of cases to try to guess whether a time period in an agreement might be later determined by a court to be “reasonable,” now they can be confident that on most occasions, a non-compete of a year or less will not be struck down because of the time period (although it must still meet other requirements, such as being reasonable in terms of geographic scope and being tied to a protectable interest).

            The New Section 8-1-1 also declares that one may be contractually bound to not solicit customers of an ongoing business, subject to reasonable time restraints, clarifying that non-competition and non-solicitation agreements are to be treated similarly.  This is not something that has been clear previously, if one reviews the numerous appellate court decisions in this area.

            Whether there was a “protectable interest” sufficient to warrant the restraints of a non-compete is a frequently litigated issue.  The recently passed and signed update to 8-1-1 adds some clarity, setting forth several things that qualify as a “Protectable Interest.”  These include trade secrets, confidential customer lists, confidential commercial data, relationships with clients and customers, and specialized training (although not simply job skills).  With regard to “training,” the ALI committee again intended to follow the course and theme of existing case law, which in this case differentiates between specialized training that an employer pays for, which may give rise to a protectable interest, and regular on the job skills and on the job training, which in and of themselves do not usually give rise to a protectable interest.

            While the burden remains on the party seeking enforcement to prove each requirement, it is clear under the new law that an employee or other party resisting the non-compete agreement contract has the burden of establishing there is an “undue hardship” if they raise that defense.  Previously, there has been debate as to whether the party seeking enforcement had the burden to essentially prove a negative – that the party restrained does not have an undue hardship.  Again, the new statute adds clarity.

            “Professionals” may not be restrained by non-compete agreements, both under the old and new 8-1-1.  Doctors, Lawyers, Certified Professional Accountants, Veterinarians, and Licensed Physical Therapists have been recognized as professionals exempt from such restraints on trade.

            Many non-compete agreements contain language asking a court to essentially rewrite an agreement if the court decides it is unreasonable or overbroad because it is too long or the geographic area of restraint is too large.  This language is called “blue pencil language.” New expressly permits a judge to redraft the agreement to comply with the goals of the parties as much as possible while still limiting restraints to reasonable amounts.

            Finally, with regard to remedies available if a party breaches a non-competition agreement, the new law provides that a prevailing party may get an injunction and other appropriate equitable relief, actual monetary damages suffered because of the breach, liquidated damages (if the agreement provides for these), other remedies available under existing contract law, and costs of litigation and attorneys’ fees (again, if the agreement provides for these).  Prudent employers will review their agreements to ensure those agreements provide for recovery of fees and costs if they have to enforce an agreement in court and prevail.

            In short, New Section 8-1-1 of the Alabama Code codifies many of the rules and requirements set out in appellate court decisions interpreting Alabama’s non-compete statute.  Hopefully, the new law will help businesses and individuals in Alabama better understand what they may ask of others and what may be asked of them with regard to restraints on trade.  Before the new act goes into effect on January 1, 2016, employers in particular should review their current agreements and decide, particularly given the rebuttable presumptions regarding time periods, whether they should update or revise their agreements.

See also fellow Wilmer & Lee, P.A. attorney, Robert Lockwood's Employing Alabama Blog
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Defending Your Trade Secrets:

The New Federal Trade Secrets Act

Richard J.R. Raleigh, Jr.
Wilmer & Lee, P.A.

A new federal law, the Defend Trade Secrets Act of 2015 (“DTSA”), Public Law No: 114-153 (S.1890 (114th Congress 2015-16)), sponsored by Sen. Orrin Hatch, R-Utah, and signed into law by President Barack Obama on May 11, 2016, creates a new private right of action for trade secret misappropriation. Previously, civil lawsuits to prevent misappropriations of trade secrets raised common law causes of action or they were brought under a state trade secret act, in many cases a state’s version of the Uniform Trade Secrets Act (“UTSA”). The Alabama Trade Secrets Act is based on the UTSA. With the passage of the DTSA, civil litigants can now bring their lawsuits in federal courts. The DTSA applies to actions based on acts occurring on or after May 11, 2016.

Ultimately, this may lead to more uniformity in the area of trade secrets law, as litigants may turn to federal courts to resolve their controversies. But, state law claims are not preempted by DTSA. Thus, part of the decision-making process will be where to file - state or federal court.

Defining Trade Secrets

Key to both the DTSA and UTSA are the definitions of “trade secrets” and “misappropriation.” The DTSA defines “trade secrets” as “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if – (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”

The UTSA defines the term as follows:

     (4) "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
     (i) 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, and
     (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Melvin F. Jager, 3 Trade Secrets Law Appendix A1 (1979, and March 2016 Update).

Section 8-27-2 of the Alabama Act defines a trade secret as follows:

     (1) A "trade secret" is information that:
        (a) Is used or intended for use in a trade or business;
        (b) Is included or embodied in a formula, pattern, compilation, computer software, drawing, device, method, technique, or process;
        (c) Is not publicly known and is not generally known in the trade or business of the person asserting that it is a trade secret;
        (d) Cannot be readily ascertained or derived from publicly available information;
        (e) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and
        (f) Has significant economic value.

Ala. Code 8-27-2.

One difference appears to be that the DTSA does not require the information must be information used or intended for use in a trade or business, as the Alabama Trade Secrets Act does; although if it were not, it arguably may not have the economic value required by the act.

What is Misappropriation?

“Misappropriation” is defined by the DTSA as acquisition of a trade secret by improper means or disclosure or use of a trade secret without consent. In particular, it provides:

     (5) the term ‘misappropriation’ means—
          (A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired
                by improper means; or
          (B) disclosure or use of a trade secret of another without express or implied consent by a person who—
               (i) used improper means to acquire knowledge of the trade secret;
               (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was—
                    (I) derived from or through a person who had used improper means to acquire the trade secret;
                    (II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade
                     secret; or
                    (III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret
                         or limit the use of the trade secret; or
               (iii) before a material change of the position of the person, knew or had reason to know that—
                    (I) the trade secret was a trade secret; and
                    (II) knowledge of the trade secret had been acquired by accident or mistake;

S. 1890, amending Section 1839 of title 18, United States Code, by adding the above language at the end.

The Alabama Code section on “misappropriation” provides:

A person who discloses or uses the trade secret of another, without a privilege to do so, is liable to the other for misappropriation of the trade secret if:
(1) That person discovered the trade secret by improper means;
(2) That person's disclosure or use constitutes a breach of confidence reposed in that person by the other;
(3) That person learned the trade secret from a third person, and knew or should have known that (i) the information was a trade secret and (ii) that the trade secret had been appropriated under circumstances which violate the provisions of (1) or (2), above; or
(4) That person learned the information and knew or should have known that it was a trade secret and that its disclosure was made to that person by mistake.

Ala. Code § 8-27-3.

The language of the Alabama Trade Secrets Act focuses on disclosure or use. The DTSA adds “acquisition” as well. Arguably, under the Alabama Trade Secrets Act, if one acquired a trade secret from another, but did not disclose it to another or use it, then there would be no liability. See, e.g., Movie Gallery US, LLC v. Greenshields, 648 F. Supp. 2d 1252, 1265 (M.D. Ala. 2009)(focusing on whether the information was used). See also Ala. Code § 8-27-3 (“A person who discloses or uses the trade secret of another…”); Jay M. Ezelle & Cole R. Gresham, Big Verdicts, Limited Discovery: The Rising Importance of Trade Secrets in Alabama, 44 Cumb. L. Rev. 55, 63 (2014)(“The use or disclosure of a trade secret alone does not create a cause of action under the ATSA. The use or disclosure must accompany one of the forms of wrongful conduct set out in § 8-27-3.”). Under the DTSA, there does not appear to be any such requirement. However, arguably there would be no damage under such circumstances.

Remedies

Both the DTSA and UTSA include injunctive relief to prevent actual or threatened misappropriation, damages for actual loss and unjust enrichment, exemplary damages up to two times actual damages in cases of willful and malicious misappropriation, conditioning the future use of the trade secret on the imposition of a reasonable royalty where exceptional circumstances would render it inequitable to enjoin use of the trade secret, and awarding attorneys’ fees in cases of willful and malicious misappropriation or where a claim of misappropriation is made in bad faith.

By contrast, Ala. Code § 8-27-4 provides for injunctive and other equitable relief to prevent any actual or threatened misappropriation of a trade secret, recovery of any profits and other benefits conferred by the misappropriation that are attributable to the misappropriation, actual damages suffered as a result of the misappropriation, exemplary damages in an amount not to exceed the actual damages award but not less than ten thousand dollars ($10,000) if willful and malicious misappropriation exists, and awards of attorneys’ fees in cases of willful and malicious misappropriation or where a claim of misappropriation is made in bad faith.

Obviously, the exemplary damages at two-times actual damages in the DTSA would allow for greater recovery for prevailing plaintiffs than they would be entitled to under the Alabama Trade Secrets Act. This alone may be enough to convince some plaintiffs to bring their claims in federal court under the DTSA.

Statue of Limitations for Actions

The DTSA includes a three-year statute of limitations. Claims accrue from “the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.” The Alabama Trade Secrets Act provides: “An action for misappropriation must be brought within two years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.” Alabama Code § 8-27-5. Clearly, the three year statute of limitations for the DTSA is more favorably to prospective trade secrets plaintiffs. The discovery rule is the same under both acts.

Other Features of the DTSA

The DTSA goes further than either the UTSA or Alabama Trade Secrets Act. In addition to providing prospective trade secrets plaintiffs the option to bring their claims in federal court, it also provides owners of trade secrets with various additional procedural protections, such as the right to explain why their trade secrets should be kept confidential by the court. Too, it provides for the issuance of ex parte seizure orders by federal courts. Additionally, and significantly for employers, it contains whistleblower protections.

The DTSA provides: “the court shall enter such orders and take such other action as may be necessary and appropriate to preserve the confidentiality of trade secrets,” and “[t]he court may not authorize or direct the disclosure of any information the owner asserts to be a trade secret unless the court allows the owner the opportunity to file a submission under seal that describes the interest of the owner in keeping the information confidential.” Section 1835, DTSA. Then, in Section 1836 it provides for preliminary seizure of “property necessary to prevent the propagation or dissemination of the trade secret.” The trade secret plaintiff would apply, under Section 1835, to have the alleged trade secret confiscated in order to prevent its dissemination. The court would consider the request with the burden on the moving party being similar to that applied to motions for preliminary injunction, and similar consequences if the relief was improperly sought.

Additionally, the DTSA protects whistleblowers who disclose trade secrets, if the disclosure is made in confidence to a government official, directly or indirectly, or to an attorney, and it is made for the purpose of reporting a violation of law. The DTSA provides for immunity to both civil and criminal liability. The whistleblowers may disclose the trade secret information to the government or in a court filing without creating DTSA liability.

Significantly, employers have an affirmative duty to provide employees and contractors notice of the new immunity provision in “any contract or agreement with employee that governs the use of a trade secret or other confidential information.” Therefore, any employer who presently has non-compete, non-disclosure, or confidentiality agreements that deal with these subjects need to immediately insert additional information into the agreements. Failure to comply would result in the employer not being able to recover exemplary damages or attorney fees in a DTSA action for theft of trade secrets against an employee to whom no notice was provided. Employers should add a provision stating that the employee agrees the employer informed the employee, in accordance with 18 U.S.C. § 1833(b), that they may not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret if the disclosure is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and is made solely for the purpose of reporting or investigating a suspected violation of law, or in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.



Conclusion

As compared to the Alabama Trade Secrets Act, the DTSA has a longer statute of limitations period and the availability of greater exemplary damages. It provides Alabama businesses access to federal courts to remedy trade secret misappropriation when diversity jurisdiction does not exist and without regard to the amount monetary damages. Businesses should consider bringing their claims in federal court under the DTSA in cases of trade secret misappropriation. Too, Alabama employers need to act now if they have non-compete, non-disclosure, or confidentiality agreements with their employees. They need to include a provision addressing the whistleblower protections of the DTSA. Otherwise, much otherwise available relief will not be available to them in actions to protect their trade secrets.