Fullstendig transkripsjon av Noncompetes Across State Lines: Choice of Law in a Remote Workforce

article 00:03:48.250 --> 00:03:50.629 that I wrote back in July published in the Daily 00:03:50.629 --> 00:03:54.050 Journal around mid -July that talks about workforce 00:03:54.050 --> 00:03:56.849 non -competes and primarily the issue of Charter 00:03:56.849 --> 00:04:03.259 Law at Battlefield. Next slide, please. Now, 00:04:03.259 --> 00:04:07.280 California has adopted a public policy that basically 00:04:07.280 --> 00:04:11.539 says employee non -compete agreements are per 00:04:11.539 --> 00:04:15.819 se invalid. The other states, and in the past, 00:04:15.840 --> 00:04:17.600 there's been a debate as to whether or not in 00:04:17.600 --> 00:04:20.139 the common law, you use the rule of reasonableness. 00:04:20.519 --> 00:04:23.019 What's the distinction? Under a public policy 00:04:23.019 --> 00:04:26.720 initiative that says employee non -compete agreements 00:04:26.720 --> 00:04:29.660 are unenforceable per se, you would think that's 00:04:29.660 --> 00:04:31.819 the end of the analysis. In the context of the 00:04:31.819 --> 00:04:34.180 reasonable analysis, you really have to get into 00:04:34.180 --> 00:04:37.759 the factual analysis of it to determine whether 00:04:37.759 --> 00:04:43.459 or not a non -compete heat provision is enforceable. 00:04:43.720 --> 00:04:46.819 But the old question basically had been, is this 00:04:46.819 --> 00:04:50.319 restriction reasonable? In fact, as you'll see, 00:04:50.540 --> 00:04:53.399 as the case law has developed and California 00:04:53.399 --> 00:04:56.500 has adopted certain statutes, the question really 00:04:56.500 --> 00:04:59.740 is changing now to which state gets to decide. 00:05:01.300 --> 00:05:03.759 Next slide, please. So I want to start out with 00:05:03.759 --> 00:05:06.180 a hypothetical. Let's say that you've got an 00:05:06.180 --> 00:05:10.779 employee, and this employee is basically working 00:05:11.389 --> 00:05:15.850 from home in California on their computer for 00:05:15.850 --> 00:05:19.490 a Massachusetts employer, we won't necessarily 00:05:19.490 --> 00:05:22.269 state what the industry is at this point, that 00:05:22.269 --> 00:05:25.889 has New York customers and they're incorporated 00:05:25.889 --> 00:05:28.490 in Delaware. So that gives you an idea of the 00:05:28.490 --> 00:05:30.529 scope of the question and that's the hypothetical 00:05:30.529 --> 00:05:32.730 we'll be working on that we'll move to later. 00:05:33.189 --> 00:05:36.310 Basically in the context of the type of work, 00:05:36.589 --> 00:05:39.410 some of the facts that you'll be looking at is 00:05:39.410 --> 00:05:43.800 where does the employee live and work, where 00:05:43.800 --> 00:05:47.480 is the employee managed and where are their tasks, 00:05:47.740 --> 00:05:51.360 where is the relevant market, and then ultimately, 00:05:51.759 --> 00:05:54.639 where is the home or some of the primary activities 00:05:54.639 --> 00:06:03.120 of the employer. Next slide, please. Now, a non 00:06:03.120 --> 00:06:07.439 -compete agreement restrains post -employment 00:06:07.439 --> 00:06:11.480 competition. So the idea is that you are restricting 00:06:11.480 --> 00:06:15.399 a person's ability to one, in the work context, 00:06:15.720 --> 00:06:19.100 join a competitor, two, to go out and take your 00:06:19.100 --> 00:06:21.019 information and business that they've learned 00:06:21.019 --> 00:06:24.240 from their employer and start a competing business, 00:06:24.600 --> 00:06:28.300 or ultimately to perform certain defined competitive 00:06:28.300 --> 00:06:30.800 activities, certain outreaches to other types 00:06:30.800 --> 00:06:33.639 of clients, or to provide certain activity to 00:06:33.639 --> 00:06:38.040 them. So if you would turn to our handout, Reggie. 00:06:39.189 --> 00:06:41.949 because merely because you have a handout page 00:06:41.949 --> 00:06:43.870 two, if you could. And ladies and gentlemen, 00:06:44.250 --> 00:06:47.550 there is a handout that's been posted. Rather 00:06:47.550 --> 00:06:50.709 than post the citations and some of the case 00:06:50.709 --> 00:06:54.649 law in the PowerPoints, my preference would be 00:06:54.649 --> 00:06:57.290 just to use the PowerPoints as a talking point. 00:06:57.589 --> 00:06:59.589 But if you look at the handout, they will give 00:06:59.589 --> 00:07:02.069 you the detail. And I wanted to direct you to 00:07:02.069 --> 00:07:06.100 page two and. Starting on page two, we talk about 00:07:06.100 --> 00:07:09.060 what are some of the exceptions to the non -complete, 00:07:09.100 --> 00:07:12.680 non -compete provisions. One is if you have sale 00:07:12.680 --> 00:07:16.439 of a business goodwill. So you have business 00:07:16.439 --> 00:07:20.220 and professions code section 16601, which allows 00:07:20.220 --> 00:07:22.639 non -compete agreements concerning the sale of 00:07:22.639 --> 00:07:25.629 business. The non -compete agreement for employees 00:07:25.629 --> 00:07:28.329 can apply if there's an exception in the dissolution 00:07:28.329 --> 00:07:30.889 of a partnership. And then ultimately you should 00:07:30.889 --> 00:07:33.009 be aware that another exception would be in the 00:07:33.009 --> 00:07:35.649 context of a limited liability company members. 00:07:36.149 --> 00:07:38.649 There's a distinction as to whether or not it's 00:07:38.649 --> 00:07:41.009 member managed, whether or not you have a managing 00:07:41.009 --> 00:07:43.769 member or general members, and the fiduciary 00:07:43.769 --> 00:07:46.990 duties that arise that are statutory in that 00:07:46.990 --> 00:07:55.329 context. Next slide, please. The idea, next slide. 00:07:55.629 --> 00:07:59.930 Slide five. So the idea is, You are attempting 00:07:59.930 --> 00:08:03.410 to protect the assets of the business, but you 00:08:03.410 --> 00:08:07.110 do not want to limit employee mobility. So what 00:08:07.110 --> 00:08:09.490 are the types of things that you actually are 00:08:09.490 --> 00:08:13.029 seeking to

protect? One would be trade secrets, 00:08:13.629 --> 00:08:16.110 the other would be goodwill, and the other would 00:08:16.110 --> 00:08:18.569 be the investments that a business has made. 00:08:18.910 --> 00:08:23.149 If you can turn to the handout, page eight, Reggie. 00:08:29.769 --> 00:08:31.790 And ladies and gentlemen, if you can read along 00:08:31.790 --> 00:08:35.330 with us, I would direct you specifically starting 00:08:35.330 --> 00:08:38.250 on page eight through page nine of the handout 00:08:38.250 --> 00:08:41.509 where we talk about in greater detail what are 00:08:41.509 --> 00:08:44.649 some of the particular statutory exceptions and 00:08:44.649 --> 00:08:47.909 also the trade secret protection exception. It 00:08:47.909 --> 00:08:50.990 is in great detail. It's a separate statute that 00:08:50.990 --> 00:08:57.350 is civil code section 3426 to 3426 .211, and 00:08:57.350 --> 00:08:59.870 it operates in the context of certain employment 00:08:59.870 --> 00:09:03.710 contracts, addressing trade secrets. That is 00:09:03.710 --> 00:09:07.389 the method in which you can independently protect 00:09:07.389 --> 00:09:09.909 your certain business assets. So in the context 00:09:09.909 --> 00:09:13.570 of a non -compete employee provision, you may 00:09:13.570 --> 00:09:16.799 also want to have a separate trade secret agreement 00:09:16.799 --> 00:09:19.960 or agreement that protects your proprietary interests. 00:09:20.220 --> 00:09:22.220 You want to make sure that they are distinct 00:09:22.220 --> 00:09:24.440 because ultimately you may have a problem if 00:09:24.440 --> 00:09:27.200 you're trying to enforce an integrated agreement 00:09:27.200 --> 00:09:30.059 that would include a non -compete provision for 00:09:30.059 --> 00:09:33.320 an employee. Let's move to the next statute, 00:09:38.019 --> 00:09:42.279 slide six. Now, you will discover that because 00:09:42.279 --> 00:09:46.279 California has the per se rule, most other states 00:09:46.279 --> 00:09:50.059 are looking at enforcing a reasonableness standard, 00:09:50.139 --> 00:09:54.100 but there is a move to at least limit the extent 00:09:54.100 --> 00:09:57.460 and application of non -compete employment agreements. 00:09:57.820 --> 00:10:01.220 Originally, the feds got involved and the FTC 00:10:01.220 --> 00:10:03.779 had originally adopted a rule that sought to 00:10:03.779 --> 00:10:07.580 have a national ban on non -compete employee 00:10:07.580 --> 00:10:11.340 agreements. And indeed, the FTC in 2024 adopted 00:10:11.340 --> 00:10:14.700 such a rule, but then it was challenged in court 00:10:14.700 --> 00:10:20.820 and ultimately the FTC removed its national ban 00:10:20.820 --> 00:10:23.620 on non -compete agreements, and now it has to 00:10:23.620 --> 00:10:26.940 be analyzed by state law. So you cannot assume 00:10:26.940 --> 00:10:29.960 that there is any federal immunity, and the FTC 00:10:29.960 --> 00:10:34.129 rule no longer is applicable. Next slide, please. 00:10:35.190 --> 00:10:38.269 So I just wanted to take a moment to talk about 00:10:38.269 --> 00:10:40.549 what the states are doing in this context, because 00:10:40.549 --> 00:10:43.049 I do think it's important for you to know that 00:10:43.049 --> 00:10:46.990 the non -compete rules are changing. that it 00:10:46.990 --> 00:10:50.639 varies from state to state. There does not appear 00:10:50.639 --> 00:10:54.259 that there will be a long -term national perspective. 00:10:54.620 --> 00:10:56.379 So you wanna look at what the states are doing 00:10:56.379 --> 00:10:59.379 and we'll talk about California in a moment because 00:10:59.379 --> 00:11:03.470 California basically has a broad band. There 00:11:03.470 --> 00:11:06.289 are also other states that have statutory limitations 00:11:06.289 --> 00:11:08.330 including the state of California that we'll 00:11:08.330 --> 00:11:11.269 talk about as it has changed its non -compete 00:11:11.269 --> 00:11:15.940 rules and making it a separate cause of action 00:11:15.940 --> 00:11:20.240 if you do have, you attempt to enforce a non 00:11:20.240 --> 00:11:22.659 -compete employment provision in the state of 00:11:22.659 --> 00:11:25.659 California. Problems arise when you have businesses 00:11:25.659 --> 00:11:27.919 that are operating throughout the United States. 00:11:28.919 --> 00:11:31.100 Ultimately, there's certain limits in terms of 00:11:31.100 --> 00:11:33.980 notice, the role that you play, and the industry 00:11:33.980 --> 00:11:37.320 that it's in from a state -to -state perspective. 00:11:37.879 --> 00:11:39.879 And when states look at reasonableness, they 00:11:39.879 --> 00:11:42.179 look at the interest that you're protecting, 00:11:42.460 --> 00:11:45.419 the duration of the non -compete, the scope, 00:11:45.620 --> 00:11:48.440 and the territorial limitations. Now some of 00:11:48.440 --> 00:11:52.659 the states are currently, you've got California 00:11:52.659 --> 00:11:56.539 that adopt the per se rule. You've got several 00:11:56.539 --> 00:11:58.740 states that had pending litigation, which I talked 00:11:58.740 --> 00:12:01.639 about in my article. One was New York. New York 00:12:01.639 --> 00:12:05.940 had SB 335, which basically set up an antitrust 00:12:05.940 --> 00:12:08.080 violation and market situations where there's 00:12:08.080 --> 00:12:11.899 only one buyer for the buyer to enact a non -compete. 00:12:12.029 --> 00:12:15.309 Apparently that was not adopted. New York had 00:12:15.309 --> 00:12:19.690 HB 1381, but apparently that has also not been 00:12:19.690 --> 00:12:22.690 adopted. South Carolina has a bill pending to 00:12:22.690 --> 00:12:26.590 try to restrict non -competes. Washington will 00:12:26.590 --> 00:12:29.070 go into that has some standards that they've 00:12:29.070 --> 00:12:31.669 adopted. That's the state of Washington. Other 00:12:31.669 --> 00:12:35.259 states look at and regulate non -competes. based 00:12:35.259 --> 00:12:38.039 upon

the particular industry. For example, I 00:12:38.039 --> 00:12:41.039 looked at Missouri, where they have legislation 00:12:41.039 --> 00:12:43.600 pending that would limit non -competes of physicians 00:12:43.600 --> 00:12:46.120 working at certain types of facilities owned 00:12:46.120 --> 00:12:51.580 by a non -profit corporation. Also, Missouri 00:12:51.580 --> 00:12:54.340 is attempting to completely ban non -complete 00:12:54.340 --> 00:12:57.500 agreements as they apply to physicians. So there's 00:12:57.500 --> 00:13:00.139 also a focus on the health care industry and 00:13:00.139 --> 00:13:03.440 certain types of professions. Throughout the 00:13:03.440 --> 00:13:06.139 state, I won't go into great detail, but all 00:13:06.139 --> 00:13:08.659 of the various states are looking at changing 00:13:08.659 --> 00:13:11.940 from the reasonableness standard to some form 00:13:11.940 --> 00:13:15.580 of regulation based on the industry type and 00:13:15.580 --> 00:13:17.580 certain notices that you have and whether or 00:13:17.580 --> 00:13:20.679 not it's a key employee. Let's move to the next 00:13:20.679 --> 00:13:29.039 slide. Slide number eight. Gotcha, Judge. Okay. 00:13:30.340 --> 00:13:33.960 Now, I wanted to focus more on California and 00:13:33.960 --> 00:13:37.179 Texas. And to some extent, Washington, I have 00:13:37.179 --> 00:13:39.500 listed for you what are some of the statutes 00:13:39.500 --> 00:13:42.639 that have been enacted in California. California 00:13:42.639 --> 00:13:45.440 adopted a stronger anti -enforcement and notice 00:13:45.440 --> 00:13:51.279 rules in AB 699 and AB 1076. Those have since 00:13:51.279 --> 00:13:54.240 been codified, and we have discussions about 00:13:54.240 --> 00:13:57.860 that in the handout. In addition, could you turn 00:13:57.860 --> 00:14:01.440 to the handout that analyzes the distinction 00:14:01.440 --> 00:14:07.179 between California and Texas law? Texas is focusing 00:14:07.179 --> 00:14:10.320 more on limits for physicians and certain specified 00:14:10.320 --> 00:14:13.879 healthcare practitioners. The handout that you 00:14:13.879 --> 00:14:16.960 have gives you a distinction between what California 00:14:16.960 --> 00:14:20.480 is doing, which you can read basically the effective 00:14:20.480 --> 00:14:22.940 date of the new California law adopting the per 00:14:22.940 --> 00:14:25.960 se rule, some of the overall changes, how it's 00:14:25.960 --> 00:14:28.639 distinguished, some of the geographic limitations. 00:14:29.120 --> 00:14:32.610 It also compares what Texas is doing as compared 00:14:32.610 --> 00:14:36.669 to California. And then Washington also, Washington 00:14:36.669 --> 00:14:41.549 state this year is considering HB 155, which 00:14:41.549 --> 00:14:44.750 is also a broader ban, which is anticipated to 00:14:44.750 --> 00:14:48.090 become effective. Can you go back to slide number 00:14:48.090 --> 00:14:51.600 five, number eight, go back to slide eight. Got 00:14:51.600 --> 00:14:57.559 you. Washington states, if HB 155 does get enacted. 00:14:57.840 --> 00:15:01.399 it's intended to operate as a per se rule similar 00:15:01.399 --> 00:15:06.220 to California commencing in 2027. But in California, 00:15:07.259 --> 00:15:11.539 non -compete agreements restricting post -employment 00:15:11.539 --> 00:15:16.460 contact are generally void, but they are not, 00:15:16.460 --> 00:15:19.419 they are voidable, but they are not void ab initio. 00:15:19.539 --> 00:15:22.759 They're merely voidable and unenforceable. Next 00:15:22.759 --> 00:15:27.419 slide. And if you look at the case law, particularly 00:15:27.419 --> 00:15:30.100 the Edwards case, which went into great detail 00:15:30.100 --> 00:15:37.669 in outlining that narrowing a non -compete agreement 00:15:37.669 --> 00:15:40.549 to certain jurisdictions or certain duration, 00:15:40.889 --> 00:15:44.110 ultimately California rejected that. And it indicated 00:15:44.110 --> 00:15:51.190 that narrow is not enough. Section 16 ,600 Subdivision 00:15:51.190 --> 00:15:54.070 B, the business and profession code requires 00:15:54.070 --> 00:15:57.769 a broad reading in accordance with the California 00:15:57.769 --> 00:16:00.870 Supreme Court of Edwards case. In the handout, 00:16:00.889 --> 00:16:03.870 it goes into detail as to how we get there. Turn 00:16:03.870 --> 00:16:10.139 to our next slide, slide 10. So what happens 00:16:10.139 --> 00:16:15.200 if you're an employer and you want to enforce 00:16:15.590 --> 00:16:21.070 a non -compete agreement. And you have the circumstance 00:16:21.070 --> 00:16:25.049 go back to, we have an employee that's in California, 00:16:25.809 --> 00:16:28.350 working for a business out of Massachusetts, 00:16:28.889 --> 00:16:31.370 where most of their customers are in New York. 00:16:31.830 --> 00:16:35.669 The business is incorporated in Delaware, claims 00:16:35.669 --> 00:16:39.129 that Delaware is their home state. So what law 00:16:39.129 --> 00:16:43.179 applies? And if you had, for example, a Massachusetts 00:16:43.179 --> 00:16:46.899 non -compete provision against an employee, but 00:16:46.899 --> 00:16:49.980 the employee finds themselves suing in California 00:16:50.139 --> 00:16:53.840 isn't enforceable. Well, what do we look at? 00:16:54.120 --> 00:16:58.440 First, you look at the reach. When and where 00:16:58.440 --> 00:17:01.679 was the document signed that does not necessarily 00:17:01.679 --> 00:17:05.480 save a void contract per se? So the fact that 00:17:05.480 --> 00:17:08.359 the employee signed the non -compete provision 00:17:08.359 --> 00:17:11.440 that's included in California even though that 00:17:11.440 --> 00:17:13.660 may cause create a cause of action, we can talk 00:17:13.660 --> 00:17:16.259 about that. Ultimately, that's not the end of 00:17:16.259 --> 00:17:19.059 the analysis. The analysis then turns to the 00:17:19.059 --> 00:17:22.279 conduct through the entering or attempt to

enforce 00:17:22.279 --> 00:17:25.759 can violate the state statute in California. 00:17:25.839 --> 00:17:28.380 So if you're attempting to enforce it in California, 00:17:28.859 --> 00:17:31.019 you may very well get a court that would say, 00:17:31.279 --> 00:17:34.119 well, you're entitled to attorney's fees, you're 00:17:34.119 --> 00:17:36.440 entitled to damages. This is an unenforceable 00:17:36.440 --> 00:17:39.539 agreement. That's where the issue of choice of 00:17:39.539 --> 00:17:42.339 law becomes important. And then ultimately, on 00:17:42.339 --> 00:17:44.779 the remedial side, are you seeking an injunction? 00:17:45.440 --> 00:17:47.759 Is the employer trying to enjoin the employee 00:17:47.759 --> 00:17:50.660 from engaging in further activities? How do you 00:17:50.660 --> 00:17:53.059 establish actual damages? And you want to look 00:17:53.059 --> 00:17:56.400 at prevailing worker fees. So ultimately, you're 00:17:56.400 --> 00:17:59.160 looking at what are your remedies in the context 00:17:59.160 --> 00:18:02.579 of enforcement and which provision applies and 00:18:02.579 --> 00:18:06.799 what state law applies. Next provision. Enter. 00:18:07.170 --> 00:18:14.410 Labor Code, Section 925, which limits mandatory 00:18:14.410 --> 00:18:22.369 form and choice of law terms. So basically, Section 00:18:22.369 --> 00:18:29.630 16600 .58 addresses contracts void under the 00:18:29.630 --> 00:18:32.289 chapter, regardless of the signing location or 00:18:32.289 --> 00:18:36.190 time. It addresses enforcement even if signing 00:18:36.190 --> 00:18:39.670 and employment were outside California. It prohibits 00:18:39.670 --> 00:18:42.829 covered provisions and employer or prospective 00:18:42.829 --> 00:18:45.990 employer contracts. And most importantly, it 00:18:45.990 --> 00:18:49.670 creates a civil violation. So this becomes critical 00:18:49.670 --> 00:18:58.190 in that context. Section 925 protects a defined 00:18:58.190 --> 00:19:02.410 California relationship. So who? The employee 00:19:02.410 --> 00:19:04.940 primarily resides and works in California. when 00:19:04.940 --> 00:19:07.519 we're talking about Labor Code Section 925, which 00:19:07.519 --> 00:19:11.099 creates the civil violation. Terms required is 00:19:11.099 --> 00:19:14.180 a condition of employment that forces the California 00:19:14.180 --> 00:19:16.960 claims out of state or deny California substantive 00:19:16.960 --> 00:19:21.519 provisions. And when you enter into or was modified 00:19:21.519 --> 00:19:25.660 or extended for contracts after January the 1st 00:19:25.660 --> 00:19:39.410 of 2017. Let's move to the next statute. Next 00:19:39.410 --> 00:19:45.480 slide. I'm on 12 now. What's the governing law 00:19:45.480 --> 00:19:48.619 and forum that answer different questions? Now, 00:19:48.859 --> 00:19:54.000 section 925, the council exception does not settle 00:19:54.000 --> 00:19:57.900 the non -compete enforceability. Typically, what 00:19:57.900 -->

00:20:01.200 a party would state is that as 925, labor code 00:20:01.200 --> 00:20:03.940 section 925 could potentially create a cause 00:20:03.940 --> 00:20:08.539 of action for even having a non -compete employee 00:20:08.539 --> 00:20:11.940 provision, the question becomes if the employee 00:20:11.940 --> 00:20:14.680 was represented by counsel in negotiating that 00:20:14.680 --> 00:20:17.980 agreement then actual individual legal representation 00:20:17.980 --> 00:20:20.759 in negotiating the form or the governing law 00:20:20.759 --> 00:20:24.119 may be a mitigating factor. What it does not 00:20:24.119 --> 00:20:27.619 establish is that exception alone does not make 00:20:27.619 --> 00:20:31.519 a non -compete enforceable. So arguably even 00:20:31.519 --> 00:20:33.720 if you come in and you're the employer you're 00:20:33.720 --> 00:20:37.359 attempting to defend a non -compete employee 00:20:37.359 --> 00:20:39.519 provision. It isn't really enough under Section 00:20:39.519 --> 00:20:44.079 925 to say, look, the employee was represented 00:20:44.079 --> 00:20:46.759 by counsel, and they knowingly negotiated this 00:20:46.759 --> 00:20:49.400 provision. The court looks at greater detail 00:20:49.400 --> 00:20:51.859 to determine if there is an exception in that 00:20:51.859 --> 00:21:00.579 context. Move to the next slide. There we go. 00:21:00.859 --> 00:21:05.559 Slide 13. Yeah, we got you. So the question becomes, 00:21:06.019 --> 00:21:11.390 which substantive law actually applies? And where 00:21:11.390 --> 00:21:15.769 will the dispute be heard? Now, typically, you 00:21:15.769 --> 00:21:19.470 state a choice, a chosen form may apply another 00:21:19.470 --> 00:21:22.849 jurisdiction's substantive law. And that arises 00:21:22.849 --> 00:21:25.930 when you look at determining what is the better 00:21:25.930 --> 00:21:29.769 choice of law. The question becomes, if in our 00:21:29.769 --> 00:21:32.130 hypothetical, are you going to wind up applying 00:21:32.130 --> 00:21:34.529 Massachusetts law? Are you going to wind up applying 00:21:34.700 --> 00:21:37.200 California law. Are you going to wind up if you 00:21:37.200 --> 00:21:40.839 do have a non -compete provision which may violate 00:21:40.839 --> 00:21:44.440 the per se rule? Has the employer potentially 00:21:44.440 --> 00:21:47.859 created some via some potential violation of 00:21:47.859 --> 00:21:50.559 the statute? And the question becomes what's 00:21:50.559 --> 00:21:55.339 the appropriate form? Next statute, next slide. 00:21:59.259 --> 00:22:03.789 So and you identify the form, you identify the 00:22:03.789 --> 00:22:07.349 applicable conflicts framework and by that which 00:22:07.630 --> 00:22:11.150 analysis are you going to use? You test the chosen 00:22:11.150 --> 00:22:14.069 law's connection to the relationship, and without 00:22:14.069 --> 00:22:17.309 an effective chosen law clause, you examine the 00:22:17.309 --> 00:22:20.170 forum's default law. So you first

determine, 00:22:20.930 --> 00:22:23.970 is there a selection for choice of law? If there 00:22:23.970 --> 00:22:26.789 is not, then you look to see how the particular 00:22:26.789 --> 00:22:29.650 state analyzes, which is a choice of law analysis. 00:22:30.210 --> 00:22:32.750 You will look at competing fundamental policies, 00:22:32.769 --> 00:22:35.670 and you look at the state interest. So what does 00:22:35.670 --> 00:22:39.460 that mean? in a practical context. Next slide. 00:22:41.819 --> 00:22:45.440 It certainly means that physical location is 00:22:45.440 --> 00:22:49.900 not the same as competitive impact. The employee 00:22:49.900 --> 00:22:53.400 location may be where they live, there may be 00:22:53.400 --> 00:22:56.779 some travel involved, there may be some relocation 00:22:56.779 --> 00:22:59.579 involved for purposes of their work. However, 00:22:59.799 --> 00:23:04.160 the analysis focuses on the location of competitive 00:23:04.160 --> 00:23:07.549 conduct and where the alleged injury could occur. 00:23:07.869 --> 00:23:10.250 So you're looking at when you're determining 00:23:10.250 --> 00:23:13.269 choice of law, where are the customers? Where 00:23:13.269 --> 00:23:16.509 is the primary market? Where is the data being 00:23:16.509 --> 00:23:20.130 used? And more importantly, where is the alleged 00:23:20.130 --> 00:23:26.819 injury? Next slide, please. The seminal case 00:23:26.819 --> 00:23:33.089 on form selection and choice of law in this non 00:23:33.089 --> 00:23:36.089 -compete context is the Draft King's decision. 00:23:36.440 --> 00:23:40.440 If you'll turn to the handout page nine, please. 00:23:47.309 --> 00:23:50.710 Now, the Draft King decision basically comes 00:23:50.710 --> 00:23:54.410 out of the Fifth Circuit. In that case involved, 00:23:54.990 --> 00:23:58.049 Draft King sued a former employee who took a 00:23:58.049 --> 00:24:01.589 job basically arguing that the new provision 00:24:01.589 --> 00:24:04.430 violated a non -compete agreement containing 00:24:04.430 --> 00:24:07.410 a Massachusetts choice of law provision. So now 00:24:07.410 --> 00:24:11.349 we've got a Massachusetts choice of law provision. 00:24:11.750 --> 00:24:15.589 The district court sided with the employer, deeming 00:24:15.589 --> 00:24:19.769 the non -compete enforceable under Massachusetts 00:24:19.769 --> 00:24:22.890 law and issuing a preliminary injunction against 00:24:22.890 --> 00:24:28.710 the employee. The employee appealed and argued 00:24:28.710 --> 00:24:32.650 that California law was to govern because the 00:24:32.650 --> 00:24:35.250 non -compete enforceability and that the injunction 00:24:35.250 --> 00:24:39.289 should exclude California. His argument in California 00:24:39.289 --> 00:24:42.619 is that the employee apparently had moved to 00:24:42.619 --> 00:24:45.849 California. Ultimately, in going through the 00:24:45.849 --> 00:24:49.309 analysis, the court determined, first circuit, 00:24:49.609 --> 00:24:52.950 that Massachusetts law governs because diversity 00:24:52.950 --> 00:24:56.390 jurisdiction existed over the breach of contract 00:24:56.390 --> 00:24:59.809 non -compete claim. Massachusetts was the forum 00:24:59.809 --> 00:25:03.769 where draft kings and the plaintiff set the rules 00:25:03.769 --> 00:25:06.069 for deciding which state's law determines the 00:25:06.069 --> 00:25:08.470 outcome. So the court looked at their initial 00:25:08.470 --> 00:25:12.480 choice, but it went further. It determined that 00:25:12.480 --> 00:25:15.900 the materially greater interest, looking at the 00:25:15.900 --> 00:25:18.680 policies between California versus Massachusetts, 00:25:19.180 --> 00:25:22.299 the court focused on whether California had a 00:25:22.299 --> 00:25:24.660 material greater interest in Massachusetts. And 00:25:24.660 --> 00:25:26.720 here's where it gets interesting and where the 00:25:26.720 --> 00:25:29.920 analysis about conflict of law becomes important. 00:25:30.720 --> 00:25:34.059 The employee argued that a previous decision 00:25:34.059 --> 00:25:36.799 called the Oxford decision had approved his claim. 00:25:37.140 --> 00:25:39.779 And in that case, the court held that California 00:25:39.779 --> 00:25:42.619 had a materially greater interest because the 00:25:42.619 --> 00:25:45.799 employee, and this is the point I'm making, executed 00:25:45.799 --> 00:25:48.859 and performed the contract in California and 00:25:48.859 --> 00:25:52.960 the alleged breach occurred there. So the court 00:25:52.960 --> 00:25:56.740 looked at the injury, the court looked at where 00:25:56.740 --> 00:26:00.720 the employee lived, and then looked at where 00:26:00.710 --> 00:26:03.750 the contract was performed and then ultimately 00:26:03.750 --> 00:26:07.059 determined that the harm occurred there. But 00:26:07.059 --> 00:26:10.440 in the Draft King's case, the First Circuit took 00:26:10.440 --> 00:26:14.859 a different approach. They found basically that 00:26:14.859 --> 00:26:20.000 the employee had worked in New Jersey, had worked 00:26:20.000 --> 00:26:23.500 in New York, had only minimal contacts in California, 00:26:23.660 --> 00:26:26.119 though he had traveled there a few times for 00:26:26.119 --> 00:26:28.700 his work. So you can get arguments that I performed 00:26:28.700 --> 00:26:30.759 some of my work in a different state. but he 00:26:30.759 --> 00:26:34.019 was not residing in California, nor did the breach 00:26:34.019 --> 00:26:37.059 occur there. And there was no evidence that he 00:26:37.059 --> 00:26:41.420 performed any work for the employer in California. 00:26:41.519 --> 00:26:43.220 Question, would that have made a difference? 00:26:43.500 --> 00:26:46.539 And then the court analyzed where the harm actually 00:26:46.539 --> 00:26:49.000 would have occurred, and it determined that the 00:26:49.000 --> 00:26:51.200 primary harm would have occurred in Massachusetts 00:26:51.200 --> 00:26:55.559 and not

California. So ultimately, the court 00:26:55.559 --> 00:27:00.079 made the determination that the appropriate jurisdiction, 00:27:00.240 --> 00:27:03.779 despite the argument that the parties had chosen 00:27:03.779 --> 00:27:06.099 California law, or at least that the parties 00:27:06.099 --> 00:27:08.380 were arguing that California might be the appropriate 00:27:08.380 --> 00:27:12.460 forum that Massachusetts law should govern. So 00:27:12.460 --> 00:27:17.579 next slide, please. Can you go back to the original 00:27:17.579 --> 00:27:21.240 slide? Okay. So ultimately, the reasoning in 00:27:21.240 --> 00:27:24.460 that case is that California's interest was not 00:27:24.460 --> 00:27:28.490 shown to be materially greater. from the employer 00:27:28.490 --> 00:27:31.849 perspective, if you have an employee that is 00:27:31.849 --> 00:27:35.789 asserting, labor code section 925, asserting 00:27:35.789 --> 00:27:38.690 that now we have a violation because you have 00:27:38.690 --> 00:27:43.069 a non -compete clause, which may or may not be 00:27:43.069 --> 00:27:45.789 reasonable, but you're arguing as a California 00:27:45.789 --> 00:27:49.609 employee that is per se violation, you could 00:27:49.609 --> 00:27:52.730 find that ultimately California law may not apply. 00:27:53.349 --> 00:27:56.029 Even though the statute says in and of itself 00:27:56.029 --> 00:27:59.109 the California law should apply. The court still 00:27:59.109 --> 00:28:02.069 may not even in California enforce California 00:28:02.069 --> 00:28:05.009 law based upon the choice of form questions. 00:28:05.329 --> 00:28:07.890 So that's the issue that you need to be aware 00:28:07.890 --> 00:28:10.789 of and understand that it's a fact -specific 00:28:10.789 --> 00:28:14.289 application and you want to look at the facts. 00:28:14.890 --> 00:28:20.279 Next slide. The other question because well frequently 00:28:20.279 --> 00:28:24.220 you in a form selection choice of law context 00:28:24.220 --> 00:28:27.369 you want to know who should get to the courtroom 00:28:27.369 --> 00:28:32.130 first. So a farm raise can raise costs even before 00:28:32.130 --> 00:28:34.809 merits are reached. So you may find that, oh, 00:28:34.910 --> 00:28:36.490 if you're the employee and you're going to be 00:28:36.490 --> 00:28:38.490 the plaintiff, you want to rush to your California 00:28:38.490 --> 00:28:40.250 courts. You want to be able to establish the 00:28:40.250 --> 00:28:42.509 facts that show California applies because now 00:28:42.509 --> 00:28:46.329 you can rely on labor code section 925. If you 00:28:46.329 --> 00:28:50.130 are the employer, you will say, hey, wait a minute. 00:28:50.390 --> 00:28:52.950 Despite the language of the statute, let's look 00:28:52.950 --> 00:28:55.819 at the case law, which says this is still affect 00:28:55.819 --> 00:28:58.259 specific analysis when you're trying to determine 00:28:58.259 --> 00:29:01.599 which state law actually applies and it may

be 00:29:01.599 --> 00:29:05.240 that Massachusetts or another state has a greater 00:29:05.240 --> 00:29:09.079 material interest than California and therefore 00:29:09.079 --> 00:29:11.799 that's how you avoid the liability under labor 00:29:11.799 --> 00:29:15.720 code section 925 and of course what's at risk 00:29:15.720 --> 00:29:18.380 well from the employee perspective they want 00:29:18.380 --> 00:29:22.519 a declaration that the restraint is void from 00:29:22.519 --> 00:29:25.259 the employer's perspective They want enforcement 00:29:25.259 --> 00:29:28.779 and emergency injunctive relief. The point that 00:29:28.779 --> 00:29:31.940 we know is determining the form and the substance 00:29:31.940 --> 00:29:34.819 of law becomes important because the legal fees 00:29:34.819 --> 00:29:38.240 for even a form dispute, emergency relief, and 00:29:38.240 --> 00:29:42.079 parallel proceedings can get quite costly. Now, 00:29:43.470 --> 00:29:50.109 next step, next slide. So if you're negotiating 00:29:50.109 --> 00:29:53.630 these contracts or you have a potential action, 00:29:54.210 --> 00:29:56.890 your employer assessment begins with what is 00:29:56.890 --> 00:30:00.430 the real business risk. So you need to pinpoint 00:30:00.430 --> 00:30:04.609 what is the specific information or relationship 00:30:04.609 --> 00:30:08.869 that's at risk. Is it a trade secret? Is it proprietary 00:30:08.869 --> 00:30:12.069 information? Is this in the context of the sale 00:30:12.069 --> 00:30:15.170 of a business? Do you have goodwill that's at 00:30:15.170 --> 00:30:19.329 issue? Do you have an LLC that's at issue? So 00:30:19.329 --> 00:30:21.869 all of a sudden, rather than running in and saying, 00:30:21.950 --> 00:30:26.000 aha, we have a violation, of the non -compete 00:30:26.000 --> 00:30:28.359 employment provision under California law and 00:30:28.359 --> 00:30:31.220 the per se rule. Here my attorney's fees, here's 00:30:31.220 --> 00:30:33.880 the violation. That's not the end of the analysis. 00:30:34.900 --> 00:30:36.559 Next you have to determine the applicable law 00:30:36.559 --> 00:30:39.940 from the worker's actual locations. So you need 00:30:39.940 --> 00:30:43.440 to determine, is this an employee that's working 00:30:43.440 --> 00:30:47.309 digitally? What is the source of the information? 00:30:48.410 --> 00:30:52.069 Where is the employer located? And more importantly, 00:30:52.170 --> 00:30:55.579 where's your market located? In today's world, 00:30:56.140 --> 00:30:59.799 it could be ubiquitous. And then the next question 00:30:59.799 --> 00:31:02.940 is, where is the majority of the harm? So that's 00:31:02.940 --> 00:31:06.079 the arguments that have to be addressed before 00:31:06.079 --> 00:31:08.480 you get to the question of labor code section 00:31:08.480 --> 00:31:12.619 925, liability. And then review the terms when 00:31:12.619 --> 00:31:17.579 the role or authorized work site changes. So 00:31:17.579 --> 00:31:20.390

one of the caveats that certainly in drafting 00:31:20.390 --> 00:31:22.470 these decisions or thinking about litigation 00:31:22.470 --> 00:31:24.970 in this context, is you have an employee that's 00:31:24.970 --> 00:31:28.029 being relocated or that's being moved. You may 00:31:28.029 --> 00:31:30.710 want to revisit this issue to make certain from 00:31:30.710 --> 00:31:32.869 the employee's perspective that you're getting 00:31:32.869 --> 00:31:39.799 the outcome that you see. Next slide. An employee 00:31:39.799 --> 00:31:43.420 review should also proceed any transition if 00:31:43.420 --> 00:31:46.960 you are being moved. You should get every agreement, 00:31:47.799 --> 00:31:51.269 look at its negotiation history. map out your 00:31:51.269 --> 00:31:54.869 old role, your new role, the work site, and more 00:31:54.869 --> 00:31:58.089 importantly, customer overlap. And then finally, 00:31:58.569 --> 00:32:02.589 assess filing data and solicitation risks before 00:32:02.589 --> 00:32:05.809 acting, meaning that you really do need to determine 00:32:05.809 --> 00:32:11.569 is the California rule going to apply or not. 00:32:11.849 --> 00:32:14.730 You shouldn't equate unenforceable restraint 00:32:14.730 --> 00:32:21.640 with permission to take data. Next slide. So 00:32:21.640 --> 00:32:25.940 the question becomes, your challenge here is 00:32:25.940 --> 00:32:31.569 creating agreements or a litigation strategy 00:32:31.569 --> 00:32:36.450 that doesn't create an outright work ban. If 00:32:36.450 --> 00:32:40.650 you do create a work ban, you probably want to 00:32:40.650 --> 00:32:45.009 tie it to specific, separately negotiated agreements. 00:32:45.809 --> 00:32:49.619 One topic would be confidentiality. Define what 00:32:49.619 --> 00:32:52.940 the protected information is precisely. With 00:32:52.940 --> 00:32:55.720 respect to trade secrets, remember that you have 00:32:55.720 --> 00:32:59.019 a separate trade secret law. You want to go through 00:32:59.019 --> 00:33:01.960 compliance of that and arguably have a separate 00:33:01.960 --> 00:33:05.079 set of controls and protocols for trade secrets. 00:33:05.680 --> 00:33:09.619 Then with respect to inventions, tailor assignment 00:33:09.619 --> 00:33:14.220 terms to applicable law. Be specific about in 00:33:14.220 --> 00:33:17.880 terms of access to proprietary information and 00:33:17.880 --> 00:33:20.559 who can get it and how it's distributed and identify 00:33:20.559 --> 00:33:23.359 whether or not a person is a key employee or 00:33:23.359 --> 00:33:25.779 not. I think that that's ultimately critical 00:33:25.779 --> 00:33:28.700 because a customer non -solicitation agreement 00:33:28.700 --> 00:33:32.900 is not going to automatically be valid in California 00:33:32.900 --> 00:33:39.019 law and it is not a substitute. So that puts 00:33:39.019 --> 00:33:44.640 us with if you have a business today, for example, 00:33:44.700 --> 00:33:50.880 that's working in the AI area and computer technology, 00:33:51.559 --> 00:33:55.160 dealing with the internet, data harvesting. You 00:33:55.160 --> 00:33:58.119 are basically dealing with a business that the 00:33:58.119 --> 00:34:02.180 state limitations are primarily non -existent 00:34:02.180 --> 00:34:06.059 or not of critical importance. So you want to 00:34:06.059 --> 00:34:08.320 make sure that you are protecting your information, 00:34:08.639 --> 00:34:10.960 that you're not running a file of any of the 00:34:10.960 --> 00:34:14.079 state laws. But ultimately, if you find that 00:34:14.079 --> 00:34:19.320 you've got older agreements, You've got issues 00:34:19.320 --> 00:34:21.239 about whether or not you've complied with the 00:34:21.239 --> 00:34:24.440 notice requirements in the California law that 00:34:24.440 --> 00:34:27.300 has adopted the per se rule, which if you look 00:34:27.300 --> 00:34:32.219 in our handout, it lays out that once California 00:34:32.219 --> 00:34:37.619 adopted the per se rule in 2023, it laid out 00:34:37.619 --> 00:34:41.559 that an employee non -compete agreement restricting 00:34:41.760 --> 00:34:45.260 post -employment conduct, not only are they voidable 00:34:45.260 --> 00:34:49.539 and unenforceable, it also required certain notices 00:34:49.539 --> 00:34:53.559 once that the act was adopted. It indicated that 00:34:53.559 --> 00:34:56.539 you had to notify employees if you had a non 00:34:56.539 --> 00:34:59.199 -compete agreement that it would potentially 00:34:59.199 --> 00:35:02.119 not be enforceable. So there are some provisions 00:35:02.119 --> 00:35:05.260 in there that require you to take certain actions 00:35:05.260 --> 00:35:12.190 as an employer. Next slide, please. If you find 00:35:12.190 --> 00:35:15.750 yourself in a dispute, It's our position that 00:35:15.750 --> 00:35:18.429 certainly I believe that early mediation can 00:35:18.429 --> 00:35:22.090 help you to narrow what the real dispute is in 00:35:22.090 --> 00:35:25.449 that context. So you want to focus on information 00:35:25.449 --> 00:35:28.710 and we're here to help you in that context. What 00:35:28.710 --> 00:35:33.269 data must be returned or protected and ultimately 00:35:33.269 --> 00:35:36.570 what duties and contracts create the immediate 00:35:36.570 --> 00:35:39.440 conflict. during the transition. Those are the 00:35:39.440 --> 00:35:42.039 things that we want to look at and then process 00:35:42.039 --> 00:35:44.980 what verification and dispute procedure will 00:35:44.980 --> 00:35:47.980 work. So with that ultimately looking at the 00:35:47.980 --> 00:35:50.559 agreements that you have, looking to determine 00:35:50.559 --> 00:35:52.900 the form selection clauses and whether or not 00:35:52.900 --> 00:35:57.420 they're enforceable and ultimately if not enforceable 00:35:57.420 --> 00:36:00.039 what would be the appropriate substantive law 00:36:00.039 --> 00:36:02.840 and then ultimately what is the status of it. 00:36:03.400 -->

00:36:08.739 Next slide please. Arbitration certainly doesn't 00:36:08.739 --> 00:36:12.840 erase the choice of law issue, but there is a 00:36:12.840 --> 00:36:16.639 benefit in that ultimately you have a private 00:36:16.639 --> 00:36:20.420 forum and a more focused process. So certainly 00:36:20.420 --> 00:36:22.440 as you go through the process of transition, 00:36:22.500 --> 00:36:24.360 as you go through, you'll have trade secrets 00:36:24.360 --> 00:36:27.139 that may be involved. You may have proprietary 00:36:27.139 --> 00:36:30.119 information that you do not want to have out 00:36:30.119 --> 00:36:32.739 in the ether available to the general public. 00:36:32.980 --> 00:36:36.639 So that's one option way arbitration may assist 00:36:36.780 --> 00:36:39.139 Ultimately, while it doesn't erase the choice 00:36:39.139 --> 00:36:41.960 of law issues, it certainly can help to preserve 00:36:41.960 --> 00:36:44.739 some confidentiality as you're going through 00:36:44.739 --> 00:36:47.239 that process, particularly if you have proprietary 00:36:47.239 --> 00:36:50.320 information that's at issue. And then you have 00:36:50.320 --> 00:36:53.900 the continuing questions about what's the scope 00:36:53.900 --> 00:36:57.199 of the choice of law clause? Where are you going 00:36:57.199 --> 00:36:59.840 to be seated? What is the governing law? And 00:36:59.840 --> 00:37:01.980 also whether or not you're entitled to interim 00:37:01.980 --> 00:37:05.889 relief, which ultimately the arbitrator can grant 00:37:05.889 --> 00:37:08.010 depending upon the terms of the arbitration agreement. 00:37:08.550 --> 00:37:14.239 Next slide, please. The bottom line is precision 00:37:14.239 --> 00:37:18.280 is the practical answer. So you want to map out 00:37:18.280 --> 00:37:22.820 the people, the dates, where they work, customers, 00:37:23.340 --> 00:37:26.719 and what is the potential harm. On testing the 00:37:26.719 --> 00:37:29.599 restraint, you want to look at which form have 00:37:29.599 --> 00:37:33.260 been selected. What would be potential statues 00:37:33.260 --> 00:37:35.780 there because they are changing and what is the 00:37:35.780 --> 00:37:38.900 governing law? And then ultimately you can use 00:37:38.900 --> 00:37:42.940 tailored protection by considering early ADR. 00:37:43.699 --> 00:37:47.989 Next slide. I've attached for you what are some 00:37:47.989 --> 00:37:51.610 of the core authorities for follow up purposes. 00:37:52.829 --> 00:37:55.250 Certainly the handout goes into greater detail 00:37:55.250 --> 00:37:57.369 and giving you some of the specific provisions 00:37:57.369 --> 00:37:59.750 of which you should be aware some of the notice 00:37:59.750 --> 00:38:03.230 requirements. and certainly what are the consequences 00:38:03.230 --> 00:38:06.230 for violating the non -compete employment provisions 00:38:06.230 --> 00:38:09.369 in California. Also, we have the case study of 00:38:09.369 --> 00:38:12.449 the Draft Kings case. It is very helpful because 00:38:12.449 --> 00:38:16.269 it explains in great detail how the courts determine 00:38:16.269 --> 00:38:19.650 choice of law and certainly what would be an 00:38:19.650 --> 00:38:22.170 appropriate outcome in that context. And then 00:38:22.170 --> 00:38:24.429 ultimately, some legislative updates because 00:38:24.429 --> 00:38:27.610 there is a lot of activity going on in this context. 00:38:29.190 --> 00:38:33.750 I want to go back to our hypothetical. And this 00:38:33.750 --> 00:38:37.130 is a point where I want to invite you to begin 00:38:37.130 --> 00:38:40.650 to think about that. And I'd raise this question. 00:38:41.360 --> 00:38:43.860 Going back to our hypothetical where we talked 00:38:43.860 --> 00:38:49.170 about you've got a remote worker in California 00:38:49.170 --> 00:38:53.619 who lives there. You've got the employer that's 00:38:53.619 --> 00:38:57.989 in Massachusetts. The specific customers that 00:38:57.989 --> 00:39:02.170 this particular employee is servicing. is in 00:39:02.170 --> 00:39:06.730 New York, and the business is ultimately incorporated 00:39:06.730 --> 00:39:11.519 and has as its home, Delaware. So if you have 00:39:11.519 --> 00:39:14.219 that situation, we have an employee works, they 00:39:14.219 --> 00:39:21.820 say that they're a data entry person working 00:39:21.820 --> 00:39:25.829 from home. Ultimately, they come in, they have 00:39:25.829 --> 00:39:29.070 an action against their employer. This is in 00:39:29.070 --> 00:39:31.570 the context of perhaps a business dispute per 00:39:31.570 --> 00:39:34.150 se. They're not selling the business, or there's 00:39:34.150 --> 00:39:36.670 not a sale of goodwill, or there's not a dissolution. 00:39:37.530 --> 00:39:40.889 Which fact would you investigate first in that 00:39:40.889 --> 00:39:42.929 four -state hypothetical? What do you think would 00:39:42.929 --> 00:39:46.960 be the most important place to begin? I want 00:39:46.960 --> 00:39:49.820 you to think about that for a moment. Next slide. 00:39:54.349 --> 00:39:59.480 Next slide, please. So does moving to California 00:39:59.480 --> 00:40:05.840 defeat the non -compete? For example, let's say 00:40:05.840 --> 00:40:10.420 that the worker in my hypothetical was working 00:40:10.420 --> 00:40:14.190 in Missouri instead of California. And they decide 00:40:14.190 --> 00:40:17.130 to move to California. And they come into court 00:40:17.130 --> 00:40:19.789 and they say, aha, California's got a percent 00:40:19.789 --> 00:40:23.329 rule. I should win. The answer is not automatically. 00:40:24.110 --> 00:40:28.920 And the why, the form, conflict rule, the timing, 00:40:29.780 --> 00:40:33.860 the state interest will still matter. So what 00:40:33.860 --> 00:40:38.880 about a debt does a Delaware clause in the analysis? 00:40:38.980 --> 00:40:44.619 For example, what if the agreement says our site 00:40:44.619 --> 00:40:47.739 and it's going to be controlled by Delaware law

00:40:47.960 --> 00:40:54.730 and as a consequence, I am free not to have California 00:40:54.730 --> 00:41:03.840 law apply. Next slide. Next slide, please. The 00:41:03.840 --> 00:41:07.980 answer is no. A selected law can face connection 00:41:08.039 --> 00:41:12.139 public policy, and statutory challenges. Again, 00:41:12.139 --> 00:41:15.099 going back to the Draft Kings case, there's a 00:41:15.099 --> 00:41:17.300 question as to whether or not California law 00:41:17.300 --> 00:41:20.059 had been selected in that Massachusetts context. 00:41:20.639 --> 00:41:23.960 And while the court looked at an earlier case 00:41:23.960 --> 00:41:27.159 with a concluded California law applies, in that 00:41:27.159 --> 00:41:29.760 context, it determined, no, we need to look a 00:41:29.760 --> 00:41:31.860 little bit more closely at the public policy 00:41:31.860 --> 00:41:34.800 and what are certain statutory challenges, and 00:41:34.800 --> 00:41:38.599 determined that, no, the clause selected by the 00:41:38.599 --> 00:41:42.300 parties did not automatically determine the outcome. 00:41:43.110 --> 00:41:47.179 What about does negotiating counsel make a restraint 00:41:47.179 --> 00:41:52.139 valid? So for example, the mere fact that an 00:41:52.139 --> 00:41:55.780 employee had counsel present with them when they 00:41:55.780 --> 00:41:58.639 were negotiating the employment agreement. Does 00:41:58.639 --> 00:42:05.829 that make a difference? No. Next slide. Not by 00:42:05.829 --> 00:42:10.130 itself. because Labor Code section 925 exception 00:42:10.130 --> 00:42:13.250 concerns the state's form and law protections. 00:42:13.409 --> 00:42:17.750 It does not necessarily make the restraint valid. 00:42:18.110 --> 00:42:21.150 You still have to make a determination as to 00:42:21.150 --> 00:42:23.849 what is the substantive law that applies. And 00:42:23.849 --> 00:42:28.050 here's the twist, because the statute says, doesn't 00:42:28.050 --> 00:42:31.889 matter what state you're from. If you're in California, 00:42:32.150 --> 00:42:34.530 the California law would apply, but that actually 00:42:34.530 --> 00:42:38.469 is not the end of the analysis. Can we use a 00:42:38.469 --> 00:42:43.409 customer non -solicit instead? And by that, could 00:42:43.409 --> 00:42:47.949 you simply narrow an agreement to state, you 00:42:47.949 --> 00:42:55.860 cannot solicit from my client? The answer is, 00:42:56.059 --> 00:43:00.139 next slide. No, not as an automatic California 00:43:00.139 --> 00:43:03.880 workaround. Of course, examine whether the provision 00:43:03.880 --> 00:43:09.039 restrains lawful work. So the question isn't, 00:43:09.119 --> 00:43:11.940 you can use a customer non -solicit instead. 00:43:12.519 --> 00:43:15.059 And you say, I'm not saying that you can't compete. 00:43:15.519 --> 00:43:18.719 I just am very limited in saying that you cannot 00:43:18.719 --> 00:43:22.739 compete by pursuing certain customers. That is 00:43:22.739 --> 00:43:25.300 still viewed as a non -compete agreement. And 00:43:25.300 --> 00:43:27.300 the court's going to look at, is it limiting 00:43:27.300 --> 00:43:29.719 your right to work? Because again, remember that 00:43:29.719 --> 00:43:33.280 the theory behind this is to allow for employee 00:43:33.280 --> 00:43:39.179 mobility. then a question becomes, well, who 00:43:39.179 --> 00:43:42.400 should file first? Should the employee file first? 00:43:43.219 --> 00:43:48.389 Should the employer file first? That really depends. 00:43:48.670 --> 00:43:54.059 Next slide. Got to do it? I think, and the answer 00:43:54.059 --> 00:43:56.880 to that is depends, because filing first is not 00:43:56.880 --> 00:44:00.000 a complete strategy. Again, you've got to look 00:44:00.000 --> 00:44:03.199 at the jurisdiction. You've got to look at if 00:44:03.199 --> 00:44:05.480 you need to have emergency relief and what's 00:44:05.480 --> 00:44:08.320 the reason for the emergency relief? Ergo, that's 00:44:08.320 --> 00:44:10.139 why you look to, are you looking at a sale of 00:44:10.139 --> 00:44:12.280 business? Are you looking at parties that have 00:44:12.280 --> 00:44:15.400 some form of an LLC or some form of a partnership 00:44:15.400 --> 00:44:20.559 connection? Or you're looking at whether or not 00:44:20.559 --> 00:44:26.260 there's some form of an exception which would 00:44:26.260 --> 00:44:34.300 take it out of the per se rule. Can mediation 00:44:34.300 --> 00:44:36.989 resolve a conflict? the law has not settled. 00:44:38.639 --> 00:44:42.690 Good question. It can resolve the business dispute, 00:44:43.050 --> 00:44:46.570 but we cannot rewrite the mandatory laws. It 00:44:46.570 --> 00:44:49.010 would be helpful if the parties can agree on 00:44:49.010 --> 00:44:52.469 lawful data protection and transition steps ahead 00:44:52.469 --> 00:44:55.710 of time. That's one of the guidance that we would 00:44:55.710 --> 00:44:58.369 like to be able to offer you in that context, 00:44:58.849 --> 00:45:01.570 which is basically to help you get to a resolution 00:45:01.570 --> 00:45:06.360 of the business dispute in that context. as opposed 00:45:06.360 --> 00:45:09.320 to limiting the ability of an employee to move 00:45:09.320 --> 00:45:13.199 to another state or to engage in lawful work 00:45:13.199 --> 00:45:16.340 that may be with the competitor. So that's sort 00:45:16.340 --> 00:45:20.460 of the overview that we've covered in the context 00:45:20.460 --> 00:45:23.500 of the article on remote workers and non -competes. 00:45:23.920 --> 00:45:29.340 I wanted to open this up now to questions. I 00:45:29.340 --> 00:45:32.159 have given you the handouts that go into greater 00:45:32.159 --> 00:45:35.260 detail about the specific law that applies. It 00:45:35.260 --> 00:45:38.500 also lays out both the per se rule, the reasonableness 00:45:38.500 --> 00:45:41.840 standard, some case law in that context, and 00:45:41.840 --> 00:45:44.980 also the exceptions as

it relates to sales of 00:45:44.980 --> 00:45:47.400 businesses and even partial sales of businesses 00:45:47.400 --> 00:45:50.559 and how non -complete agreements would not be 00:45:50.559 --> 00:45:54.570 enforceable in that context. Judge, I just got 00:45:54.570 --> 00:45:57.489 one question that came in, and I will read it 00:45:57.489 --> 00:46:01.650 to you. Have you ever done non -binding findings 00:46:01.650 --> 00:46:04.530 of fact and non -binding conclusions of law as 00:46:04.530 --> 00:46:07.550 part of a mediation with a view that the parties 00:46:07.550 --> 00:46:12.070 can use those in court on cross motions for MSJ 00:46:12.070 --> 00:46:21.570 in court? I have not done that. That primarily 00:46:21.570 --> 00:46:25.769 because we would view arbitration of less mediation 00:46:25.769 --> 00:46:30.150 certainly as confidential in the context of arbitration. 00:46:30.230 --> 00:46:33.789 The idea is that you're in arbitration because 00:46:33.789 --> 00:46:36.710 in these employment contracts, quite frankly, 00:46:36.750 --> 00:46:40.309 a lot of times they arise on new businesses and 00:46:40.309 --> 00:46:46.530 particularly in the. I want to say the high tech 00:46:46.530 --> 00:46:50.969 business. For example, what's going on in Northern 00:46:50.969 --> 00:46:57.639 California with the tech business, the media 00:46:57.639 --> 00:46:59.699 business, the things that are going on along 00:46:59.699 --> 00:47:03.119 those lines where it's developing a number of 00:47:03.119 --> 00:47:06.440 new businesses. So I think that the shown answer 00:47:06.440 --> 00:47:11.300 is no. I avoid from listing those findings. I 00:47:11.300 --> 00:47:13.079 think those protections are more appropriately 00:47:13.079 --> 00:47:16.030 provided in the context of the agreements. Perfect. 00:47:16.090 --> 00:47:17.610 I think the follow -up was, have you ever done 00:47:17.610 --> 00:47:24.130 a consent award to set up an appeal? A consent 00:47:24.130 --> 00:47:29.079 award in the context of an arbitration? I certainly 00:47:29.079 --> 00:47:31.920 created consent judgments in the context of as 00:47:31.920 --> 00:47:36.960 a judge. But a consent arbitration where it is 00:47:36.960 --> 00:47:39.760 publicly used, where the findings are used, I'm 00:47:39.760 --> 00:47:42.539 unfamiliar with that. Got it. And then I have, 00:47:42.739 --> 00:47:45.079 does this analysis apply to other issues that 00:47:45.079 --> 00:47:47.320 may be involved in the dispute in addition to 00:47:47.320 --> 00:47:52.800 non -compete? Read that question again. It just 00:47:52.800 --> 00:47:55.420 says, does this analysis apply to other issues 00:47:55.420 --> 00:47:57.940 that may be involved in the dispute in addition 00:47:57.940 --> 00:48:01.619 to non -compete? Well, I'm uncertain what you 00:48:01.619 --> 00:48:06.659 mean by other disputes. The per se rule and the 00:48:06.659 --> 00:48:10.260 reasonableness standard really relate to enjoining 00:48:10.260 --> 00:48:13.300 a person from engaging in certain business activities 00:48:13.300 --> 00:48:16.280 that would compete with their prior employer 00:48:16.280 --> 00:48:20.920 or that would be a competitor. And it does vary 00:48:20.920 --> 00:48:23.579 from state to state. And in those states, it 00:48:23.579 --> 00:48:26.400 varies from industry to industry. California, 00:48:26.820 --> 00:48:29.360 because we've adopted the per se rule, doesn't 00:48:29.360 --> 00:48:31.920 necessarily drill down on an industry to industry 00:48:31.920 --> 00:48:34.420 basis. And I think that's one of the big distinctions. 00:48:34.940 --> 00:48:37.559 What it does is it looks at the type of transaction 00:48:37.559 --> 00:48:42.340 and it looks at the relationship of the employee 00:48:42.340 --> 00:48:45.960 to the employer. For example, a good example 00:48:45.960 --> 00:48:49.369 would be I think the The primary case that we 00:48:49.369 --> 00:48:55.940 refer to, it's the Edwards case, involved an 00:48:55.940 --> 00:48:59.340 accounting firm and Arthur Anderson. And that 00:48:59.340 --> 00:49:01.519 gives you an example of, and in that context, 00:49:02.340 --> 00:49:03.840 the Supreme Court, the California Supreme Court 00:49:03.840 --> 00:49:07.659 ultimately said that a narrow restraint exception 00:49:07.659 --> 00:49:10.920 simply would not apply. And they invoked in a 00:49:10.920 --> 00:49:13.480 per se rule. And that was the basis for confirming 00:49:13.480 --> 00:49:16.000 that per se rule that was in the Edwards decision. 00:49:16.389 --> 00:49:20.210 Perfect. Next, when examining where major harm 00:49:20.210 --> 00:49:23.409 occurred for a choice of law, does this analysis, 00:49:24.469 --> 00:49:27.090 does this analyze the harm done to the employer 00:49:27.090 --> 00:49:30.889 by violating non -compete or the harm done to 00:49:30.889 --> 00:49:33.989 an employee by being unable to freely accept 00:49:33.989 --> 00:49:38.880 work or both? It's a balancing test. So the question 00:49:38.880 --> 00:49:42.260 becomes, what are you protecting for the employer? 00:49:42.480 --> 00:49:45.099 That's why trade secrets as a separate group 00:49:45.099 --> 00:49:48.820 may be critical. So it's not tied to the non 00:49:48.820 --> 00:49:51.420 -compete, but rather you're establishing that 00:49:51.420 --> 00:49:57.639 it's data and information and inventions and 00:49:57.639 --> 00:50:01.369 patents and things of that nature where a entity 00:50:01.369 --> 00:50:04.929 has invested significant money and proprietary 00:50:04.929 --> 00:50:06.869 information, and that needs to be protected. 00:50:06.949 --> 00:50:09.070 And quite frankly, there should be a separate 00:50:09.070 --> 00:50:11.010 agreement protecting that and disclosing that 00:50:11.010 --> 00:50:13.010 in the context of employment. I think that makes 00:50:13.010 --> 00:50:15.690 your position stronger. So my argument would 00:50:15.690 --> 00:50:19.250 be, if you want to talk about

the harm, it is 00:50:19.250 --> 00:50:21.869 a balancing in that you're looking at what interests 00:50:21.869 --> 00:50:24.269 are you protecting for the business. If you're 00:50:24.269 --> 00:50:26.369 looking at the employee, you want to protect 00:50:26.369 --> 00:50:29.929 the employee's mobility. If you're talking about 00:50:29.929 --> 00:50:33.530 a good example would be the customer non -solicit. 00:50:33.809 --> 00:50:35.949 And see, well, that's just a narrow definition, 00:50:36.030 --> 00:50:38.869 but that's not enough. That's the reason why 00:50:38.869 --> 00:50:42.670 a customer non -solicit agreement is not sufficient 00:50:42.670 --> 00:50:45.809 for purposes of Labor Code Section 925. Because 00:50:45.809 --> 00:50:48.650 ultimately, what that non -solicit agreement 00:50:48.650 --> 00:50:51.690 does is it limits the mobility of the employee. 00:50:52.130 --> 00:50:54.230 And the employee could argue within that. prevents 00:50:54.230 --> 00:50:57.010 me from pursuing lawful work. In the context 00:50:57.010 --> 00:51:00.670 of the Edwards case, it was about an employee, 00:51:00.710 --> 00:51:02.469 an accountant who worked for Arthur Anderson. 00:51:03.070 --> 00:51:05.809 And the exclusion was you can't contact any of 00:51:05.809 --> 00:51:08.510 Arthur Anderson's clients to provide accounting 00:51:08.510 --> 00:51:10.690 services. And the court ultimately said, look, 00:51:10.690 --> 00:51:12.530 if you can provide them for a better price and 00:51:12.530 --> 00:51:14.409 you believe you can provide better services than 00:51:14.409 --> 00:51:18.250 Arthur Anderson, that should be. part of our 00:51:18.250 --> 00:51:21.590 open market society approach, and you should 00:51:21.590 --> 00:51:24.010 be able to compete. So it's a balancing test 00:51:24.010 --> 00:51:27.690 that the courts have to review. And I would argue 00:51:27.690 --> 00:51:30.670 if you're on the employer side, that to the extent 00:51:30.670 --> 00:51:33.369 you can have separate agreements or specify what 00:51:33.369 --> 00:51:35.809 the proprietary information is that you're protecting 00:51:35.809 --> 00:51:37.969 the better, even if you just categorize it, that's 00:51:37.969 --> 00:51:41.769 important. Perfect. The next question relates 00:51:41.769 --> 00:51:47.190 to arbitration. Can you, using AAA rules for 00:51:47.190 --> 00:51:50.829 JAMS arbitration, Rans, can you use the AAA rules 00:51:50.829 --> 00:51:53.349 in there? And then, I don't know if you want 00:51:53.349 --> 00:51:54.590 to take that one first, but the second one is, 00:51:54.610 --> 00:51:57.269 would you accept a case delegating injunctive 00:51:57.269 --> 00:52:02.650 relief into your ARB award? Second question, 00:52:02.750 --> 00:52:07.670 yes. Because obviously one of the key remedies 00:52:07.670 --> 00:52:10.130 is whether or not the person is able to work. 00:52:10.260 --> 00:52:12.699 whether or not they're able to take certain data, 00:52:12.980 --> 00:52:16.019

whether or not you want to enjoin their going 00:52:16.019 --> 00:52:18.699 to a competitor, whether or not you want to enjoin 00:52:18.699 --> 00:52:20.659 them starting a startup business right across 00:52:20.659 --> 00:52:22.219 the street while they're also trying to take 00:52:22.219 --> 00:52:24.760 your clients. Then you also want to look to see 00:52:24.760 --> 00:52:26.599 if there's any connection between the parties, 00:52:26.840 --> 00:52:29.380 if they were via partners, or they're engaged 00:52:29.380 --> 00:52:32.079 in a similar business, what work has been done 00:52:32.079 --> 00:52:35.849 to develop goodwill. So I think when the Act 00:52:35.849 --> 00:52:38.869 was established, and the argument was that we're 00:52:38.869 --> 00:52:41.469 now creating a separate civil violation for having 00:52:41.469 --> 00:52:47.429 a non -compete employment provision in a contract, 00:52:47.769 --> 00:52:50.250 that that creates civil violations. But I think 00:52:50.250 --> 00:52:52.110 there are a number of exceptions, and people 00:52:52.110 --> 00:52:55.670 need to recognize that. So it's a public policy 00:52:55.670 --> 00:52:59.650 which gets you away from the analysis of enforcing 00:52:59.650 --> 00:53:02.780 the agreement. But I think when you're talking 00:53:02.780 --> 00:53:05.880 about potential violation, I think you do have 00:53:05.880 --> 00:53:08.400 certain defenses there in terms of, in the context 00:53:08.400 --> 00:53:12.079 of, what are you protecting? Perfect. I think 00:53:12.079 --> 00:53:15.460 they added contempt power as well. So I was like, 00:53:15.559 --> 00:53:17.079 would you accept that KTL getting injunctive 00:53:17.079 --> 00:53:19.800 relief to your ARB award and contempt power too? 00:53:20.320 --> 00:53:22.300 I think it's critical in order to enforce your 00:53:22.300 --> 00:53:30.320 rulings, yes. Perfect, perfect. Do you at least 00:53:30.320 --> 00:53:32.780 say name to the art? Well, I can answer that. 00:53:33.159 --> 00:53:35.500 No. JAMS is not charged specifically being named 00:53:35.500 --> 00:53:37.380 in an arbitration clause. And we can help you. 00:53:37.420 --> 00:53:38.920 If anyone wants to talk about that after, we 00:53:38.920 --> 00:53:42.039 can definitely do that. And also, I think there 00:53:42.039 --> 00:53:44.500 was a question too about, yes, JAMS does administer 00:53:44.500 --> 00:53:47.539 matters with AAA rules up to the parties decide 00:53:47.539 --> 00:53:51.849 which we can do that. And that's all I have unless 00:53:51.849 --> 00:54:01.289 anybody has any other questions as well. That's 00:54:01.289 --> 00:54:07.280 what I have. Chat here. I think that's all the 00:54:07.280 --> 00:54:10.590 questions I have, Judge. All right. Well, thank 00:54:10.590 --> 00:54:13.469 you. And it looks like we're almost at the 5 00:54:13.469 --> 00:54:16.630 o 'clock hour. So I think this worked out well. 00:54:16.809 --> 00:54:19.809 It's been a pleasure to address each of you. 00:54:19.929 --> 00:54:23.269 I would just remind you that the handouts go 00:54:23.269 --> 00:54:26.110 into greater detail. I think they're also most 00:54:26.110 --> 00:54:28.550 helpful. And I would urge you to certainly get 00:54:28.550 --> 00:54:31.289 them. and review them if you need them for purposes 00:54:31.289 --> 00:54:34.909 of citation and also the actual briefing of the 00:54:34.909 --> 00:54:38.170 cases that contained within the outline. My view 00:54:38.170 --> 00:54:41.389 was rather include all of that in the PowerPoint 00:54:41.389 --> 00:54:43.710 presentation that I think ultimately you would 00:54:43.710 --> 00:54:45.469 benefit from just having the actual handout. 00:54:45.590 --> 00:54:49.909 So that was my purpose. Perfect. Thank you, Judge. 00:54:50.849 --> 00:54:54.469 And thank you, everybody, for joining us today. 00:54:55.429 --> 00:54:57.889 If you have any questions or further questions, 00:54:58.250 --> 00:54:59.469 you can reach out to the Beverly Hills Bar and 00:54:59.469 --> 00:55:00.989 they'll put you in touch with us. And we can 00:55:00.989 --> 00:55:03.489 make sure that any further questions get answered. 00:55:03.590 --> 00:55:05.289 And if you have any questions about jams as well 00:55:05.289 --> 00:55:07.869 or Judge Cunningham, please let us know. Thank 00:55:07.869 --> 00:55:09.869 you. Thank you, everybody.