In an increasingly competitive landscape, a manufacturer’s significant employees may hold the “keys to the kingdom.” Loss of such a worker to a competitor could have a substantial impact on future business growth. Many manufacturers invest significant resources to keep key employees and, by doing so, preserve their market advantage. Strategic use of employment agreements, post-employment restrictions and confidentiality provisions have been a proven tool to help protect trade secrets, customer relationships and confidential information.
Two recent developments highlight the need for manufacturers to periodically review and update the employment agreements of their key executive, R&D and sales employees.
On June 3, 2015, the Connecticut Legislature adopted a measure effectively making unlawful any confidentiality agreement which would prohibit employees from discussing wages. Misleadingly labeled “An Act Concerning Pay Equity and Fairness,” the law prohibits employers from preventing employees from disclosing their own wages or the wages of any other employee who otherwise voluntarily disclosed it to them. The law does not limit in any way the entity to which this information may be disclosed nor does it require the express consent of the individual whose wages are being disclosed. The Governor is widely expected to sign the legislation and it would become effective on July 1, 2015.
The “Pay Equity” Act, as written, permits an employee to disclose what many could consider to be confidential information to competitors. So, for example, if a key sales-employee casually mentions her or his compensation schedule to a co-worker, that co-worker has license to share that information with anyone else. This means former employees who go to work for a competitor are seemingly free to share the compensation data of their peers and co-workers, helping the competitor recruit future defectors. The “Pay Equity” Act also makes “retaliation” for disclosing such information unlawful and authorizes a private cause of action and an award of compensatory damages, punitive damages and attorneys’ fees and costs.
The second significant development occurred on June 12, 2015, when the New York Court of Appeals refused to apply the parties’ selected choice of law because that law was “repugnant” to the public policy of New York State. Most employment agreements, and especially those which contain provisions restricting an employee’s activities after she or her leaves employment, contain so-called “choice of law” provisions. Under a choice of law provision, the parties can select the law of a particular jurisdiction which they may wish to apply when interpreting the agreement. In Brown and Brown v. Johnson, the parties’ agreement selected Florida law as governing law in any dispute. However, when the plaintiff sought to enjoin its former employee from violating her post-employment restrictions, the defendant argued that New York (not Florida law) should govern. The Court of Appels ultimately agreed, holding that Florida law with respect to post-employment restrictions was “truly obnoxious” and inconsistent with New York’s public policy as Florida law did not give sufficient consideration to the interests of the individual employee.
These two developments show that manufacturers must constantly assess the means and manner in which they protect both employees and information from unfair competition.