Tag Archive for: trade secrets

Colorado employers, brace for 2023 state legislative developments

The Colorado state legislature enacted a crop of new laws affecting employers in 2023, including the following:

  • The POWR Act (Protecting Opportunities and Workers’ Rights Act)
  • Revisions to existing job/promotional opportunity posting and disclosure requirements
  • Expansion of reasons for taking HFWA/paid sick leave
  • Age-related questions in job applications
  • Penalties related to wrongful refusals to allow use of service animals by disabled individuals
  • State actions to recover reimbursement of overdue wage payments
  • Expansion of military leave.

The remainder of this blog post summarizes some of the features of these new developments.

  • POWR Act (Protecting Opportunities and Workers’ Rights Act) will take effect August 7, 2023: The Colorado legislature summarized this wide-ranging law, as follows:
  • Directs the Colorado civil rights division (division) to include “harassment” as a basis or description of discrimination on any charge form or charge intake mechanism;
  • Adds a new definition of “harass” or “harassment” and repeals the current definition of “harass” that requires creation of a hostile work environment;
  • Adds protections from discriminatory or unfair employment practices for individuals based on their “marital status”;
  • Specifies that in harassment claims, the alleged conduct need not be severe or pervasive to constitute a discriminatory or unfair employment practice;
  • For purposes of the exception to otherwise discriminatory practices for an employer that is unable to accommodate an individual with a disability who is otherwise qualified for the job, eliminates the ability for the employer to assert that the individual’s disability has a significant impact on the job as a rationale for the employment practice;
  • Specifies the requirements for an employer to assert an affirmative defense to an employee’s proven claim of unlawful harassment by a supervisor; and
  • Specifies the requirements that must be satisfied for a nondisclosure provision in an agreement between an employer and an employee or a prospective employee to be enforceable; and
  • Requires an employer to maintain personnel and employment records for at least 5 years and, with regard to complaints of discriminatory or unfair employment practices, to maintain those records in a designated repository.

When reviewing the legislature’s summary of its new POWR Act, Colorado employers may wish to note the following fleshouts on some of those points:

  • In revising the definition of prohibited “harassment,” the legislature has deleted the longstanding threshold requirement that harassment be “severe or pervasive.” In doing so the legislature noted that some threshold still needed to be met, in that “petty slights, minor annoyances, and lack of good manners” will generally not suffice. Future litigation will need to analyze how this new standard requiring more than “petty slights, minor annoyance, and lack of good manners” is different than the longstanding “severe or pervasive” standard. Further complicating future litigation will be the legislature’s observation in the POWR Act that this new standard will, like the prior standard, require an analysis of “the totality of the circumstances.”
  • Additionally, in revising the definition of “harassment,” the legislature has revised the longstanding Ellerth-Faragher defense, in cases of prohibited harassment by supervisors, for employers who train against and take prompt and effective remedial steps to eliminate prohibited harassment. Now, Colorado law will require an employer, when sued for sexual harassment by a supervisor, in order to qualify for this affirmative defense, to prove that they had a “program” in place that is “reasonably designed” to “prevent” unlawful harassment and to “deter” unlawful harassment and to protect” employees from unlawful harassment, additionally, that they actually do take “prompt, reasonable action to investigate or address” complaints and incidents, and further that they actually do take “prompt, reasonable remedial actions, when warranted,” and also that they have “communicated the existence and details of the program.”
  • Marital status itself will be a protected class.
    • The POWR Act does not define whether “marital status” means the status of being married, or whether it would include the status of being not married, being in a partnership relationship, being in a dating relationship, etc.
  • The changes that apply to a “nondisclosure provision” are multi-faceted and warrant immediate review of any agreement that includes confidentiality language, whether an employment agreement, an NDA (non-disclosure agreement), a non-compete or non-solicit, etc., if “entered into or renewed on or after” August 7, 2023.
    • While employers will still be able to require confidentiality language that protects trade secrets, any “nondisclosure provision” will be void if it goes farther than that and “limits the ability of the employee or prospective employee to disclose, either orally or in writing, any alleged discriminatory or unfair employment practice.”
    • The legislature provided one exception for “nondisclosure provisions” that:
      • Applies “equally to all parties to the agreement,” apparently in other words, meaning confidentiality may be required if there is mutuality as to “all parties to the agreement,”
      • Expressly states
        • that it does not restrain the employee or prospective employee from disclosing
          • the underlying facts of any alleged discriminatory or unfair employment practice,” apparently, to anyone,
          • “the existence and terms of a settlement agreement” to
            • “the employee’s or prospective employee’s immediate family members, religious advisor, medical or mental health provider, mental or behavioral health therapeutic support group, legal counsel, financial advisor, or tax preparer,”
            • “any local, state, or federal government agency for any reason, including disclosing the existence and terms of a settlement agreement, without first notifying the employer,”
            • anyone “in response to legal process, such as a subpoena to testify at a deposition or in a court, including disclosing the existence and terms of a settlement agreement, without first notifying the employer,” or
            • anyone “for all other purposes as required by law,”
        • that, as for agreements that also contain a nondisparagement provision,
          • “disclosure of the underlying facts of any alleged discriminator or unfair employment practice within the parameters specified (above) does not constitute disparagement,”
          • if “the employer disparages the employee or prospective employee to a third party, the employer may not seek to enforce the nondisparagement or nondisclosure provisions of the agreement or seek damages against the employee or any other party to the agreement for violating those provisions, but all other remaining terms of the agreement remain enforceable,”
      • As for agreements that also contain a liquidated damages provision, the liquidated damages provision’s amount must be
        • “reasonable and proportionate in light of the anticipated actual economic loss that a breach of the agreement would cause,”
        • “varied based on the nature or severity of the breach,” and
        • not “punitive,”
      • Additionally, an “addendum” to the agreement must
        • be signed by all parties to the agreement
        • wherein each party must “attest to compliance with” new Colorado Revised Statute section 24-34-407(1)(a) (summarized above).
    • Not only does the failure to comply with this new law invalidate the non-disclosure (and non-disparagement) language (and related language like any related liquidated damages clause), but merely providing it to an employee or prospective employee also subjects an employer to claims by the employee, prospective employee, as well as the CDLE for damages, costs, attorney fees, penalties including a $5,000 penalty, which penalty may be reduced including to $0.00 if the employer proves “good faith.”
  • The “repository” of complaints that will now be required to be maintained for at least 5 years must contain all written and oral complaints, the identity of each complainant (if known, in other words, if not anonymous), the identity of the alleged wrongdoer, and the substance of the complaint.
    • This repository must be kept separate from personnel records.
    • This repository is not open to public inspection.
    • However, employers should anticipate that all federal, state and local EEO agencies will demand to see it (as will litigants through discovery), though it is not clear if it must be made available to any agency other than the CDLE.

 

  • Job/Promotional Posting Requirements: The Colorado legislature also amended its relatively recent job opening and promotional opportunity posting requirements, including, effective January 1, 2024:
    • As for “job opportunity” postings, employers have been required to post pay ranges, including benefits, now they will be required to post, in addition, the anticipated window when applications  will close.
      • A “job opportunity” is defined to be “a current or anticipated vacancy for which the employer is considering a candidate or candidates or interviewing a candidate or candidates or that the employer externally posts.”
      • A “vacancy” is defined to be “an open position, whether as a result of a newly created position or a vacated position.”
      • After filling a job opportunity, employers must disclose the following,
        • The name of the individual selected,
        • Their new job title,
          • And, if they were an internal hire, their former job title,
        • Information on how to apply for similar positions in the future.
        • Such notice must be given at least to the employees with whom that individual will work regularly
        • Such notice is not required if it would violate the selected individual’s privacy rights, health or safety.
    • No notice will be required for “career progressions,” which phrase is defined as
      • “a regular or automatic movement from one position to another,”
      • which is “based on time in a specific role or other objective metrics,”
      • so long as the employer has already disclosed to “all eligible employees the requirements for career progression, in addition to each position’s terms or compensation, benefits, full-time or part-time status, duties, and access to further advancement.”
    • Out-of-state employers will be partially and temporarily exempted from job posting requirements until July 1, 2029, so long as the company
      • has no physical location in Colorado,
      • has fewer than 15 workers in Colorado,
        • “all of whom work only remotely,”
      • and posts any “remote job opportunities.”

 

  • HFWA/paid sick leave: In addition to existing HFWA paid sick leave requirements, Colorado workers will, effective August 7, 2023, be able to take HFWA paid sick leave for the following additional reasons:
    • grieving, funerals and memorials, financial and legal matters after the death of a family member,
    • caring for a family member whose school or place of care has been closed due to inclement weather, loss of power, heat, water, or other unexpected events,
    • evacuations of the worker’s residence due to inclement weather, loss of power, heat, etc.

 

  • Job applications: Effective July 1, 2024, job applications in Colorado may not include questions related to age, date of birth, dates of attendance at education programs or graduation from them, unless required by federal, state or local law. (For readers who may have seen discussion of this new law, SB 23-058, in other resources, it has been colloquially referred to as the “Don’t Ask Applicants’ Age” law).

 

  • Penalties related to service animals: HB 23-1032 revised the remedies for refusing to allow use of a service animal by disabled individuals to now include actual damages or a fine of $3,500 per violation.

 

  • State actions to recover reimbursement of overdue wage payments: SB 23-231 allows the CDLE, through a t0-be-established wage theft enforcement fund, to pay employees overdue wages, if overdue by at least six months, then recover reimbursement from employers.

 

  • Military leave: HB 23-1045 allows Colorado workers in the Colorado National Guard or U.S. reserves to take up to three workweeks (instead of Colorado law’s prior 15 days) of military leave for military training and, at their discretion, to take, as they do, available paid leave.
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Colorado passes new law severely limiting restrictive employment agreements, including non-competes, non-solicits and even some non-disclosures

Colorado passed HB 22-1317, which severely limits restrictive employment agreements, including non-competes, non-solicits and even some non-disclosures. HB 22-1317 is currently before the Governor where it is expected to become law without veto.

HB 22-1317 applies only to agreements containing such provisions if entered into on or after 8/10/2022; however, the Act contemplates the possibility that a referendum petition will be filed by voters to contest it, in which case HB 22-1317 provides it will be held in abeyance without any part taking effect until after the November 2022 state election. Absent a successful challenge by referendum in this fall’s vote, HB 22-1317 will entirely restructure Colorado’s longstanding law in this area, CRS 8-2-113.

First, like existing Colorado law, HB 22-1317 renders void all non-competes unless they fall into certain defined exceptions. However, unlike existing Colorado law, HB 22-1317 significantly limits the available exceptions to only the following three categories:

  1. Covenants associated with the sale of a business, which can include sales arranged as so-called asset deals.
  2. Covenants that (a) are no broader than what is reasonably necessary to protect trade secrets (b) so long as the individual earns enough to qualify as a “highly compensated worker,” a legally defined phrase with a minimum earning level set by the CDLE, currently at $101,250 per year. Note: HB 22-1317 does not permit such covenants for the protection of mere confidential information; the information must instead rise to the level of a “trade secret” as otherwise defined in and protected by Colorado law.
  3. Mere non-solicits for customers (not non-competes) if the worker earns at least 60% of the “highly compensated worker” amount (currently $101,250×60%=$60,750 per year).

Note: Under HB 22-1317 there is no longer an exception permitting non-competes for “executive and management personnel and officers and employees who constitute professional staff to executive and management personnel.”

Second, each of those three exceptions are available only after a new written notice is provided. HB 22-1317 will require that written notice be provided (a) to prospective workers before the worker accepts the offer of employment and (b) to current workers at least 14 days before the covenant will be effective or additional compensation is provided or a change in the employee’s terms or conditions of employment occurs as consideration for the covenants, whichever is earlier. The written notice must be provided in a document separate from whatever document contains the covenants. It must be written in “clear and conspicuous terms in the language in which the worker and employer communicate about the worker’s performance.” It must be signed by the worker. Copies must be made available upon request by the worker once per year. The notice must either provide a copy of the agreement containing the covenant or identify that agreement “by name and state() that the agreement contains a covenant not to compete that could restrict the workers’ options for subsequent employment following their separation from the employer.” The notice must “direct() the worker to the specific sections or paragraphs of the agreement that contain the covenant not to compete.”

HB 22-1317 makes additional revisions to an employer’s ability to impose covenant-like restrictions in the event the employer provides employer-paid training (which does not generally include “normal, on-the-job” training) and in situations involving physicians.

Next, HB 22-1317 prohibits non-disclosure agreements (confidentiality agreements) to the extent they seek to protect “general training, knowledge, skill or experience whether gained on the job or otherwise.” Nor can such an agreement apply to “information that is readily ascertainable to the public, or information that a worker otherwise has a right to disclose as legally protected conduct.”

It is not clear from HB 22-1317 if its written notice requirements apply to non-disclosure agreements (confidentiality agreements). It appears on its face as drafted that HB 22-1317 only requires such written notice for covenants not to compete, which may include non-solicits (to the extent within the above three exceptions) and not for a non-disclosure agreement (confidentiality agreement) that contains no non-compete and no non-solicit.

HB 22-1317 also prohibits contrary choice of law and choice of forum provisions; if a worker resides primarily in or works in Colorado, at the time of termination, Colorado law will apply, and the worker may not be required to litigate outside of Colorado.

HB 22-1317 imposes new penalties and permits the Colorado Attorney General to take action directly against a violating employer. Both employees and the Colorado Attorney General can bring a declaratory action to invalidate violative covenants.

Employers should review all agreements containing covenants in Colorado. This includes not only formal non-compete/non-solicit agreements, but also confidentiality (non-disclosure, aka proprietary information agreements). This includes all agreements such clauses, for example, any equity incentive agreements, restrictive stock grants, stock option awards, etc. Employers are reminded to review not only for going-forward compliance in terms of such covenants but also their choice of law and choice of forum provisions.

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Supreme Court rules CFAA is not available in most employment lawsuits involving trade secrets, NDA’s, non-competes and non-solicits

Resolving a long-running split among the lower courts, the Supreme Court has, unfortunately for employers, held that the CFAA (Computer Fraud and Abuse Act) is not available in most lawsuits against current and former employees involving trade secrets, NDA’s, non-competes and non-solicits. The CFAA is a powerful federal law that allows enhanced remedies for companies who are the victim of someone using their computers “without authorization.” It has, in many jurisdictions, been the frequent basis for lawsuits against current and former employees who use computers and the data on computers, such as customer lists, pricing information and other trade secrets or confidential information, to compete against their employers.

Many jurisdictions had held that, as soon as an employee undertakes a disloyal act — such as violating an NDA, non-compete, or common law breach of loyalty — any subsequent use, including access, of their employer’s computers, including data on those computers, is “without authorization.”

The Supreme Court rejected that position and held, instead, that the CFAA only “covers those who obtain information from particular areas in the computer — such as files, folders, or databases — to which their computer access does not extend. It does not cover those who … have improper motives for obtaining information that is otherwise available to them.”

Why would the Supreme Court strip employers of such a valuable tool for protecting their confidential information? Remember the CFAA was only used in such situations when — and because — the employee violated the company’s rights. The majority was concerned that the CFAA also includes criminal penalties. Indeed the case arose as a criminal prosecution. The majority reasoned that permitting the CFAA to cover those whose use was unlawful due to an “improper motive” would result in a “breathtaking” number of criminal cases. A 3-justice dissent disagreed, but until and unless Congress amends the CFAA, the Supreme Court’s decision has stripped employers of a previously valuable tool.

Employers (and employees) involved in or anticipating lawsuits that include CFAA claims should immediately review the Supreme Court’s decision and its impact on their litigation.

Source: Van Buren v. U.S., case no. 19-783 (6/3/2021).

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Employers don’t face either-or decision when recovering for civil theft

A recent Colorado Supreme Court decision addressed what is known as the Economic Loss rule. Under the Economic Loss rule, a victim of wrongdoing who has a contract claim for the same wrongdoing is limited to recovering only the economic losses for breach of the contract.

In this case, an employee expected to be involved in a lawsuit with his employer. In order to prepare himself for the lawsuit, he emailed himself thousands of company emails to use as evidence. The problem was, the employer contends, that violated his employment agreement and constituted, among other things, theft from the company. When he eventually sued the company, the company counterclaimed for breach of the employment agreement, civil theft, and other claims. The employee cited the economic loss rule, saying that if what he did was wrong, then it constituted a violation of his employment agreement, and as such, his former employer was entitled to recover only the economic losses flowing from the breach of his employment agreement … not any of the other remedies available under its other claims, including statutory penalties and attorney fees.

The Colorado Supreme Court rejected the employee’s argument and held that the economic loss rule did not prohibit recovery especially under the Colorado civil theft statute. As the Court explained, the legislature had created the civil theft statute in order to impose enhanced penalties, which “strongly suggests that the section was intended to serve primarily a punitive, rather than a remedial purpose. ”

The case is a strong reminder to employees who are considering violating their employer’s rights by emailing themselves information. Employees cannot take it upon themselves to stockpile evidence in anticipated litigation. Likewise, the case is a reminder for employers who become the victims of such misconduct that they have strong legal rights of their own.

Source: Bermel v. BlueRadios, Inc., case no. 17SC246 (5/6/19).

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NLRB General Counsel issues memo outlining likely reversals to Obama-era precedents

As previously reported here in this blog, the Trump Board (NLRB Boards are often colloquially but not pejoratively referred to by the President during their term) has begun overruling Obama-era precedents. Further reversals are anticipated. Curious which Obama-era NLRB precedents are likely to be reversed?

NLRB General Counsel Robb issued a controversial memo, shortlisting the cases he thinks most warrant attention. Indeed to call it a shortlist is a stretch. The General Counsel lists 26 categories, that range from employee access to email, to protections for section 7 rights, obscene and harassing behavior, off-duty access to property, the Weingarten right to have a representative present, rights of employees during contract negotiations, successorship and of course the joint employer doctrine, unilateral changes consistent with past practice, information requests during the processing of a grievance, dues check-offs, remedies, deferral, and, well, the list goes on, as will employers’ need to stay tuned to forthcoming developments at the Board.

Source: NLRB General Counsel Memorandum GC 18-02.

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Tenth Circuit reaffirms need for irreparable harm to obtain injunction in trade secrets case

Both federal and state law (respectively, the Defend Trade Secrets Act (DTSA) and Colorado’s Uniform Trade Secrets Act (CUTSA)) authorize a company to obtain a preliminary injunction against a former employee who is using or threatening to use its trade secrets. The Tenth Circuit recently reaffirmed that, among the requirements for such an injunction, is proof of irreparable harm. (The other requirements are (1) substantial likelihood of success once the merits of the case are decided, (2) the threatened injury outweighs the harm of the injunction, and (3) the injunction will not be adverse to the public interest.)

To be “irreparable” the harm that will be suffered but for the preliminary injunction must be the kind that cannot be reversed, repaired or even compensated for in damages.

In this case, the trial court found that the harm the former employer would suffer if no injunction was issued could be compensated for in damages. In other words, quoting the trial court, it could be “reasonably quantified” in terms of dollars, and such an award of damages “would have adequately made (the company) whole.” Typically that is enough to show such harm is not “irreparable” and therefore a preliminary injunction should be denied.

However, the trial court decided that no showing of actual harm was necessary to prove the irreparable harm element; it decided that the element of irreparable harm could instead be presumed. The court so decided “because both the DTSA … and the CUTSA … provide for injunctive relief.”

The Tenth Circuit reversed. The Tenth Circuit held that legislatures can create presumptions of irreparable harm but to do so they need to say so. Both DTSA and CUTSA lack such language. They merely allow for injunctive relief:

DTSA and CUTSA … merely authorize and do not mandate injunctive relief and thus do not allow a presumption of irreparable harm.

Without a presumption of irreparable harm and lacking proof of irreparable harm, the Tenth Circuit reversed.

The case illustrates the need to prove irreparable harm, in order to obtain a preliminary injunction in cases involving trade secrets. The case is also a reminder that irreparable harm cannot exist where monetary damages will make the plaintiff whole.

Source: FIRST WESTERN CAPITAL MANAGEMENT COMPANY v. MALAMED, Court of Appeals, 10th Circuit 2017 – Google Scholar

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$1.3-million verdict overturned, where design was held to be publicly known, despite efforts to keep it confidential as a trade secret

Although publicly known information can be combined in proprietary ways that create a trade secret, the Colorado Court of Appeals held that a design that is not “a secret in the first place,” in other words, that is a matter “of public knowledge or of general knowledge in an industry” is not, itself, a trade secret, no matter how hard its owner works to keep it confidential, the design does not become a trade secret.

Lacking protection as a trade secret, the Court of Appeals reversed a jury’s $1.3-million verdict in this case for misappropriate in violation of Colorado’s trade secret laws.

The decision is a sharp reminder of the limitations imposed by Colorado law on companies seeking to claim trade secrets. The determination whether information constitutes a trade secret is often crucial in non-compete and non-solicit cases.

The case was Hawg Tools, LLC v. Newsco international Energy Services, Inc. — P.3d — (Colo.App. 2016).

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