Arkansas non-compete rules still relevant under new federal trade secrets law

Editor’s note: Amanda Wilson Denton is an attorney specializing in intellectual property and technology law at PPGMR Law, a business-oriented law firm with offices in Little Rock and El Dorado. Opinions, commentary and other essays posted in this space are wholly the view of the author(s). They may not represent the opinion of the owners of Talk Business & Politics.

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Last week, President Obama signed the Defend Trade Secrets Act of 2016 (DTSA), enacting what some have hailed as the first major expansion of federal intellectual property rights in decades. The legislation received overwhelming bipartisan support in the Senate and the House.

Until now, the ability to sue for theft of trade secrets or prevent a former employee from taking confidential information to a competitor existed only at the state level. With the option it grants to right holders to seek recourse through federal courts, DTSA is poised to take the forefront in trade secret actions.

Yet, local laws — such as in Arkansas — are still likely to figure prominently with the newly crafted tool under DTSA to enjoin former employees from working for competitors where there is “evidence of threatened misappropriation” of trade secrets. The remedy is only permitted if it will not conflict with applicable state laws that prohibit “restraints on the practice of a lawful profession, trade or business.” In other words, if a state has weighed in on covenants not to compete, those rules will still be binding.

In July 2015, Arkansas updated its law regarding non-compete agreements with the entry into force of Act 921, which makes these agreements enforceable so long as certain conditions are met.

It sets forth a post-termination restriction of two years, unless circumstances demand otherwise. It also provides a number of factors for courts to consider including the nature of the protectable business interest, the geographic scope of the business and the agreement, and other business characteristics.

The law was a significant development for Arkansas businesses, which can now rely on bright-line rules in crafting acceptable non-compete terms for inclusion in employment contracts. (Act 921 does not apply to medical professional employees and did not codify the State’s treatment of confidentiality or nondisclosure agreements, which are still subject to common law.)

Arkansas businesses operating under the permissions of the state’s non-compete law will want to make note that, along with providing some protections for whistleblowers, the new federal law requires employers to provide notice about whistleblower immunity in any new or updated employment agreements that govern the use of a trade secret or confidential information.

In a May 5 report, the White House highlighted the relationship between trade secrets and non-compete agreements, lending some insight into its eventual support for a law that would strengthen legal remedies for trade secrets while respecting state protections for workers.

Proponents of the Arkansas non-compete law might argue that Act 921 sought to achieve this very balance at the state level, with limitations to prevent over-reaching restrictions on employment. For example, Act 921 states that competition restrictions on employees may not be “greater than necessary” to defend the employer’s protectable business interest, such as trade secrets and other forms of intellectual property.

Once known primarily for their protections of the “secret sauce” of businesses in the food industry, trade secrets have become an integral asset for many of the United States’ most important sectors today: protecting cutting-edge manufacturing processes and agricultural research; warding off hackers from the theft of sensitive research data; and permitting scientific formulas to undergo the rigors of testing before one day becoming subject to publicly registered patents — just to name a few of their modern applications. Increasingly, these innovative industries are at the heart of the fastest growing sectors of the Arkansas economy.

Making sure that the best and brightest are attracted to the Natural State under fair employment conditions and that the ground-breaking companies hiring them can benefit from valuable and well-protected intellectual property rights are indispensable policies for the future growth of the state.