Are Non-Compete Clauses Legal Under the Biden Administration?

 

NON-COMPETE PROVISION UPDATE

 

As a result of an Executive Order released this year from the Biden Administration, The Federal Trade Commission (FTC) has been tasked with creating new rules curtailing the use of “clauses or agreements that may unfairly limit worker mobility.” Although non-compete provisions seem to be the focus, it is likely their review will include non-solicitation provisions, no-hire provisions, and non-servicing provisions used by employers. The rulemaking process generally moves slowly and requires several steps including a notice of proposed rulemaking, an opportunity for comment, and FTC’s responses prior to finalizing a rule. Peyton Law will be closely following this evolution, and we look forward to working with you to ensure your employment agreements are in compliance when final rules are published.

 

Did you know that in good times, up to 50% of loans are declined due to improper loan packaging?

This 3-part series provides the basics on evaluating force majeure clauses likely found in the agreements and contracts used by privately held and family-owned small and medium sized companies.

Part 1 describes the steps to determine whether your agreements contain applicable force majeure language; Part 2 takes a deeper look into the definition of the terms in typical force majeure clauses and whether the coronavirus allows nonperformance; and Part 3 guides you through the decision process on whether invoking a force majeure clause is best for your situation.

Force Majeure Distinctions that Companies Need to Know

[Part 2 of 3 in the series “Contracting & Coronavirus”]

We are over a week into social distancing due to the coronavirus (aka COVID-19), and students are schooling from home, the grocery store shelves remain relatively empty, and non-essential physical business locations are closed. It is difficult to find a company that is not feeling the effects of the pandemic. As we come together as a country to make it through these challenging times, our business owners, presidents and CEOs must carefully navigate their company through available options. Some of these decisions will affect their agreements with other struggling companies, which is why it is vitally important to thoroughly understand and comprehend the nuances among force majeure clauses in typical agreements.

This article will help the Owner, CEO, President, and General Counsel to identify nuances in force majeure language. Here are the most important distinctions found in typical force majeure language:

Distinction #1 Timeliness of the Agreement.

For an event to be considered an “Act of God,” and especially for the party invoking force majeure, the event must have been unforeseeable. In the legal world, “unforeseeable” means that an ordinary person could not have reasonably anticipated or expected the circumstances (see https://dictionary.findlaw.com/definition/unforeseeable.html).

Would an ordinary person expect a pandemic? Pandemics have occurred in known history, so isn’t it reasonable that another pandemic might occur? We are all aware that floods, fires, hurricanes, pandemics, strikes, etc. can occur; the issue of timeliness goes to whether we knew it might occur in relation to the contract as we agree to the terms.

On December 31, 2020 Chinese authorities alerted the World Health Organization of the apparent coronavirus epidemic. As of this date, it can be argued that the current pandemic was reasonably foreseeable. Was your agreement signed after this date? Did you or the other party have knowledge of the news reports starting to come out of China? How was anyone supposed to know that this was going to become the major event that it is?

Of course, the facts underlying each situation are always relevant, so it is best to have your general counsel or business attorney review them in relation to the force majeure provision to wording to determine its reach.

Distinction #2 What Legal Standard is Set Forth in the Force Majeure Clause? 

In Part 1, we briefly discussed that causation between the coronavirus and a party’s inability to perform its contractual obligations is required to invoke force majeure. However, the legal standard used to define the causation in force majeure provisioning is also be a critical factor. The force majeure clause may require that performance be “impossible,” or it could invoke a lesser standard such as requiring performance simply be “impeded,” “impracticable,” or “hindered.” Thus, depending on the specific language used in the force majeure clause, a party may not be able to invoke force majeure simply because the ability to perform has become more difficult or expensive. For example, if the party can still fulfil its obligations in an alternate manner or by paying additional sums (such as by obtaining materials or labor from another source, or increasing overtime work for employees), it may not be allowed the release of its obligations. In the alternative, if the relevant standard is less strict, then the party may be able to find relief as the cost or difficulty to perform its part of the agreement increases.

Distinction #3 Variations on Force Majeure Clauses. 

Although force majeure language can appear in a myriad of combinations, it is helpful to compare commonly used clauses. Six (6) partial examples are listed herein; exemplifying defintions of force majeure events, different legal standards, and alternative mitigation requirements.

Obligations Excused if No Reasonable Control: If either Party can provide evidence to the satisfaction of the other that its performance of any of its obligations under this Agreement is prevented by reason of any event or combination of events beyond its reasonable control, it shall be entitled to relief…

Notice Only Required: Upon occurrence of a Force Majeure Event, the non-performing party shall promptly notify the other party that a Force Majeure Event has occurred, its anticipated effect on performance, including its expected duration.

Simple: No party will be liable for nonperformance of any of its obligations under the agreement if its nonperformance was due to a Force Majeure Event as defined below…

Minimizing Damages: Neither Party shall be entitled to claim relief in respect of any period during which it could have complied with any obligation by using its best endeavors to avoid, overcome or minimize wholly or partly the effects of the said event or combination of events….The non-performing party shall use reasonable diligence to minimize damages and to resume performance.

With Definition: No party will be liable for nonperformance of any of its obligations under the agreement if its nonperformance was due to a Force Majeure Event. A Force Majeure Event shall mean any act of God, such as but not limited to; war; riot; civil strife; act of terrorism, domestic  or foreign; embargo; governmental rule, regulation or decree; flood, fire, hurricane, tornado, or other casualty;  earthquake;  strike, lockout, or other labor disturbance; the unavailability of labor or materials to the extent beyond the control of the party affected; or any other events or circumstances not within the reasonable control of the party affected, whether similar or dissimilar to any of the foregoing.

Except for Payment: Neither Party shall liable hereunder for any failure or delay in the performance of its obligations under this Agreement, except for the payment of money, if such failure or delay is on account of causes beyond its control, including labor disputes, civil commotion, war, fires, floods, inclement weather, governmental regulations or controls, casualty, government authority, strikes, or acts of God, in which event the non-performing party shall be excused from its obligations for the period of the delay and for a reasonable time thereafter.

Compare the above examples with the force majeure wording in your agreement, and bring any nuances to the attention of your CEO and general counsel before making a decision on whether invoking a force majeure clause is in your best interest.

This is Part 2 of a 3-Part Series. Part 1, describing the steps to determine whether your agreements contain applicable force majeure language, is available here: Part 1: The 4 Steps to Force Majeure. Part 3 looks closely at the decision making process as a company decides whether to invoke a force majeure clause. If you need assistance determining whether to invoke a force majeure clause, please call or text 484-801-0021 or reach out to Cassandra Ortner at cassandra.ortner@peytonlaw.com. We proudly support the nation’s business owners.

*Janelle Peyton is the CEO and Managing Partner of Peyton Law, a leading boutique law firm designed to provide the highest quality branding, business, and legal services to companies via quarterly subscription called Strategic Legal Solution. Peyton Law offers brand building strategies through corporate and intellectual property law, including business entity formation, buy+sell, contracts, joint ventures, trademarks, patents, licensing, and other growth-related transactions.

 

Santa Clause, Saint Nick, and Father Christmas are references made over and over again this time of the year. A quick search of the United States Patent and Trademark Office (USPTO) database reveals that there are 2,185 trademarks containing the word “Christmas,” and 3,401 which include the name “Santa.” Other trademarks used the terms “candy cane,” “north pole,” and “Kringle.” However, not one of these marks appears to be registered by Santa himself.

Registered trademarks are highly protected, so how is it that Santa can go around using “The North Pole,” “Father Christmas,” and his own name, “Santa Claus” without local and national businesses coming after him for infringement of their trademarks? (Perhaps he gives them extra special presents under the tree on Christmas morning?)

Although there are many things that make the United States a remarkable country for starting and growing a business, one very special right has to do with our trademark common law. “Common law” refers to the rights and rules that are created via the countless decisions made by our judicial system over time. Common law has nothing to do with actual laws, statues, or formal regulations. It is based on the facts and logic used to decide particular arguments and disagreements between the two or more parties to a case. Cumulatively, these decisions form the precedent that becomes our “common law.”

The United States has a strong statue on trademarks (called the Lanham Act) and an entire government organization (the USPTO) dedicated to registering marks and logos; as do other countries that Santa must travel through on Christmas Eve. Unlike most other countries, who have a “first-to-file” system of trademark law, the United States recognizes an ownership right at the first use of the mark. This right attaches immediately when the mark is used in commerce. It is limited to the geographic area of use of the mark, but it endures so long as there is continual and deliberate use of the mark. Continual and deliberate use is reinforced by adding the superscript ^“TM” following the word, phase, image, tagline, or jingle.

The magical thing about common law trademark rights is that they stop competing businesses within the local area from using identical or similar marks. If a nearby business uses another’s mark for a similar type of goods and services, the first company that used the mark can force the infringing company to change their name, and can usually recover damages as well. Therefore, a common law trademark can suppress a later use of a similar trademark.

A common law trademark can also overpower a registered trademark when the common law rights pre-date the registration date of the registered trademark. However, there are some considerable limitations to common law trademark rights verses those registered with the USPTO.

• First, a registered U.S. trademark protects the mark across the entire country, not just within the geographic area of use of the mark.
• Second, a registered trademark is listed in the USPTO database. This makes it easy for potentially competing businesses to discover the mark, and decide not to use it. It essentially places other companies on notice that someone has claimed a right to that particular mark.
• Third, a registered trademark qualifies to use the ^® symbol, rather than the ™ symbol used for common law trademarks.
• Last, and most importantly, a registered trademark allows the owner to file an infringement suit in federal court. The owner has the right to not only recover lost profits, recoup legal fees, and sue for statutory damages; they also have the right to collect triple (3x) damages if the infringement was willful.

My Google research indicates that Santa is 1,747 years old, and goes by over 20 different names, including Santa Clause, Saint Nicholas, Saint Nick, Kris Kringle, and Father Christmas. The Lanham Act was passed in 1946, and its predecessor legislation was passed in 1881. However, our country has protected trademarks under common law since colonial times. Because Santa has been delivering his gifts under his various names and has been utilizing other common terms of the holidays for over 1,700 years, this means that, as per United States trademark common law, Santa is the rightful owner of his tradenames for the delivery of gifts and toys to good boys and girls. And, because he delivers throughout the county, his trademarks enjoy protection throughout the nation.

Santa has nothing to fear when it comes to defending ownership of his tradenames. However, if your company or business is uncomfortable depending on common law rights, and wants to understand available options, please visit us at here to schedule a review of your trademarks or please call or text 484-801-0021 or reach out to Cassandra Ortner at cassandra.ortner@peytonlaw.com. We proudly support the nation’s business owners.

*Janelle Peyton is the CEO and Managing Partner of Peyton Law, a leading boutique law firm designed to provide the highest quality branding, business, and legal services to companies via quarterly subscription called Strategic Legal Solution. Peyton Law offers brand building strategies through corporate and intellectual property law, including business entity formation, buy+sell, contracts, joint ventures, trademarks, patents, licensing, and other growth-related transactions.