January 17, 2023 As a follow-up to Weston Hurd’s January 9, 2023, news alert regarding the Federal Trade Commission’s (FTC’s) proposed rule which would nullify nearly all non-competition agreements, and as identified in that alert, the U.S. Chamber of Commerce (Chamber) has indicated that it will likely bring suit against the FTC if its proposed […]
January 9, 2023 On January 5, 2023, the Federal Trade Commission issued a proposed rule which would, in effect, nullify all non-competition agreements (non-competes) between businesses and their employees or independent contractors based on the determination that non-competes constitute unfair methods of competition. See Non-Compete Clause Rulemaking | Federal Trade Commission (ftc.gov). If adopted in […]
Ohio Supreme Court Finds That Insurance Policy Does Not Cover Ransomware Attack, As Computer Software Cannot Experience Direct Physical Loss Or Physical Damage Required Due To The Lack Of A Physical Existence. In a December 27, 2022 decision, the Ohio Supreme Court, in EMOI Servs., L.L.C. v. Owners Ins. Co., Slip Opinion No. 2022-Ohio-4649, issued […]
Ohio Supreme Court Finds No Business Income, Property Damage, Extra Expense, Or Civil Authority Coverage for Covid – as the Mere Presence of Covid In the Community or on Surfaces at Business Premises or via Infected Persons Being On the Premises Does Not Constitute Physical Loss or Damage to Covered Property In a December 12, […]
Weston Hurd is honored to be recognized in the U.S. News-Best Lawyers® 2023 “Best Law Firms” rankings. Overall, Weston Hurd garnered 12 practice rankings, including a National ranking in Insurance Law and Tier 1 Metropolitan rankings in Construction Law (Columbus), Insurance Law (Cleveland), Litigation-Insurance (Columbus), and Personal Injury Litigation-Defendants (Cleveland and Columbus). According to Best Lawyers, “The U.S. […]
Weston Hurd is pleased to welcome back Paul M. Shipp who rejoins the firm as a Partner. Paul began his legal career as an Assistant Cuyahoga County Prosecutor and most recently, was the founder and managing member of The Paul Shipp Law Firm. Paul is a seasoned litigator whose experience includes white collar criminal defense, criminal […]
The intent of this issue of the Architects and Engineers Newsletter is to give an overview/comparison of the Owner A/E Agreements that are commonly used in Ohio. The focus is on those provisions that are problematic and can become major liability pitfalls. The form documents include Consensus, DBIA, OFCC, and EJCDC. AIA documents that are […]
Weston Hurd is pleased to announce that a record number of attorneys are recognized in The Best Lawyers in America© 2023 including David Patterson as “Lawyer of the Year” in Construction Law. Best Lawyers® uses a methodology “…designed to capture, as accurately as possible, the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area […]
January 17, 2023
As a follow-up to Weston Hurd’s January 9, 2023, news alert regarding the Federal Trade Commission’s (FTC’s) proposed rule which would nullify nearly all non-competition agreements, and as identified in that alert, the U.S. Chamber of Commerce (Chamber) has indicated that it will likely bring suit against the FTC if its proposed ban is adopted.
The Chamber is the country’s largest business trade group and has issued a statement indicating that the proposed ban is “blatantly unlawful.” (https://www.uschamber.com/finance/antitrust/the-ftcs-noncompete-rulemaking-is-blatantly-unlawful) As predicted, the Chamber argues that such a ban would contradict numerous states’ statutory and common laws regarding the interpretation and enforcement of non-compete clauses in employment and independent contractor agreements. The Chamber’s stance is that the FTC does not have authority to promulgate such a rule based on the limited scope of Section 5 of the Federal Trade Commission Act banning unfair methods of competition. The Chamber and some legal observers believe that the proposed rule would exceed the FTC’s mandate and undermine legislative authority by adopting a rule which would act as an enforceable law, a mechanism that is uniquely invested solely within the legislative branch.
Indeed, there is already legislation that has been introduced in the U.S. Senate which would effectively result in a similar ban. Senate Bill 483, dubbed the Workforce Mobility Act of 2021 (https://www.congress.gov/bill/117th-congress/senate-bill/483) would prohibit the use of “non-competition agreements in the context of commercial enterprises except under certain circumstances.” This bill has been introduced but no additional action has been taken on it since then, though that may change in light of the FTC’s newly proposed rule. The bill, like the proposed FTC rule, would carve out an exception for the seller of a business who would agree, as part of that sale, to refrain from competing with the buyer in a similar industry within geographic areas where the business that was sold conducted business prior to the agreement.
It seems inevitable that the FTC’s proposed rule will be contested in court when it is adopted and enforced by the FTC. It is also likely that industry groups other than the Chamber may seek judicial intervention to prohibit the rule’s adoption. However, even should such judicial actions provide relief to the Chamber and other industry groups, there is the possibility that legislation already introduced in Congress may receive additional attention and eventually result in a similar outcome.
While certainly a non-compete ban is likely to be mandated in the immediate future, as it is possible if not likely that a court would stay enforcement of the rule, once adopted, until the validity of the FTC’s authority has been judicially established, the writing is on the wall as to treatment of non-competes at the federal level. This, in and of itself, should put employers on notice that, if they choose to enter into employment agreements or independent contractor agreements, they should ensure that severability clauses are included therein so that, if a non-compete provision is deemed unenforceable, such will not render the entirety of the employment or independent contractor agreement void. Furthermore, the agreements’ non-disclosure and non-solicitation clauses should be reviewed so, should the non-compete terms be voided either through executive or legislative action, those remaining restrictive covenants would remain viable and provide a level of protection to employers’ trade secrets, intellectual property, and other proprietary information which an employee may have access to during his or her term of employment. With those protections in place, even should the employee be free to immediately compete with a previous employer without any geographical or temporal restrictions, the agreement would still preclude the disclosure of protected information acquired with the previous employer and would ensure that the employee could not solicit customers or clients of past employers.
If you are an employer with current employment or independent contractor agreements or wish to seek the protections which such an agreement may offer, do not hesitate to contact Matthew Seeley or any of the employment attorneys at Weston Hurd LLP for further information and assistance in the preparation and review of such agreements.
Matthew K. Seeley is a partner at Weston Hurd LLP who focuses his practice on business, commercial litigation and labor and employment matters. He can be reached at mseeley@westonhurd.com or 216-687-3291.
January 9, 2023
On January 5, 2023, the Federal Trade Commission issued a proposed rule which would, in effect, nullify all non-competition agreements (non-competes) between businesses and their employees or independent contractors based on the determination that non-competes constitute unfair methods of competition. See Non-Compete Clause Rulemaking | Federal Trade Commission (ftc.gov). If adopted in its current form, this rule will create a massively destabilizing event for the many employers which utilize non-competes in order to stay in business.
The proposed rule would be a seismic shift for employers who rely on non-competes to protect their investments through training employees/contractors and providing them proprietary and sensitive business information. It would also impose on employers specific notice obligations to both current and past employees/contractors of recission of the non-compete and require that such notice be made through written or digital methods within 45 days of recission of the existing non-competition clause. The proposed rule also recommends specific language that should be included in that notice.
Expectedly, the sole exception to this mandatory recission is where the non-compete is correlative to the sale of a business, where the seller agrees not to form a competing business after he has received compensation from the sale of that business. This exception has long been held enforceable in almost every state; however, this is the only exception specifically set out in the proposed rule.
It should be noted that the proposed rule does not apply to non-disclosure or non-solicitation clauses included in employment/contractor agreements that also contain non-compete agreements. However, the proposed rule specifically states that if a non-disclosure agreement is overly broad, it shall be treated as a non-compete agreement and therefore be rendered unenforceable.
Legal challenges to the FTC’s proposed rule are seemingly inevitable. Certainly, it is anticipated that many chambers of commerce and other industry associations and councils will fight adoption of the proposed rule vigorously. The argument from these groups will likely be that the FTC does not have the authority to take this action; that such action can be mandated only through congressional legislation. As such, if the rule is implemented, it will likely not take effect immediately or in its current form.
Nonetheless, employers who utilize non-compete agreements must be vigilant as if the rule is adopted and remains effective during any legal challenges. The employer must be in compliance with the rule’s very specific language requirements and, as importantly, immediately revise their employment and independent contractor agreements to remove non-compete clauses and to bolster and strengthen non-disclosure/non-solicitation clauses as strongly as possible in order to protect their interests, especially as they relate to proprietary information, intellectual property and trade secrets.
For more information regarding this proposed rule, and how to avoid legal pitfalls for non-compliance, please do not hesitate to contact me or one of the other employment law attorneys at Weston Hurd LLP.
Matthew K. Seeley is a partner at Weston Hurd LLP who focuses his practice on business, commercial litigation and labor and employment matters. He can be reached at mseeley@westonhurd.com or 216-687-3291.
In a December 27, 2022 decision, the Ohio Supreme Court, in EMOI Servs., L.L.C. v. Owners Ins. Co., Slip Opinion No. 2022-Ohio-4649, issued a ruling that a businessowners insurance policy does not cover losses that resulted from a ransomware attack on computer software systems. The Ohio Supreme Court found that such a ransomware attack causes no “direct physical loss of or damage to” the software, which is required for coverage under the policy.
There, EMOI, a computer software company that develops software to provide medical offices with service and support to set appointments, keep records, and track billing, became a target of a ransomware attack when a hacker gained access to EMOI’s system and encrypted certain files. The hacker demanded payment of three bitcoins – worth $35,000 at the time – in exchange for a decryption key. EMOI submitted the loss to its insurer, Owners Insurance Company, after EMOI paid the ransom.
The Owners insurance policy included an Electronic-Equipment Endorsement that provided coverage for direct physical loss of or damage to “media” owned by EMOI, as well as the costs to research, replace, or restore information on “media” that incurred direct physical loss or damage. The policy defined “media” to include “computer software and reproduction of data contained on covered media.”
The Court concluded that “software is an intangible item” and it “cannot experience direct physical loss or direct physical damage,” such that the businessowners policy’s Electronic-Equipment Endorsement did not apply. The Ohio Supreme Court specifically rejected EMOI’s arguments that computer software was “media” and that the policy contemplated that software can be damaged, despite the fact that it is nonphysical and even where there is no damage to hardware. The Court recognized that, while “computer software” is included in the definition of “media”, it is included “only insofar as the software is ‘contained on covered media.’” (emphasis original).
The Court held that “covered media” means “media that has a physical existence” and “the policy requires that there must be direct physical loss or damage of the covered media containing the computer software for the software to be covered under the policy.” The Court further stated that, since software does not have a physical existence and is “information stored on a computer or other electronic medium,” it is entirely intangible. Thus, Owners owed no coverage under its policy with EMOI for the ransomware attack or any losses associated with it.
This decision follows the recent Ohio Supreme Court decision, in Neuro-Communication Services, Inc. v. Cincinnati Insurance Company, Slip Opinion No. 2022-Ohio-4379. There, the Ohio Supreme Court similarly found the presence of COVID-19 in the community, on or in business surfaces, or in infected people on the business premises, did not constitute “direct physical loss” or “damage to property” necessary to trigger coverage under similar policies. While the direct physical loss or damage provision in the Neuro-Communication case involved property, the Ohio Supreme Court, in EMOI Servs., L.L.C., similarly recognized that the policy there required direct physical loss of or direct physical damage to, electronic equipment or media.
For questions about this decision, please contact Weston Hurd attorney Patrick M. Cannell, 216.687.3331 or pcannell@westonhurd.com.
EMOI Servs., L.L.C. v. Owners Ins. Co., Slip Opinion No. 2022-Ohio-4649
Neuro-Communication Services, Inc. V Cincinnati Insurance Company, 2022-Ohio-4379
In a December 12, 2022 decision, by a 6-1 vote, the Ohio Supreme Court issued a ruling that likely sounds the death knell for claims for “Business Interruption,” Property Damage, Extra Expense and Civil Authority coverage arising from governmental orders that limited or shut down businesses during the Covid pandemic. See Neuro-Communication Services, Inc. V Cincinnati Insurance Company, 2022-Ohio-4379.
The Ohio Supreme Court reasoned that the presence of Covid in the community, on or business surfaces, or in infected people on business premises, did not constitute “direct physical loss” or “damage to property” necessary to fit within the grants of coverage for Business Interruption, Property Damage, Extra Income, or Civil Authority coverage claims.
The Court ruled that the term “loss” is clear: for coverage to be provided, “ * ** there must be loss or damage to Covered Property that is physical in nature. Such loss or damage does not include a loss of the ability to use Covered Property for business purposes.” Id. at Paragraph 17.
The Court rejected the argument that the absence of a “virus” exclusion, and the fact that the carrier may have put a specific virus exclusion in later insurance policies, is an indication that a “direct loss” to Covered Property can occur even in the absence of a physical alteration of that property.
Many Ohio lower courts, and federal courts, hearing Ohio Business Interruption Covid coverage claims, had stayed their cases pending today’s ruling from the Ohio Supreme Court.
Neuro-Communication Services, Inc. V Cincinnati Insurance Company, 2022-Ohio-4379
Weston Hurd is honored to be recognized in the U.S. News-Best Lawyers® 2023 “Best Law Firms” rankings. Overall, Weston Hurd garnered 12 practice rankings, including a National ranking in Insurance Law and Tier 1 Metropolitan rankings in Construction Law (Columbus), Insurance Law (Cleveland), Litigation-Insurance (Columbus), and Personal Injury Litigation-Defendants (Cleveland and Columbus).
According to Best Lawyers, “The U.S. News-Best Lawyers® ‘Best Law Firms’ rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys, and review of additional information provided by law firms as part of the formal submission process.”
The depth and breadth of Weston Hurd’s practice areas was further recognized with metropolitan rankings in commercial litigation, employment law-management, litigation-labor & employment, labor law-management, medical malpractice law-defendants, personal injury litigation-plaintiffs, product liability litigation-defendants, and real estate law.
The full list of Weston Hurd’s rankings include:
Weston Hurd is pleased to welcome back Paul M. Shipp who rejoins the firm as a Partner. Paul began his legal career as an Assistant Cuyahoga County Prosecutor and most recently, was the founder and managing member of The Paul Shipp Law Firm.
Paul is a seasoned litigator whose experience includes white collar criminal defense, criminal defense, business litigation, and general civil litigation.
As an extension of his work in the white collar defense realm, Paul has developed a sophisticated practice in corporate compliance (the rules and agencies governing corporate operations, government contracting, human resources, health care, real estate, finance, and securities).
Paul received his B.A. cum laude in 2002 from Bowling Green State University and obtained his J.D. cum laude in 2006 from Cleveland-Marshall College of Law.
In addition to his Ohio Bar admission, Paul is admitted before the United States District Courts for the Northern and Southern Districts of Ohio, the United States District Court for the Eastern District of Michigan, the United States District Court for the Eastern District of Texas, the United States Court of Appeals for the Sixth Circuit, and the United States Bankruptcy Court for the Northern District of Ohio.
Within the legal community, Paul is a member of the Cleveland-Marshall College of Law Alumni Association, a Life Member of the Eighth District Judicial Conference, and recognized as an Ohio Rising Star in White Collar Criminal Defense by Super Lawyers.
The intent of this issue of the Architects and Engineers Newsletter is to give an overview/comparison of the Owner A/E Agreements that are commonly used in Ohio. The focus is on those provisions that are problematic and can become major liability pitfalls. The form documents include Consensus, DBIA, OFCC, and EJCDC. AIA documents that are unaltered are not at issue. This article is not all inclusive of the potential liability pitfalls but rather is an effort to address the most glaring.
The entire newsletter can be read by clicking: 2022 – Architects and Engineers Newsletter – Fall
Weston Hurd is pleased to announce that a record number of attorneys are recognized in The Best Lawyers in America© 2023 including David Patterson as “Lawyer of the Year” in Construction Law.
Best Lawyers® uses a methodology “…designed to capture, as accurately as possible, the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area.” Best Lawyers® is the only purely peer-review™ guide to the legal profession.
Read the entire announcement by clicking here: Record Number of Attorneys from WESTON HURD LLP Recognized in THE BEST LAWYERS IN AMERICA 2023 Including “LAWYER OF THE YEAR” Award
