New England Biz Law Update
Courts routinely enjoin a company’s former employees from using or disclosing the company’s trade secrets, even where the employee has not signed a non-disclosure agreement. However, will courts in protecting a company’s trade secrets go so far as to enjoin a former employee from working for a competitor, even though she never executed a non-competition agreement?
What if the company demonstrates that the former employee inevitably will use or disclose the company’s trade secrets if she is allowed to work for a competitor?
These issues are at the center of a legal debate being waged in courts throughout the country over the “inevitable disclosure” doctrine.
Under this principle, a court may enjoin an individual from working for a competitor of his or her former employer – even in the absence of a non-competition agreement – if necessary to prevent the “inevitable disclosure” of the former employer’s trade secrets.
Courts in Illinois and Iowa have expressly adopted the doctrine, and courts in several other states have at a minimum impliedly adopted the doctrine. Conversely, courts in New York and California have expressly rejected the doctrine.
To date, no New England court has issued a published opinion adopting or rejecting the “inevitable disclosure” doctrine. How are New England courts likely to decide the issue?
Two Obstacles
There are at least two obstacles to the adoption of the inevitable disclosure doctrine by courts in the region. First, in each of the New England states, the law allows, and even encourages, employees to change employers freely. In the absence of non-competition agreements, the law generally does not restrict employees from changing employers.
Second, non-competition agreements are generally enforceable in New England states, in contrast to California where the enforcement of such agreements is prohibited by statute. However, non-competition agreements are enforceable in New England courts generally only to the extent that they are reasonable and necessary to protect the employer’s legitimate interests, including the protection of trade secrets. Moreover, New England courts will not enforce non-competition agreements that are not supported by consideration. Similarly, a non-competition agreement will not be enforced where the employee signed the agreement under duress.
The Uniform Trade Secrets Act (UTSA), which has been adopted by every New England state except Massachusetts, may provide a way to overcome the obstacles to the adoption of “inevitable disclosure.”
The UTSA expressly authorizes courts to enjoin the “threatened misappropriation” of trade secrets. Generally, states that have adopted the inevitable disclosure doctrine have relied on this authorization in the UTSA.
Accordingly, there is reason to suspect that the New England states that have adopted the UTSA also may adopt the inevitable disclosure doctrine. In 2002, a Connecticut trial court enjoined a defendant from working for a competitor of his former employer in order to protect the former employer’s trade secrets.
The court stated that despite the defendant’s best intentions, it seems “virtually impossible” the defendant would not utilize his former employer’s trade secrets on behalf of his new employer. While the defendant had a non-competition agreement with his former employer, the court explicitly decided the case based on the UTSA rather than the covenant not to compete.
Massachusetts Courts
Unlike the other New England states, however, Massachusetts has not adopted the UTSA. To date, Massachusetts courts have not yet directly addressed whether “inevitable disclosure” is the law of the Commonwealth, however, they have come close, and the doctrine has not fared well.
For example, in one case, the employer made repeated efforts to persuade the employee to sign a non-competition agreement. The employee refused.
When the employee terminated his employment and began working for a competitor, the former employer sued. The court ruled in favor of the former employee, stating “[w]hile [the employer] was free to terminate [the employee] for his refusal to sign a [non-competition] Agreement, it chose instead to drop the subject and hope for the best. [The employer’s] regrets cannot now create a binding agreement where [the employer], largely by its own inaction, failed to obtain one.”
In another case, the court ruled in favor of the former employee and against his former employer, who had sued for misappropriation of trade secrets. The court stated “[i]f this Court followed the plaintiff’s reasoning, any employee who was exposed to confidential information during his or her employment would be barred from working for a competitor, regardless of contractual obligations, based on the mere threat of misappropriation.”
Finally, in a third case, three former sales employees of a company left to work for a competitor, deleting computer files before they left and taking with them a substantial number of documents containing their former employer’s confidential business information.
The three former employees did not have non-competition agreements with their former employer. The court enjoined the former employees from using or disclosing confidential information but refused to enjoin them from working for the competitor.
“The [former employees’] conduct here . . . was dishonest, destructive, and obviously, completely unprofessional. However, this behavior does not entitle [the former employer] to a non-competition order as a sanction. [The former employer] did not require these employees to sign any non-competition or non-solicitation agreements, and it is not entitled to protection from the court against competition that these defendants may give it, as long as the defendants do so by legitimate means.”
New England’s courts have not resolved the debate over “inevitable disclosure.” In the meantime, companies concerned that departing employees will inevitably disclose their trade secrets seriously should consider requiring employees to enter into non-competition agreements and should not rest in the hope that courts will come to their aid.
John R. Bauer is an associate and a member of the litigation group at Ruberto, Israel & Weiner. He has experience in commercial and intellectual property disputes, including trade secrets disputes, non-competition agreements, trademarks and copyright matters. He can be reached at [email protected] or 617-742-4200.
