Can an employer prevent a former employee from working for a competitor in the absence of a non-compete agreement and with no evidence the employee has violated the former employer’s trade secret or confidentiality rights? You would think not, but a couple of cases — infamous in the annals of non-compete law — have imposed a non-compete in these circumstances. The case cited most frequently on this issue is PepsiCo v. Redmond, a 1995 case in which the 7th Circuit affirmed a preliminary injunction ordering the former employee of PepsiCo to cease working for a competitor for six months, despite the fact that the employee did not have a non-compete agreement. Another high profile case prohibiting an employee from working for a competitor, even in the absence of a non-compete agreement, is Bimbo Bakeries USA, Inc. v. Botticella, decided by the 3rd Circuit in 2010. In these cases the employee does have non-disclosure/trade secret agreements. The employer’s argument, based on these, is that the employee will “inevitably” disclose the former employer’s trade secrets or confidential information in the course of working for a competitor.
However, cases where the courts have accepted this theory without evidence of actual misappropriation are almost as rare as hens teeth, and Massachusetts U.S. District Court Judge Denise Casper recognized this when she denied the former employer a preliminary injunction in U.S. Electrical Services v. Schmidt in June of this year.
Inevitably, plaintiffs in these cases argue that a preliminary injunction is essential to prevent the former employee from disclosing trade secrets. After all, the employee, who presumably knows the former employer’s inner-most secrets, is now working for a competitor. How can the employee be expected to resist? And, if the secrets were disclosed, how would the former employer prove that? Too risky, the former employer argues.
However, that argument usually fails, as it should when a non-compete agreement is absent.
Judge Casper said as much: “none of the authorities cited by [plaintiff] stand for the proposition that allegedly inevitable future misuse of trade secrets is by itself sufficient to establish a violation of either common law or statutory obligations regarding trade secrets.” The law does “not show that a party may rely solely on inevitable future conduct, rather than conduct that has actually occurred, to establish a likelihood of success on the merits of a trade secrets appropriation claim or a breach of confidentiality claim, as [plaintiff] seeks to do here.”
In other words, a plaintiff must have proof that trade secrets have been disclosed, not that they might be disclosed in the future.
Despite the strong policy against imposing an injunction based on an “implied covenant not to compete,” and the poor track record held by plaintiffs in these cases, employers keep on trying. It appears that intermittent reinforcement — the rare but occasional win by a plaintiff based on this theory — is enough to keep the hope of such judicial relief alive in the face of bad odds. After all, a plaintiff may think, why not try, I may get lucky!
By the way, it’s my opinion that the plaintiff made a mistake filing this case in federal court, where the judges have less experience with this area of law and generally are more protective of employee job security. It’s not always the case that a non-compete case (or, in this case a quasi non-compete case) will have a better chance of success in Massachusetts state court, but I believe the odds favor it.