Non-Competition Agreements and Trade Secret Enforcement – Part 3

The previous posts discussed general guidelines utilized in enforcing restrictive covenants and ensuring that the employment agreements are actually enforceable.  So what happens after an actual or threatened breach. Well, that depends.  Are you representing the employer or employee?  Are confidential information and trade secrets out in the open?  Is private information (by regulation or statute) exposed thus necessitating self-reporting? Let’s go through a number of scenarios.

First, you represent the employee in a case that you believe lacks merit (either factually or legally) but, more importantly, would cause the employee to lose his or her current job in the event of any adverse ruling.  Knowing that most non-competition cases start with an application for a temporary restraining order that is usually decided based on affidavits, you may want to consider insisting that the employee testify at the TRO hearing.  Obviously, it is vitally important that the employee remains employed throughout the process and that the new employer remains, at the very least, neutral.  An early ruling against the employee may be all that it takes for the new employer to decide that the employee isn’t worth the trouble and terminate the employee.  So if the employer comes to court with affidavits, have your client there ready to testify in opposition.

Second, always take a hard look at the alleged harm, especially in the early stages where an employer claims irreparable harm.  Employers should be ready to demonstrate how continued competition would harm the business over and above a money judgment.  Are clients that the business likely cannot recover departing?  Can the business properly quantify the lost revenue and profits?  Is a judgment collectible?  Employers should also show how it maintained the secrecy of the information both within the organization and from competitors, and how the data is not readily available in the marketplace.  Perhaps most important in addressing harm is the value of the information taken or traded on.  If the information is protected by state or federal privacy laws, then it is of utmost importance to immediately stop its dissemination, quantify what has been disclosed, and recover whatever data is still unprotected.  Privacy laws often have self-reporting requirements and associated fines.  A data breach should be enough to warrant immediate and permanent injunctive relief.

Finally, ensure that the business has treated other employees similarly.  Remember that a restrictive covenant is not punitive, but rather tied to an employer’s legitimate business interest.  These interests should remain the same notwithstanding who is leaving.