Trade Secrets & Employee Mobility

On July 30, 2010, in Silguero v. Creteguard, Inc., the California Court of Appeal (2nd District) held that an employee could state a claim for wrongful termination against her subsequent employer when that employer terminated her after having been informed by her former employer that the employee was subject to a non-compete clause. The decision will have important consequences for companies with California employees in industries where non-competition and non-solicitation agreements are common.

In a recent decision issued by the Supreme Court of the State of New York, New York County, a lawsuit brought by Marsh USA Inc. against two former employees and a competitor was sustained in the face of the defendants' challenge to the complaint on grounds of forum non conveniens and failure to state a cause of action. The decision is notable for its application of New York non-competition law to California residents, and Marsh's inclusion of forum selection clauses and choice of law provisions in its agreements with the individual defendants appears to have enabled it to avoid the draconian effect of California law upon those individual's non-compete agreements.

When hiring new employees, you can minimize the risk of inadvertently becoming embroiled in trade secret litigation by taking a few simple steps.

So far, Illinois courts have not followed a 2009 Illinois appellate decision, Sunbelt Rentals, Inc. v. Ehlers, 333 Ill.Dec. 791, 915 N.E.2d 862 (Ill. App. Ct. 2009), which rejected the "legitimate business interest" test long applied as a threshold issue by Illinois courts when deciding the enforceability of a restrictive covenant.

On June 17, 2010, in Ontario v. Quon, the United States Supreme Court decided that the City of Ontario, California could review the non-work-related text messages to and from a City police officer on a City-issued electronic pager. Although the opinion involved a governmental employer and was largely grounded in a 4th Amendment analysis, private employers can take some comfort from Supreme Court's express holding that the review of the officer's personal text messages on the employer-issued pager could be "regarded as reasonable and normal in the private-employer context."

A recent Third Circuit decision, Pharmethod v. Caserta, provides what amounts to a primer on Pennsylvania non-compete law.

An action pending in federal court in New York demonstrates that the Computer Fraud and Abuse Act ("CFAA") should not simply be added to an employer's complaint against its former employees and a competitor, primarily alleging common law claims sounding in misappropriation of trade secrets and unfair competition, in connection with the alleged poaching of the employer's clients. In a recent decision, the Court dismissed the state law claims, finding that they formed the real body of the case, and retained jurisdiction over the CFAA claim. The CFAA claim is now the subject of defendants' motion to dismiss, on the grounds that the former employees had authorized access to the computer systems of the employer, and therefore the statutory prerequisites to state a claim were not met.

Peter A. Steinmeyer and Jake Schmidt recently published an updated and expanded guide to drafting enforceable non-competition agreements in Illinois, addressing the Illinois Appellate Court's Sunbelt Rentals decision and the proposed "Illinois Covenants Not to Compete Act."

There has been a serious push to clarify the way Massachusetts regulates noncompetition agreements, and a bill attempting to reach a compromise between freedom of movement for employees and protection of employers' business interests has been making its way through the legislature.

On February 4, 2010, the United States District Court for the District of Maryland granted summary judgment to Plaintiff TEKsystems, Inc., a leading technical staffing and services company, and enjoined its former Director of Strategic Accounts, Jonathan Bolton, from violating certain restrictive covenants contained in his Employment Agreement