All businesses have information they wish to keep confidential. Such “trade secrets” are often critical to a company's success. To protect such information, companies often require key employees to sign confidentiality agreements. Therefore if an employee leaves and proceeds to divulge trade secrets to a competitor, the company can bring an action for breach of contract.
But a breach only exists when confidential information is actually disclosed—or when an employee has “indicated an unequivocal intent” to make such disclosures. It is not enough to assume a breach has occurred simply because an employee leaves for another job, as a recent decision by a federal court in upstate New York illustrates.
Rich Products Corp. v. Bluemke
This case involves a dispute between a company and one of its former employees. The employee signed a confidentiality agreement in which he acknowledged a restriction to “use for myself or other or divulge or convey to others any confidential information, knowledge, or data” belonging to the company. This restriction applied even after the employee left the company.
In 2012, the employee decided to leave the company for a sales manager position with a competing firm. The company notified the employee and his new employer this would violate the confidentiality agreement. The company argued there was no way the employee could ever work for the employer. The employee disagreed, and the company filed suit in federal court, alleging breach of contract. The company also accused its competitor of interfering with the confidentiality agreement.
A federal judge dismissed the lawsuit in an opinion dated January 15th of this year. Basically, the judge said the company had no evidence there was an actual or imminent breach of the confidentiality agreement. The company argued the breach existed simply “by reason of Defendants' position that they are free to use and disclose this confidential technical information.” But the company's representatives admitted to the judge they did not actually have any knowledge that the former employee disclosed confidential information. The ex-employee testified he never made any such disclosures, nor did his new company ever ask him to do so. The company failed to produce any evidence to rebut this testimony. Instead, the company argued the ex-employee “intended” to disclose confidential information. The judge said that was not enough to sustain the company's claim for breach of contract.
Similarly, the company could not support its arguments for the ex-employee's breach of fiduciary duty or “unfair competition” on the part of his new employer. Under New York law, a business that acts in bad faith to appropriate a competitor's trade secrets may be liable for engaging in unfair competition. But as there was no evidence of the employee's disclosure of confidential information, there could logically be no evidence of unfair competition.
Protecting Your Interests
Although there may have been no breach in this case, confidentiality agreements are still an important tool for businesses seeking to protect trade secrets and other intellectual property. An experienced New York business attorney can advise you on drafting and enforcing such agreements to ensure an unscrupulous employee (or competitor) won't take advantage of you. Contact our office today if you need advice on this or any other business or civil litigation matter.