Trade Secrets and Noncompete Blog : Non-Compete Lawyer & Attorney : Epstein Becker Green Law Firm : Trade Secrets & Confidentiality Agreements

In a recent decision in the matter Alliance Bernstein, L.P. v. William Clements, the Supreme Court of the State of New York, New York County (Justice Louis B. York), enjoined a former employee of AllianceBernstein, L.P. (“AllianceBernstein”) from working for a competitor for 60 days, pursuant to a provision in an agreement requiring the individual to provide 60 days notice of his intention to resign. Although the original 60 days extending from the date of his resignation had already elapsed, the Court in effect granted a new 60 day period of non-competition, because the individual had started working for the competitor immediately upon his resignation from AllianceBernstein.

The facts as set forth in the decision were that the defendant individual, a California resident, had no experience in the securities industry when first hired, but AllianceBernstein gave him extensive training and paid for his registration with various securities exchanges. He then became a successful financial advisor. In 2009, AllianceBernstein and the defendant entered into an extensive incentive plan, in which defendant promised (a) to give 60 days notice of his resignation, (b) not to solicit clients or employees of AllianceBernstein during those 60 days, and (c) to keep permanently the confidentiality of AllianceBernstein’s trade secrets and confidential information.

Later, defendant resigned and immediately began working for a competing company, Barclays Global Wealth Management (“Barclays”). On that same day, Barclays sent an email to AllianceBernstein clients informing them of defendant’s change of employment.

Rejecting defendant’s argument that is was Barclays and not him who sent the email, the Court asked “Where did Barclays get these [client] lists, if not from defendant?” and issued a preliminary injunction restraining defendant during a new 60 day period from (a) engaging in any activities or being employed in competition with AllianceBernstein, (b) soliciting clients or employees of AllianceBernstein, or (c) using, copying or sharing the client lists of AllianceBernstein. The injunction was issued even though defendant had been employed at Barclays for more than 60 days. The Court also rejected defendant’s arguments that the matter should be heard in a California court and should be subject to arbitration. The incentive plan included provisions requiring the matter to be heard in a New York court, subject to New York law.

This decision is noteworthy as an example of a court enforcing a provision requiring employees to provide notice of their intention to resign and, further, doing so by enforcing the full notice period despite the expiration of the original notice period which was ignored.
 

Vienna Beef, the official hot dog of the Chicago Cubs, recently struck out in its effort to obtain a temporary restraining order against hot dog rival Red Hot Chicago, Inc. and the grandson of one of the founders of Vienna Beef, Scott D. Ladany.

Among other beefs in its federal court lawsuit, Vienna Beef accused the defendants of misappropriating trade secrets by using Vienna Beef recipes. As evidence of misappropriation, Vienna Beef pointed to Red Hot Chicago advertising material which made reference to using “family recipes” – that is, recipes now owned by Vienna Beef, rather than the defendants.

In response to Vienna Beef’s motion for a temporary restraining order to halt such alleged trade secret misappropriation, Ladany submitted an affidavit stating that Red Hot Chicago does not use the Vienna Beef recipe developed by his grandfather and that Red Hot Chicago’s recipe was in fact independently developed.

Based on this affidavit, the court held that, notwithstanding Red Hot Chicago’s advertising, “Vienna Beef has shown no evidence that the recipes were used in [Red Hot Chicago’s] business and therefore cannot show that it is likely to succeed on the merits of this claim.” Accordingly, injunctive relief was not appropriate on this claim.

The court’s ruling does not mean that Vienna Beef lacks a valid trade secrets claim or that it won’t be able to eventually prove it. Rather, it merely illustrates the challenge of obtaining injunctive relief with a limited evidentiary record, particularly where there are disputed issues of fact.
 

Peter A. Steinmeyer of Epstein Becker & Green, P.C. will be speaking in an upcoming live phone/web seminar entitled "Noncompete Agreements: Latest Litigation Developments" scheduled for Thursday, August 11, 1:00pm-2:30pm EDT.

As readers of this blog well know, employers frequently use noncompete agreements to protect confidential business information from misappropriation by departing employees. With continuing layoffs and business information easily accessible via computers and the Internet, enforceable noncompetes are critical in today’s economy.

Employment attorneys crafting noncompete agreements must avoid unreasonable and overbroad provisions. Courts are increasingly scrutinizing and, in some instances, refusing to enforce agreements that go too far to restrict employee activity.

This program was developed to prepare employment counsel to craft clear and enforceable non-compete agreements that are likely to stand up in court, and will also include discussion of litigation strategies for employment counsel pursuing or defending noncompete litigation.

Perspectives and guidance on these and other critical questions will be offered:

• How can noncompete agreements be structured to avoid being found an unfair restraint on trade and competition?
• What are the key steps for employers to follow, beginning with hiring and prior to a termination, to reinforce the confidentiality of company information with employees?
• What legal considerations should employment counsel take into account when deciding whether litigation is the most appropriate means for addressing an alleged breach of a noncompete agreement?

After presentations of the program’s panelists, there will be a live question and answer session with participants -- to answer your questions about these important issues directly.

For more information or to register >
 

Peter Steinmeyer and I are pleased to announce that our guide, “Non-Compete Laws: Illinois,” written with Christie Tate, is now available in PDF format. See below for more information about this series of guides written and published by our firm, EpsteinBeckerGreen, and the Practical Law Company:

EpsteinBeckerGreen, in Conjunction with Practical Law Company, Wrote and Published Statewide Guides on Non-Compete and Trade Secret Laws

The national law firm of EpsteinBeckerGreen, in conjunction with the Practical Law Company, recently wrote and published statewide guides on the non-compete laws of Illinois, Massachusetts, and New Jersey and on the trade secret laws of the District of Columbia.

These guides, which were written by EpsteinBeckerGreen's attorneys in a "question and answer" format, address non-compete agreements, or trade secret and confidentiality laws, between employers and employees. The three non-compete law guides focus on enforcement and drafting considerations for restrictive covenants, such as post-employment covenants not to compete and the non-solicitation of customers and employees. The trade secret law guide focuses on the legal requirements related to protecting trade secrets and confidential information.

Here is a list of the aforementioned guides:

• "Trade Secret Laws: District of Columbia" – written by Kara M. Maciel and George B. Breen

• "Non-Compete Laws: Illinois" – written by Peter A. Steinmeyer, David J. Clark, and Christie Tate

• "Non-Compete Laws: Massachusetts" – written by Barry A. Guryan

• "Non-Compete Laws: New Jersey" – written by James P. Flynn and Amy E. Hatcher

Guides for Connecticut, Maryland, and Virginia, as well as a guide regarding Illinois Trade Secrets, will be published soon.

Update: “Non-Compete Laws: Connecticut" – written by David S. Poppick – is now available. 

Last week, in the case of Lucht's Concrete Pumping, Inc. v. Horner, the Colorado Supreme Court held that the continued employment of an at-will employee is adequate consideration for a noncompetition agreement.  The Court explained that if this was not the case, employers would have an incentive to terminate at-will employees and condition their re-hire on the execution of a noncompetition agreement.

Nevertheless, the Court explained that “all noncompetition agreements must be assessed for reasonableness” and that such a “reasonableness” inquiry is fact-specific.  Accordingly, “[t]o the extent that an employer enters into a noncompetition agreement with an employee with the intention of terminating the employee immediately afterwards, the agreement may fail for lack of consideration.” 

Less clear is what would happen if an employer did not have such a malicious intention at the time it required an at-will employee to sign a noncompetition agreement, but nevertheless discharged the at-will employee shortly after obtaining the employee’s signature.  The Colorado Supreme Court’s quotation from a Maryland decision holding that “[w]ere an employer to discharge an employee without cause in an unconscionably short length of time after extracting the employee’s signature to a restrictive covenant through a threat of discharge, there would be a failure of the consideration” suggests that this is an issue to be resolved in future Colorado court cases.

Will treating an individual as an employee rather than an independent contractor – when the parties have agreed to an independent contractor arrangement – preclude enforcement of a non-compete agreement? The Third Circuit Court of Appeals recently answered this question affirmatively, affirming a District Court Order denying an employer’s application for a preliminary injunction.

In Figueroa v. Precision Surgical, Inc., No. 10-4449 (April 12, 2011), Precision and Joseph Figueroa entered into an independent contractor agreement which contained a number of restrictive covenants, including a non-competition provision for a twenty-four month period following the expiration of the agreement. When Precision moved toward treating Figueroa as an employee rather than a contractor, Figueroa balked at the new arrangement and Precision terminated the agreement. Figueroa then commenced a lawsuit against Precision alleging that the restrictive covenants were unenforceable. Precision counter-claimed for injunctive relief, asserting that Figueroa had violated the agreement by working as an independent sales representative for one of its direct competitors.

The Third Circuit affirmed the District Court’s holding that Precision could not demonstrate a substantial likelihood of prevailing on the merits because it appeared that Precision did not abide by the terms of the agreement. The District Court had concluded that Precision had likely breached the agreement by treating Figueroa as an employee, rather than providing him the flexibility of an independent contractor required by the agreement. Additionally, the District Court had found that Precision had failed to pay Figueroa commissions called for by the agreement when it made certain deductions from the commission payments. The court never analyzed the non-compete provision itself.

Although unpublished, this case reminds us that an employer’s breach of a contractual arrangement may impair its ability to enforce a restrictive covenant. What makes this case unusual, however, is that the so-called breach appeared to place the employer in compliance with the law because at first blush, it appeared that the individual was not truly an independent contractor and that the employer properly sought to treat him as an employee.