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

The New York State Supreme Court recently shot down a request to enjoin two former salesmen and their new employer from tortiously interfering with a real estate investment firm’s business, from interfering or contacting its customers or using or exploiting its trade secrets. See Koenigsberg v. Silber Investment Properties Ltd., Index No. 20127/08 (Nassau County March 17, 2009). The two former salesmen claimed that they were not actual employees of the real estate investment firm, but independent contractors, that they did not sign non-compete contracts and that the alleged client lists were their personal property. The plaintiff sought to enjoin the former sales representatives' solicitation of clients based on its contention they misappropriated trade secrets (i.e., the client lists). In disagreeing with the plaintiff, the Court referred to plaintiff's prior course of conduct with other former sales representatives. Specifically, the Court pointed out that there was no indication that the plaintiff had prohibited other sales representatives from soliciting clients after they left, had required other sales representatives to sign non-solicitation agreements, or had prevented other sales representatives from keeping their own lists of customers. The Court stated "[i]f AIP did not require that its salespeople guard the secrecy of the customer list during their service with AIP or attempt to prevent the AIP salesmen from using the information in the list once they left AIP's service, this is an indication that the customer list was not a 'trade secret.'" The Court further reasoned that the plaintiff failed to set forth "what 'considerable efforts' were expended in developing the purported secrets." Nor did the plaintiff establish how the client list was created.

The case serves as a reminder to employers to take appropriate and reasonable steps to protect their confidential information and trade secrets. Such steps may include limiting access to the confidential information, requiring persons with access to such information to execute written confidentiality and/or non-solicitation agreements, and requiring departing employees to return company property and documents.

Under Florida law, where an employment contract expires by its terms and the parties continue to perform as before, an implication arises that they have mutually assented to a new contract containing the same provisions as the old.

But this principle does not apply to non-competes and other restrictive covenants contained in employment contracts, as illustrated by a recent decision by the Third District Court of Appeal, Zupnik v. All Florida Paper, Inc., Case No. 3D08-1371 (Fla. 3d DCA, Dec. 31, 2008).

Zupnik had signed a two-year employment contract with All-Florida. The contract provided that "during the Employment Term and within twelve (12) months from the termination of said term, he or she will not directly or indirectly … compete against ALL FLORIDA, within a fifty (50) mile radius of where ALL FLORIDA then engages in business[.]" The contract further provided that "[a]t the expiration of this two (2) year contract, the employee can exercise an option to remain in ALL FLORIDA’S employ as an at-will employee." But the contract did not contain language specifying that the restrictive covenants would continue beyond the two-year term if Zupnik remained an at-will employee after the two-year term expired.

After the expiration of the initial two-year term, Zupnik remained an All Florida employee for an additional two years, but the relationship was not formalized in a written document. Zupnik then formed his own company intending to serve his long-standing customers. All-Florida sued Zupnik and the trial court entered an injunction enforcing the non-competition covenant. The Third DCA reversed. Citing its decision in Sanz v. R.T. Aerospace Corp., 650 So. 2d 1057 (Fla. 3d DCA 1995), the court held that "post-termination restrictions expire upon the termination of an agreement for a specific term, even if an employee remains an at-will employee after the term of the written agreement expires."

For employers, the Zupnik case highlights the importance of drafting non-competes and other restrictive covenants carefully. Where an employment contract is for a specified term (e.g., two years), employers should include language in the contract which provides that the restrictive covenants contained in the contract continue beyond the specified term if the employee remains an at-will employee after the term has expired.