As the old adage goes, “Knowledge is power.” For certain types of businesses in particular, such as those which employ salespeople, scientists, or software developers, the close guarding of sensitive trade secrets is critical to long-term sustainability. When an employee violates a non-compete agreement and trade secrets are released or otherwise exploited, employers may be entitled to take serious legal actions to protect their interests.
Non-Compete Agreements and Trade Secrets
A non-compete agreement, also known as a restrictive covenant, can be included within an employee’s contract, or provided separately as its own document. In either case, a non-compete agreement prevents an employee from working as an explicit rival to their employer (within a certain geographic location and time frame). Non-compete agreements are designed not to be punitive, but simply to protect businesses from being destroyed by their resources, leads, or other private information being taken advantage of elsewhere.
Trade secrets are among the information meant to be protected from exploitation by non-compete agreements. What “counts” as a trade secret is evaluated on a case-by-case basis. However, the general requirements are that:
- The information gives Business X a commercial advantage over Business Y.
- The information is of a sufficiently secret nature.
- The information is of sufficient value to its business.
Trade secrets can be formulas, patterns, equations, databases, or other forms of information.
Enforcing Non-Compete Agreements in Pennsylvania
When a former employee violates their non-compete agreement and/or leaks protected trade secrets, the employer may be entitled to take legal action, such as filing a lawsuit to remove the former employee from their new position. However, for a non-compete agreement to be considered enforceable in the first place, there are certain requirements which that agreement must meet.
- The non-compete agreement must be significant to the employee-employer relationship (similar to a contract breach being demonstrably “material”).
- The restrictions imposed by the non-compete agreement must be significant for the employer’s overall profitability and chances of success.
- The non-compete agreement must be deemed reasonable in terms of the restrictions it places upon timing and geographic location. (For example, expecting an employee not to “compete” for a period of several years is likely to be found unreasonable, from the perspective of the employee who needs to make a living.)
Clearly, these guidelines do not have much to offer in terms of “hard” figures and thresholds. Rather, like the status of a trade secret, the legitimacy of a non-compete agreement is judged in court on a case-by-case basis. If a non-compete agreement is ruled to be unreasonable or fails to meet any of the guidelines above, it may not be legally enforceable by an employer.
In some cases, pursuing expedited litigation may be an employer’s only hope of containing their loss before serious damage occurs. For example, expedited litigation may be desirable in the case that a former employee’s actions will result in immediate harm to the aggrieved business. When this is the case, an employer may wish to seek a preliminary injunction, which can provide legal relief more rapidly than litigation proceeding at the standard pace.
In order to procure a preliminary injunction, again there are guidelines which must be met — and again, these guidelines are not firmly quantifiable, but fall to the discretion of a given judge. Some of these guidelines are listed below.
- The preliminary injunction must be deemed necessary over other forms of restitution (i.e. a preliminary injunction is needed because monetary compensation is not sufficient to correct the damages).
- The preliminary injunction must be demonstrated able to restore the employer’s state of affairs to where it was prior to the damages wrought by the former employee.
- Granting of the preliminary injunction will not harm the greater public.