THE BLOG
04/28/2014 12:32 pm ET Updated Jun 28, 2014

Inevitable Disclosure Doctrine Prevents Working for Competitors

Frequently non-competition agreements are utilized to prevent an employee from leaving a business and working for a competitor. These agreements are typically enforced if reasonable as to scope, time, and area. In the absence of a non-competition agreement, an employer may achieve a similar result under the inevitable disclosure doctrine. If a court is persuaded that the departing employee will use trade secrets in the new employment, the court may issue an injunction preventing the employee from working for the competitor.

Typically an injunction is only issued if there is evidence that the employee had access to trade secrets, the employers are direct competitors, and the position with the new employer is so similar to the prior position that there is a high likelihood that trade secrets will be used. Courts also desire evidence of the departing employee's misconduct. An inevitable disclosure argument is easier to make against an employee who has threatened to go to work for a competitor. The good faith or bad faith of the employee and employer are critical in obtaining an injunction.

A frequently cited inevitable disclosure decision involved a statewide general manager who went to work for a competitor (PepsiCo, Inc v. Redmond). The federal Court of Appeals for the Seventh Circuit in 1995 affirmed an inevitable disclosure injunction that restricted the employee from working for the competitor for six months and permanently restrained any disclosures of trade secrets or confidential information. There had been no actual disclosures at the time of the injunction, only the potential threat of disclosures.

Courts are reluctant to prevent an individual from using her expertise and experience in the workplace and only cautiously issue inevitable disclosure injunctions. These jurisdictions require more evidence than going to work for a competitor with the possibility of trade secret disclosure. There must be an imminent likelihood of trade secret use. Additionally, most jurisdictions have specific legislation addressing trade secret misappropriation and unfair competition and require that claims against departing employees follow these statutory standards.

The inevitable disclosure doctrine is said to discourage unfair competition and encourage innovation when employers may share trade secrets with their employees. This approach caused the Delaware Court of Chancery in 1964 to apply the inevitable disclosure doctrine in granting an injunction against a departing employee who was hired by a competitor. The competitor had unsuccessfully sought a license from the original employer to use the trade secrets in question and had specifically advertised for a manager with knowledge of the process (E.I.DuPont de Nemours & Co. v. American Potash & Chemical Corp.).

Arguments against the inevitable disclosure doctrine include the restrictions that it imposes upon an employee's personal freedom and ability to utilize her experience and expertise. The doctrine also limits the employment-at-will concept that allows employees to freely move between employers. This may restrict competition. Some states inconsistently apply the inevitable disclosure doctrine. The key factor in their analysis is the conduct of the departing employee and the prospective employer. Clear evidence that trade secrets will be used favor granting an injunction.

Other jurisdictions, notably California, refuse to apply the inevitable disclosure doctrine (Whyte v. Schlage Lock Co.). It restricts the free movement of high-tech employees in the fluid world of start-ups and innovation. Furthermore, it imposes after-the-fact restrictions on employment-at-will that the employer and employee did not choose to create at the time of employment. It additionally burdens the courts with determining what is or is not a trade secret that deserves protection. The Georgia Supreme Court in 2013 stated "that the inevitable disclosure doctrine is not an independent claim under which a trial court may enjoin an employee from working for an employer or disclosing trade secrets" (Holton v. Physician Oncology Services, LP).

A recent federal Court of Appeals for the First Circuit decision upheld an injunction against an account executive who moved to a competitor (Corporate Technologies, Inc. v. Harnett). The employer and employee had signed a non-solicitation agreement that was to be effective for twelve months after employment ended. However, what constitutes a solicitation of customers or merely accepting a customer's business is vague. The Court determined that since the account executive had taken about 25 pages of notes when leaving, it was likely that solicitations had occurred. While the trial court had incorporated the inevitable disclosure doctrine into its rationale for granting the injunction, the First Circuit stated that "we need not plunge into this thicket." Since the injunction was limited to the contents of the notes, comments about inevitable disclosure were harmless.

The inevitable disclosure doctrine is criticized as imprecise and a "thicket." Carefully written contracts involving non-competition and non-disclosure of trade secrets are the best course of action. Inevitable disclosure is best viewed as a secondary line of defense against the possible loss of trade secrets when there are no contracts. Since intellectual property is a valuable asset, both employers and employees should consult an experienced attorney in these situations.