Of Death, Taxes, Nooks, and Crannies
They say that nothing is inevitable in life except for death and taxes. To that list we now have to add nooks and crannies. Yes, those things that make up the deliciously irregular innards of one of my favorite breakfast foods, Thomas' English Muffins.
Long story short, Chris Botticella was an employee of Bimbo Bakeries, which now owns Thomas', and one of a handful of people who know the secret formula for the nooks and crannies. (I'm reminded of the crucial ingredient for the "secret rocket fuel" from Rocky and Bullwinkle, but that's just me.) Botticella accepted an offer to work for rival baker Hostess. I have some fond childhood memories involving their products, too.
Anyway, Bimbo sued for an injunction to stop Botticella from working for Hostess due to their concern that he would "inevitably disclose" to his new employer the recipe for the secret rocket fuel . . . er . . . the nooks and crannies, and thus damage Bimbo's business.
Inevitable disclosure is a doctrine of trade secret law that proceeds from the premise that an ex-employee of one company who knows trade secrets, and takes a job with a competitor, simply will not will not be able to keep his mouth shut in his new job. It's not as easy to prove as it sounds, but in some cases it works. Like this one. The court granted a temporary restraining order and preliminary injunction. Here's a copy of the order.
This is not my first legal exposure to the great nooks and crannies secret. Although I've lost the details in the mists of time, I distinctly recall a nooks and crannies TRO application coming before the judge for whom I was clerking back in the late 1970's.
Well, all of this is fine, as long as no one starts stealing the recipe for Butterscotch Krimpets. Of wait, they were made by Tastykake. At least Bimbo and Hostess won't be at each other's throats over them.
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Defecting Employees Destroy Successful New Business
Here's what happened to Charter Oak, a successful new mortgage business that didn't protect itself from its own employees. Ten of them left as a group for a larger competitor, allegedly stole files and pending deals, and basically decimated the business. Lacking non-compete, confidentiality, and non-solicitation agreements, Charter Oak lost in court. The case is now on appeal.
It makes you think, doesn't it? Doubtless caught up in the euphoria of establishing a new business, Charter Oak's principals failed to plan for the worst and are now paying dearly for the oversight.
We present many of our posts as life lessons on what can happen if you don't do things the right way. Charter Oak's situation is about as graphic an example as we have found.
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Non-compete Agreements in a Bad Economy
Two posts on non-compete agreements caught my eye today. They deal with the subject from differing perspectives but teach a common lesson.
The Lancaster Law Blog reminds us that in a down economy non-compete agreements are at once increasingly common and increasingly difficult to enforce. As a result, businesses that rely upon them may be lulled into a "false sense of security."
The Virginia Non-Compete Law Blog, looking at things from the employee's perspective, validates the thought about a false sense of security when it tells us that "employees should fight back" against the unwarranted enforcement of non-competes.
Non-competes serve a valid purpose when they seek to protect legitimate proprietary business interests. But when they do no more than seek a business advantage by stifling prospective future competition, New Jersey courts will find them to be invalid.
In our practice we often see small businesses attempting to use "one size fits all" non-compete agreements bought over the internet. Those often have deficiencies that make them problematic when applied to a specific business situation. Frequently their biggest value is merely their deterrent effect. Employees are dissuaded from fighting back not because they are wrong, but because of the expense of the fight.
In short, both of my fellow bloggers cited above are right. If you are seeking to protect a business, be sure that your non-compete agreement is tailored to legitimate business needs or it may offer no protection at all. If you are an employee faced with a non-compete, don't despair. You may have more leverage than you think.
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Non-Compete Agreements Getting Harder to Enforce?
A recent article in Lawyers USA (subscription required) suggests that it may be getting harder for businesses to enforce non-compete agreements as the economic downturn makes courts reluctant to limit workers' opportunities for employment.
A recent California decision has expanded the protection given workers under a state law that voids every contract that restrains anyone from engaging in a business or profession.
Oregon recently enacted a law that requires employers to notify prospective employees in writing, at least 2 weeks' before employment starts, that they will be required to sign a non-compete.
The article cites other examples of the trend. Can the same be said of New Jersey? The Garden State is one of the states that traditionally has enforced non-competes. While we do not foresee a significant change in the expression of the law, these cases are decided on a case by case analysis of the facts, and it seems clear that courts are requiring employers to demonstrate concretely how they will be harmed if a non-compete is not enforced.
It's an issue that may get increasing attention if the economy worsens and unemployment rises.
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Trade Secrets: It's All in Your Head
Most employees know that their employers will become --- how can we put this delicately? --- "annoyed" if written customer lists are used to woo away customers when the employment relationship ends. But what happens when a former employee does not physically take a written list, but can recreate all or part of it from memory?
That's the question recently considered by the Supreme Court of Ohio in Al Minor & Associates, Inc. v. Martin. The case was considered under both the Uniform Trade Secrets Act and another Ohio statute. The short answer is that memorized information can be the basis of a claim that a trade secret has been violated.
It's worth noting that New Jersey is among a small minority of states that has not adopted the Uniform Trade Secrets Act. New Jersey relies upon common law trade secret protection. So what's a trade secret in NJ? It's something that is (a) secret, (b) valuable, and (c) confers a competitive advantage in the marketplace. There's nothing in NJ's definition of a trade secret that would exempt memorized information from trade secret protection. One federal district judge recently assumed (without deciding the issue) that this would be the case.
It's also worth remembering that in NJ, customer lists of service businesses generally are protectable as trade secrets. Customer lists of manufacturing and retail business, on the other hand, generally are not. As with much of unfair competition law, however, the applicability of particular legal concepts is highly fact sensitive, and the wise business person will not rely upon broad "rules" for guidance in a specific situation.
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Non-competes Impermissible for In-house Lawyers
Non-compete agreements cannot restrict corporate in-house attorneys from subsequent employment. That's the recent ruling of the New Jersey Supreme Court Advisory Committee on Professional Ethics in its Opinion 708. While non-competes are generally enforceable in most business settings, they are invalid as to attorneys because they unduly limit the freedom of clients to select counsel of their choice. Non-competes also have been held to infringe upon a lawyer's professional autonomy. Now it is clear that they affect not just lawyers in traditional private practice, but also those who work for corporations.
The opinion is consistent with most state courts that have ruled on similar cases, so New Jersey is squarely with the majority on this issue.
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