Last week, the Northern District of California drew a line in the sand regarding an employer’s ability to enjoin a former employee from disseminating potential trade secrets when Judge Donato rejected Tesla’s TRO application against an ex-engineer and stated, “I’m not invading a man’s privacy, just because you’re worried. It’s not enough.” Tesla, Inc. v. Yatskov, No. 3:22-CV-02725 (N.D. Cal. May 16, 2022) (order denying TRO).
The court reached this conclusion even though there seemed to be a lot to worry about—Tesla alleges that the former employee took confidential files relating to its supercomputer technology before returning a purported “dummy” laptop instead of his actual work computer. Worrying allegations, indeed, but not enough for a TRO in California. In some states, the result may have been very different.
Many jurisdictions, including Delaware, Illinois, Pennsylvania and Texas, have made some version of the “inevitable disclosure” doctrine available to employers under the Uniform Trade Secrets Act and/or the common law. The doctrine allows courts to bar or restrain the employment of a former employee where the individual would not be able to refrain from accessing, using or relying on the employer’s confidential information. In other words, where disclosure would be inevitable.
The scope of injunctive relief available depends on the nature of the confidential information, the former employee’s role and the industry at large, as well as the scope of any relevant employment agreements. For example, in one instance, the Delaware Chancery Court enjoined a scientist “from engaging or participating in any activity involving the research or development of, or the sale of research or development concerning,” (i) “any TFE-containing polymers” or related products and (ii) the polymers that the scientist had previously worked on. See W.L. Gore & Assocs., Inc. v. Wu, No. CIV.A. 263-N, 2006 WL 2692584, at *1, 14–18 (Del. Ch. Sept. 15, 2006), aff’d, 918 A.2d 1171 (Del. 2007). The court focused on the “significant risk” that the employer’s trade secrets would be disclosed just by the scientist working for another entity with similar technology or products as the former employer.
The Delaware Chancery Court applied similar reasoning in restraining a senior salesperson from going to work for a direct competitor where she would be responsible for servicing the same client that she had previously worked with. See Newell Rubbermaid Inc. v. Storm, No. CV 9398-VCN, 2014 WL 1266827, at *10 (Del. Ch. Mar. 27, 2014). Despite an argument that the employer had not specifically identified the trade secrets at issue, the court issued a TRO after focusing on the former employee’s access to “information regarding current products, new products, services, pricing, business and sales plans, marketing plans, contracts, and customer contacts.” Id.
If a company believes that a former employee “cannot help but rely” on its trade secrets and/or confidential information in undertaking new employment, it may consider whether there are grounds to find that a trade secret will inevitably be disclosed in the new employment. See PepsiCo, Inc. v. Redmond, 54 F.3d 1262, 1270 (7th Cir. 1995) (applying Illinois law); Strata Mktg., Inc. v. Murphy, 740 N.E.2d 1166, 1178–79 (Ill. App. Ct. 2000).
This is especially important given the prevalence of Delaware choice-of-law provisions in employment contracts across the United States. Companies would be wise to consider the doctrine in determining where, and under which law, similar suits should be brought.