Trade Secrets & Employee Mobility

A bill recently introduced in the Illinois House of Representatives, the "Illinois Covenants Not To Compete Act," would substantially alter the law regarding non-competition agreements in Illinois. In most respects, it would limit the enforceability of no-competes and make them easier for individuals to challenge. However, in certain respects, the bill would make no-competes easier to enforce.

An article recently published in the New York Law Journal explores an employee's duty of loyalty and the permissible steps that employee may take, prior to termination of employment, in preparing to compete with the employer.

A recent Alabama Court of Appeals case, Jones v. Hamilton, Case No. 2081077 (January 22, 2010), illustrates how a failure to take reasonable steps to maintain the confidentiality of documents and information will result in the loss of trade secret status.

The importance of corporate security and vigilance with regard to trade secrets was demonstrated by recent events in Syracuse, New York. On February 3, 2010, the FBI and the U.S. Attorney's Office in Syracuse announced the arrest of 29 year-old Shalin Jhaveri, who is charged with stealing trade secrets from his employer.

On January 29, 2010, in an unpublished opinion, Majestic Marketing, Inc. v. Nay, No. E047085 (Fourth District, Division Two), at least one California Court of Appeal appears to have recognized the viability of the trade secret exception to California Business & Professions Code ¶16600 prohibition of employee non-competition agreements.

In Zambelli Fireworks Manufacturing Co., Inc. v. Wood, the U.S. Court of Appeals for the Third Circuit recently held that a stock sale did not invalidate an employee's non-compete agreement.

A lawsuit recently filed in the United States District Court for the Eastern District of Virginia could be of interest to employers and attorneys alike who are following the split in the courts across the country as to whether computer access while an employee meets the statutory test for "without authorization" under the Computer Fraud and Abuse Act.

In Baker v. Tremco Incorporated, a case applying Ohio law, the Indiana Supreme Court recently held that, for purposes of a non-competition agreement, competition with a subsidiary corporation also constituted competition with the parent.

A recent New York case, Edelman v. Starwood Capital Group, LLC, 2009 NY Slip Op. 09309 (1st Dep't December 15, 2009), is another reminder that companies should take appropriate precautionary steps when dealing with confidential information.

As noted in a blog post in October 2009, in Sunbelt Rentals, Inc. v. Ehlers, 333 Ill.Dec. 791, 915 N.E.2d 862 (Ill. App. Ct. 2009), an Illinois appellate court reexamined and rejected over thirty years of well-established precedent regarding the enforceability of restrictive covenants. To date only one published decision, Aspen Marketing Services, Inc. v. Russell, No. 09 C 2864, 2009 WL 4674061 (N.D. Ill. Dec. 3, 2009), has cited Sunbelt. In that case, the Court noted its awareness of Sunbelt and its rejection of the legitimate business interest test, but applied that test anyway.