Maryland Federal Courts Provide Guidance on Post-Employment Restrictions
Both the U.S. Court of Appeals for the 4th Circuit (which covers Maryland, Virginia, West Virginia, and the Carolinas) and the U.S. District Court for the District of Maryland issued opinions this month that offer some guidance to employers on various post-employment restrictions, including confidentiality agreements and trade secret litigation, as well as non-compete and non-solicitation agreements.
4th Circuit Addresses Confidentiality Agreement and Trade Secret Litigation: In Integrated Direct Marketing, LLC v. May, a company sued a former employee for breach of a confidentiality agreement and misappropriation of trade secrets, including pricing information and use of a specific software package.
The 4th Circuit found that the confidentiality agreement was unenforceable because the definition of “confidential information” was unlimited in scope, and would have restricted the former employee in perpetuity, as it contained no time restrictions.
As for the trade secret claim, the 4th Circuit found that the company did not present sufficient evidence as to what pricing it was planning to use in its proposal, which was never finalized, while the new employer provided substantial evidence that it did not use the company’s pricing information in its own bid. In addition, because the software package information was publicly available, it could not constitute a trade secret.
This case warns employers to be thoughtful in the preparation of confidentiality agreements – particularly by offering a concrete and specific definition of confidential information, and by appropriately limiting it as to time (if appropriate). In addition, if faced with trade secret litigation, employers must be able to articulate with specificity the trade secret that was misappropriated and demonstrate that it is, in fact protectable and protected information.
Maryland Federal Court Discusses Non-Competition and Non-Solicitation Provisions. In Paul v. ImpactOffice LLC, the former employee had signed an agreement with a non-competition provision that prevented him from working for a competitor of the employer within 90 miles of any employer or affiliate locations for six months after his employment ended. It also contained non-solicitation provisions that prohibited him from soliciting or accepting business from any of the employer’s or its affiliates’ customers or prospective customers, also for six months.
The Maryland federal court found that the non-competition provision was too broad in scope, as it prohibited employment in any capacity – not just those positions similar to what the former employee held at the employer. Specifically, the provision inappropriately “focuse[d] on the nature of the competitor rather than the work performed by the former employee.” The court found that the provision was not reasonably and narrowly tailored to protect the employer’s interest in preventing the loss of customer goodwill.
As for the non-solicitation provision, the court found that the protectable interest is in “preventing an employee from using the contacts established during employment to pirate the employer’s customers.” Thus, the court found that the ban on passive acceptance of unsolicited business was not reasonably tailored to address the concern. Additionally, prohibiting the former employee from soliciting customers with whom he had no contact while employed at the employer was similarly overbroad, as the prospective customer would not have been the subject of customer goodwill generated by the employer. The court also examined whether a ban on contact with all of a company’s customers would be too broad, and stated that the propriety of such a ban would depend on the circumstances – in some cases it may be appropriate, but not in others. In this particular case, because the former employee’s customer base was only a small part of the entire base and because he had never had interaction with segments of the overall base, the provision was overbroad.
For employers, this case warns that non-competition provisions should be narrowly drawn to focus on the actual work performed by the employee. As for non-solicitation provisions, they should also be carefully drawn to prohibit contact only with those customers or prospective customers with whom the employee has contact.