By Kirsten McCaw Grossman, Esq.
A New Jersey federal court recently denied an employer’s request for injunctive relief requiring its former President to turn over allegedly misappropriated confidential information and for an order prohibiting him from soliciting its customers and operating a competing business. The court’s opinion in Ho-Ho-Kus, Inc. v. Steven Sucharski, Case No. 2:23-cv-01677 highlights the need for employers to ensure that they use properly drafted confidentiality/non-disclosure agreements and (where appropriate) restrictive covenants with employees, particularly high-level executives with access to valuable trade secrets and other confidential information.
Plaintiff, an aerospace company, fired Defendant, its former President, in part for poor performance and his refusal to sign a certification stating that he would not misuse or disclose confidential information. Defendant had not previously signed any confidentiality/non-disclosure agreement or restrictive covenant, despite his status as a high-level executive of the company. After his termination, Defendant returned his work laptop, which a forensic expert determined had been “factory reset,” permanently deleting all data, the day after his termination. Several days later, Defendant opened an allegedly competing business. Plaintiff sued Defendant and asked the court to issue a preliminary injunction requiring Defendant to return any confidential information in his possession and preventing him from soliciting its customers or operating a competing business.
Defendant filed a motion to dismiss Plaintiff’s complaint. The District Court dismissed Plaintiff’s breach of contract and tortious interference with contract claims. The court noted that Plaintiff had not required Defendant to sign a confidentiality agreement or a restrictive covenant. Plaintiff relied upon language in its employee handbook requiring that employees keep company information confidential. However, the court held that the handbook could not be considered a contract because it contained language allowing the company to alter its terms without notice to employees. The court also dismissed several other claims because Plaintiff failed to allege the elements of those claims.
The court also denied injunctive relief, holding that Plaintiff failed to establish a reasonable likelihood of success on the merits of either its misappropriation of trade secrets or breach of fiduciary duty claims. The court held that plaintiff was unlikely to prevail on its misappropriation of trade secrets claim because it had failed to sufficiently identify the trade secrets allegedly taken by Defendant, and that the general categories of information that Plaintiff alleged Defendant might have in his possession was insufficient. The court held that plaintiff was unlikely to prevail on its breach of fiduciary duty claim because 1) Defendant was not bound by any restrictive covenant limiting his post-employment activities, and 2) Plaintiff had not provided evidence to support its allegation that Defendant removed confidential and proprietary information.
This case is an important reminder to employers of the need to implement well-drafted confidentiality/non-disclosure agreements for any employees with access to an employer’s confidential information and/or trade secrets. In addition, employers should strongly consider requiring employees with such access to sign restrictive covenants limiting former employees’ ability to solicit customers and employees post-termination.