noncompete bookWhile it's well-known that there are fairly strict time limits on restrictive covenants, what about a former employer's confidential, trade secret or proprietary information? Are those categories of information held to the same set of temporal limitations?

The New York Rule - Which Has Been Cited Favorably by Other Jurisdictions

In one of the primary cases dealing with this subject, New York State's highest court, the Court of Appeals, went into a fair degree of detail in setting forth its thinking on the subject, stating:

"Protecting trade secrets and truly confidential information, however, does not have to be time limited in every instance where the covenant does not otherwise prevent a former employee from pursuing his or her livelihood or interfere with competition (16 Lord, Williston on Contracts § 13:5, at 291–292 [4th ed.] [“basic test for determining permissible time ... limitations is whether the restraint as to time ... is necessary for the protection of the promisee, but neither oppressive on the promisor, nor injurious to the interests of the general public”] [citing, inter alia, Restatement (Second) of Contracts § 188(1)(a)(b) ] ); cf. Karpinski v. Ingrasci, 28 N.Y.2d 45, 50, 320 N.Y.S.2d 1, 268 N.E.2d 751 [1971] [in enforcing permanent restraint on competition against oral surgeon in limited rural area, court **472 stated that “a covenant will not be stricken merely because it contains no time limit or is expressly made unlimited as to time” (internal quotation marks omitted) ]. ...

"In the present case, there is “no reason to suppose that [an unlimited durational] limitation [on the use of confidential information] will prevent defendant[s] from pursuing [their] livelihood or that it will have the effect of precluding [them] from operating a successful [competing business]” (Chernoff Diamond & Co. v. Fitzmaurice, Inc., 234 A.D.2d 200, 202, 651 N.Y.S.2d 504 [1996] ).

Ashland Mgmt. Inc. v. Altair Invs. NA, LLC, 59 A.D.3d 97, 105, 869 N.Y.S.2d 465, 472 (2008), aff'd as modified, 14 N.Y.3d 774, 925 N.E.2d 581 (2010).

Interestingly, this aspect of Ashland Management has been cited favorably by other courts across the country, including the Eastern District of Michigan:

“[T]he mere fact that … confidentiality agreements [are] not limited in duration does not necessarily make them ipso facto unenforceable.” Id. at 104. Indeed, “[p]rotecting trade secrets and truly confidential information...does not have to be time limited in every instance where the covenant does not otherwise prevent a former employee from pursuing his or her livelihood or interfere with competition.” Id.

Konica Minolta Bus. Sols., U.S.A., Inc. v. Lowery Corp., No. 15-11254, 2020 WL 3791601, at *11 (E.D. Mich. July 7, 2020)

Following this holding, other New York courts, both at the State and Federal level, have approved the issusance of injunctions that permanently barred former employees from utilizing the employer's confidential or trade secret information, including as follows:

"We find no error in the District Court's determination that the Appellants misappropriated the Appellees’ trade secrets and therefore affirm the entry of a permanent injunction."

Capstone Logistics Holdings, Inc. v. Navarrete, 838 F. App'x 588, 590 (2d Cir. 2020).

"As the Court of Appeals stated in Leo Silfen, Inc. v. Cream, 29 N.Y.2d 387, 391–392, 328 N.Y.S.2d 423, 278 N.E.2d 636, “[i]f there has been a physical taking or studied copying, the court may in a proper case enjoin solicitation, not necessarily as a violation of a trade secret, but as an egregious breach of trust and confidence while in plaintiffs' service” (see generally Eastern Bus. Sys., 292 A.D.2d at 338, 739 N.Y.S.2d 177; Amana Express Intl. v. Pier–Air Intl., 211 A.D.2d 606, 606–607, 621 N.Y.S.2d 108). Here, the record is replete with evidence that the individual defendants stole and/or improperly retained thousands of documents belonging to plaintiff and thereafter used that information to compete against their former employer."

Marcone APW, LLC v. Servall Co., 85 A.D.3d 1693, 1696, 925 N.Y.S.2d 752, 756 (4th Dept. 2011).

The Takeaway

In contrast to clauses in employment contracts that are aimed at preventing employees from soliciting particular fellow employees or clients, or noncompete clauses that seek to prevent former employees from working in the same industry for a competing entity - both of which must be strictly limited in time and geopraphic scope, New York and a number of other states hold that the same limitations do not necessarily apply when it comes to protecting a former employer's trade secret or legitimately proprietary and confidential information.

Jonathan Cooper
Connect with me
Non-Compete, Trade Secret and School Negligence Lawyer
Post A Comment