Tag Archives: Trade Secrets

Preliminary Injunction to Enforce Pennsylvania Noncompete Agreement Denied

In the past year we have seen a substantial increase in the number of Pennsylvania employees who are seeking our representation as a Pennsylvania noncompete agreement attorney. It is critical to understand that the terms, noncompete (or restrictive covenant), do not have a uniform meaning and the enforceability of an employee’s noncompete agreement will be only be able to be determined based on an analysis of the actual words in the employee’s noncompete agreement, as well as key facts pertaining to the employee’s job and the employer’s business operations.

The need to focus on each word in a noncompete agreement is best illustrated by a case recently decided in the United States Court for the Eastern District of Pennsylvania, Almac Clinical Services v. Aeri Park, E. D. Pa. no. 16-4896 (O’Neill, J.) (October 11, 2016), where the court denied the employer’s motion for a preliminary injunction

Restrictive covenants are disfavored under Pennsylvania law, are strictly construed and must be carefully reviewed to ensure their reasonableness.  In interpreting a noncompete agreement, which is a contract, Pennsylvania courts apply the plain meaning rule of the interpretation of contracts, which assumes that the intent of the parties to an instrument is embodied in the writing itself, and when the words are clear and unambiguous, the intent is to be discovered only from the express language of the agreement. Contracts must be read to avoid ambiguities if possible, and specific provisions ordinarily control more general provisions.

For an employer to obtain a preliminary injunction in Pennsylvania, a court must assess the employer’s reasonable probability of eventual success in the litigation, whether the employer will be irreparably injured if the injunction is not granted, the possibility of harm to other interested persons from the grant or denial of the injunction, and the public interest.  If the employer fails to show either a likelihood of success, or a fails to demonstrate irreparable injury, a court must deny the preliminary injunction.

In the Almac litigation, two entities, Almac Sciences and Almac Clinical, filed a motion for a preliminary injunction against a former employee, Dr. Aeri Park and her new employer, Triclinic Labs, seeking an injunction to prevent the employee from working for her new employer for six months based on an employment agreement that contained “post termination covenants” regarding non-interference, non-solicitation and noncompetition. The employer’s lawsuit set forth causes of action for breach of post-employment covenants under Pennsylvania law; violations of the Pennsylvania Uniform Trade Secret Act; and tortious interference with existing and prospective contractual relations.

At the onset of employment, the employee signed both an offer letter and an employment agreement which contained several post-termination restrictive covenants and provides that for a period of six months after termination, the employee shall not engage in any business activity that is competitive in any way with the business of the Company in the United States, Europe, and any foreign country in which the Company does business or is planning to do business.

The employee, Dr. Park, an expert in solid-state chemistry  was involved in the early solid-state research and invented some of the crystalline forms for which solid-state testing is used. When hired, Dr. Park was tasked with launching a lab for Almac Sciences that would perform both solid-state testing and analytical testing. Ultimately, a corporate decision was made that there was insufficient demand for solid-state testing in the United States and the corporation declined to pursue solid-state testing, thus, Almac Sciences performs only analytical testing.  Dr. Park spent the last year of employment working for the Almac corporation in the United Kingdom but instead of managing the solid-state lab, she performed sales duties.  Dr. Park resigned and accepted employment with Triclinic Labs, a small contract research organization specializing in solid-state chemical and solid-state analytical work for pharmaceutical and other clients around the world. Triclinic was aware of the non-compete obligations and determined that during her first six months of employment, Dr. Park would focus on “inward-facing activities”, involving no client contact, no research and no consulting, other than the one project for which she had obtained a waiver.

In applying Pennsylvania contract law, where a contract is clear and unambiguous, a court may look only to the express language of the agreement to ascertain the parties’ intent. The court found that the non-compete provision at issue was unambiguous and therefore the express language of the agreement controls. Thus, the court found that the noncompete agreement specifically provides that it is only applicable to Almac Clinical Services and not any other entity. The court then considered the new employer’s business, a contract research organization specializing in solid-state chemical and solid-state analytical work; where the employee was only performing “inward-facing activities.” To the contrary, the former employer, Almac Clinical, engages in the packaging, labeling and distribution of clinical trial packs, and offers associated analytical support to the manufacturer of those products, services not offered by the new employer, and during the course of her tenure with Almac, Dr. Park did not do any work related to clinical packaging. Thus, the court found that the employer did not establish a likelihood of success on the merits of the breach of contract claim as the employee was not engaged in activities competitive with her former employer.

The Pennsylvania Uniform Trade Secrets Act creates a cause of action for misappropriation of trade secrets and the unjust enrichment caused by such misappropriation. To establish misappropriation of a trade secret by a Pennsylvania employee, an employer must show (1) the existence of a trade secret; (2) communication of the trade secret by a Pennsylvania employee pursuant to a confidential relationship; (3) use of the trade secret in violation of that confidence; and (4) harm to the employer.

In Almac, the employer argued that the employee had access to substantial amounts of highly confidential information, and that there was a sufficient likelihood or substantial threat of disclosure of a trade secret due to the competitive nature of the new employer’s business. However, the court found that there was no evidence that the employee disclosed any confidential information to the new employer; the employee turned over all equipment, documents and data when she resigned, and the new employer set up ground rules to ensure that the new employee would not violate her obligations during her first six months of employment. Further, the court found that the record is devoid of evidence that the employer suffered damages. Thus, the court found that employer did not establish a likelihood of success on the merits of the trade secrets claim.

To establish a Pennsylvania employee’s tortious interference with an existing or prospective contract under Pennsylvania law, an employer must prove  (1) the existence of a contractual relationship or prospective contractual relationship between the employer and another party; (2) an intent on the part of the employee or new employer to harm the former employer by interfering with that contractual relationship or preventing the relationship from occurring; (3) the absence of privilege or justification; and (4) actual damage.

In Almac, the court found that the employer failed to prove any elements of a tortious interference with contractual relations claim, and to the contrary, the actions of the employee and new employer show concerted efforts to ensure that they neither breached the non-compete nor improperly interfered with the former employer’s contractual relationships with its customers.

Abramson Employment law represents clients who have restrictive covenants and noncompete agreements. For more information on restrictive covenants, non-compete agreements and Abramson Employment Law, see http://www.job-discrimination.com/lawyer-attorney-2117941.html

 

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Filed under Breach of Contract, Employment Law, Intentional Interference with Contractual Relations, Non-Compete Agreements, Preliminary Injunction, Trade Secrets

Preliminary Injunction Denied Where Employee’s Subsequent Employment Contracts Fail to Include Restrictive Covenant

In Pennsylvania, restrictive covenants are enforceable if they are incident to an employment relationship between the parties; the restrictions imposed by the covenant are reasonably necessary for the protection of the employer; and the restrictions imposed are reasonably limited in duration and geographic extent. Restrictive covenants are not favored in Pennsylvania and are viewed as a trade restraint that prevents a former employee from earning a living.

In order for a restrictive covenant to be enforceable, there must be sufficient consideration (something of value offered to the employee). The commencement of employment is sufficient consideration for a covenant not to compete and an employee’s promotion to a new position within the company also constitutes sufficient consideration, however, the covenant must be executed contemporaneously with the exchange of consideration. In construing a restrictive covenant, when writing is clear and unequivocal, its meaning must be determined by its contents alone. Courts will no re-write restrictive covenants or engage in interpretations which conflict with the accepted and plain meaning of the language used.

Assignability of a restrictive covenant can also be an issue. Strong public policy considerations underlie the conclusion that restrictive covenants are not assignable. Given that restrictive covenants have been held to impose a restraint on an employee’s right to earn a livelihood, they are construed narrowly; and, absent an explicit assignability provision, courts are hesitant to read one into a contract. Courts have also held that the employer, as drafter of the employment contract, is already in the best position to include an assignment clause and a successor employer is free to negotiate new employment contracts with an employee, or secure the employee’s consent to have the prior employment contract remain in effect.

In WMI Group, Inc. v. Fox, 2015 Pa. Super 25 (Feb. 6, 2015), the Court affirmed the trial court’s order finding that a former employer did not meet its burden of showing an enforceable restrictive convent and also did not demonstrate the existence of a trade secret. The Court held that while an initial employment agreement included a non-compete clause, when the employee was promoted and entered into two subsequent contracts with a related but different entity, each of which lacked a non-compete clause, the earlier non-compete was unenforceable.

In WMI, the court also considered the former employer’s assertion that trade secrets were taken from the former employer. Pennsylvania cases have recognized that trade secrets of an employer, customer goodwill and specialized training and skills acquired from the employer are all legitimate interests protectable through a general restrictive covenant. However, a court must examine and balance the employer’s legitimate business interest, the individual’s right to work, the public’s right to unrestrained competition, and the right to contract in determining whether to enforce a restrictive covenant. To obtain injunctive relief, a party must establish that the information at issue is a “trade secret,” which requires proof of a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. If a competitor could obtain the information by legitimate means, it will not be given injunctive protection as a trade secret.

In WMI, the former employer contended its pricing method is a trade secret and its network of customer contacts, information, and relationships are also trade secrets; the court denied each argument and held that the former employer was not entitled to any relief. In so doing the court found that currency hedging is common knowledge and can be obtained via legitimate means, therefore injunctive relief is unavailable.

For more information on Restrictive Covenants, Non-Compete Agreements and Abramson Employment Law, see http://www.job-discrimination.com/lawyer-attorney-2117941.html

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Filed under Breach of Contract, Employment Law, Non-Compete Agreements, Restrictive Covenant