4 ms·
I understand the spirit of the author's point in this piece (and, in fact, sympathize with it) but it really does not track the relevant California law. This c
by grellas 16y ago
I understand the spirit of the author's point in this piece (and, in fact, sympathize with it) but it really does not track the relevant California law.
This case will turn on what is known as the "inevitable disclosure" doctrine, which has been explicitly rejected in California, going back to the Schlage Lock case in 2002 (see http://library.findlaw.com/2003/Mar/18/132641.html http://library.findlaw.com/2003/Mar/18/132641.html) and most recently in Flir Systems, where the court found that a trade secrets case had been brought in bad faith because it was based on inevitable disclosure. (A recent article on why this case law makes HP's Hurd case an uphill fight appears here: http://www.law.com/jsp/article.jsp?id=1202471748471 http://www.law.com/jsp/article.jsp?id=1202471748471).
Basically, California law prohibits non-competes in a post-employment context unless coupled with a transfer of a goodwill interest (e.g., when your business is acquired) and, when an employer complains that a former employee will "inevitably" disclose valuable trade secret information by reason of his position with a new firm, the courts have rightly interpreted this position as an after-the-fact attempt by the employer to get what amounts to non-compete-style protection where the law otherwise forbids this.
At the same time, HP is not without arguments because California's adoption of the Uniform Trade Secrets Act does authorize courts to enjoin "threatened" violations of an employer's trade secrets. This usually means the employer has to present detailed evidence that the former employee's role in the new company poses a clear threat that this would happen. Of course, without additional evidence, the mere fact that the employee's new position poses such risks really amounts to "inevitable disclosure" (which the courts reject) and this means that a complaining party is not likely to win such a case unless it really does have some other evidence strongly suggesting that trade secrets are likely to be compromised. That is why it is such an uphill fight for the employer.
Inevitable disclosure cases are often upheld elsewhere in the U.S. but even then it most often happens when the departing executive is shown to have done suspicious things along the way (see, e.g., this piece summarizing why a guy who was one of a handful of people in the world to know the ingredients and processes by which Thomas' English muffins achieve their "nook and cranny" feel could legitimately be enjoined from joining a direct competitor, and where the evidence showed that he hung around for months after secretly accepting the competing employment and, in effect, gathered information from his old employer in anticipation of the move: http://chicagobreakingbusiness.com/2010/07/english-muffin-secrets-safe-at-thomas-for-now.html http://chicagobreakingbusiness.com/2010/07/english-muffin-se...).
In my view of it, major egos are involved on both sides of this Hurd mess and that is likely what is driving this lawsuit. It will therefore be brutally fought and, if there is an ounce of anything in the law to support an injunction, HP will scrape for and find it. Given the well-settled California law, however, this effort is likely to amount only to a wild swing that is unlikely to land. This may mean that Mr. Hurd will get a windfall while HP is left with nothing but a black eye, but that is what is most likely to happen.
- davidw 16y agoVery insightful, as always. You write "employer" and "employee" a lot here. Do you think it changes anything that the employee was the head of a multi-billion dollar corporation?
- grellas 16y agoWhenever you fight in court, you have to take account of two aspects of how a court might rule: (1) the technical legal and (2) the "motivational." The former is what I summarized above but the latter is what motivates a court to want to go one way or the other, as long as it can find a legal "hook" to go that way. As to this, it does matter that Mr. Hurd is head of a multi-billion dollar corporation and that he got a huge severance as part of leaving his employment. Given those facts, judges will be more motivated than otherwise to find a reason why he should be restricted in some fashion as part of his two-year confidentiality agreement. Thus, if the HP lawyers can come up with even a modicum of evidence to show "threatened" compromises of trade secrets, the court might go their way simply out of a sense of justice inspired by the background factors that are not technically relevant to the letter of the law. So, yes, that factor can be relevant in the way just described. By the way, this is why contingent lawyers never go into court with an "unattractive" plaintiff (meaning a "creep" and not physically unattractive) - even if you are technically right on the law, no judge or jury wants to out of their way to reward that which they regard as repulsive. This is always crucial to remember in assessing any case.
- tzs 16y agoDoes it make a difference that Hurd got a $33 million payment as part of the exit deal that included the non-compete? I believe the policy reasons behind prohibiting non-compete agreements is that (1) they are usually essentially forced upon the employee due to the great difference in bargaining power between the company and the employee, and (2) an employee could have a hard time making a living if he is excluded from his normal field for a couple of years. Neither of these reasons seem to apply here. Hurd didn't have to agree to the exit package they offered. He could have simply quit like an ordinary worker quits--walked out the door with his last paycheck. The $33 million he got makes it so he has no need to "make a living" for the next two years.