Texas Unfair Competition Claims Can Be Asserted Even Without Enforceable Noncompete Agreement

April 1, 2011 / By Robert Wood

Earlier this year, the Austin Court of Appeals handed down a very interesting opinion in a Texas misappropriation of trade secrets case.  This case demonstrates that even without an enforceable noncompete agreement, a Texas employer may be able to inhibit a former employee’s ability to unfairly compete or use or disclose the employer’s trade secrets.

In this case, a wholesale grocery distributor provided goods and services to customers including grocery and convenience store vendors.  The distributor had a contract with one of its vendors.  The contract allowed the vendor to audit the distributor’s books.

The vendor informed the distributor that it wished to audit the latter’s books.  The distributor learned that three of its former employees were going to be involved in the audit.  These former employees had been given access to the distributor’s confidential information, including its confidential customer, vendor, and pricing information.  The distributor sued its former employees for misappropriation of trade secrets, breach of fiduciary duty, conspiracy, and tortious interference.  The distributor obtained a temporary restraining order and then a temporary injunction, to keep its former employees from using or disclosing the distributor’s confidential information.

The court of appeals affirmed the trial court’s injunction.  In doing so, the court noted, "It is well established that even without an enforceable contractual restriction, `a former employee is precluded from using for his own advantage, and to the detriment of his former employer, confidential information or trade secrets acquired by or imparted to him in the course of his employment.’"  The court observed that the employees had agreed to abide by a "confidentiality agreement that restricted disclosure" of their former employer’s confidential information.

In upholding the injunction, the court explained that the distributorship could prove irreparable harm:  "It is a reasonable inference that if Hill and McKinney were to impermissibly use McLane’s trade secrets to perform an audit, the resulting damages would be difficult to calculate.  Because the very purpose of the injunction is to prevent disclosure of trade secrets pending trial, plaintiffs need not demonstrate prior to a trial on the merits that a trade secret has actually been misappropriated.  Instead, `harm to the trade secret owner may be presumed when a defendant possesses trade secrets and is in a position to use them."

OBSERVATION:

Often, an employer will not have its former employee bound by an enforceable noncompete agreement.  In such instances, the employer may have to assert tort theories–such as tortious interference, breach of fiduciary duty, or theft of trade secrets–and seek injunctive relief and damages.  The key point is, an employer is not necessarily powerless against employees who are unfairly competing with it, even if there is no noncompete agreement in place.

 

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About the Author

Robert Wood has been a Texas trial lawyer since 1993. During that time, he has represented small, mid-sized, and Fortune 100 companies in business and employment litigation matters all over Texas and the United States. He has also advised and represented hundreds of individuals in employment litigation matters. Read more about Robert Wood