One of the most frequently litigated areas in Texas is the utilization or dissemination of trade secrets by a departing employee. There are two basic scenarios. One is where the employee actually took with him certain confidential information of the former employer that he is using in his new position. Second, and perhaps more difficult, is where the employee did not take physical files with him, but nonetheless is utilizing at his new job the confidential information provided to him during his prior employment.
The question frequently asked is whether the former employee can be prohibited from working for a competitor, in the absence of a valid non-compete agreement, because of concerns that his job will necessarily require him to utilize or divulge confidential, trade secret information learned from his former employer. In Texas, the answer from the courts was usually yes, but not always.
The Texas Uniform Trade Secret Act (the “Act”), which became effective September 1, 2013, makes this type of litigation more likely, and more likely to be successful. One aspect of the Act is that it codifies the law in Texas that was previously referred to by the courts as the “inevitable disclosure” doctrine. The inevitable disclosure doctrine was developed by the courts to prevent a former employer from working in a new position where it was “inevitable” that the trade secrets of the former employer would be used. The concern sought to be remedied was that the new position is so similar to the prior employer’s business that the duties cannot be performed without using the trade secret information that the employee received in the course of his prior employment.
Before adoption of the Act, Texas courts were inconsistent in their use and application of the inevitable disclosure doctrine. The Act allows for injunctive relief to prevent actual or threatened misappropriation, which should make it significantly easier to obtain injunctive relief. The adoption of the Act, together with case law supporting the use of the theory, should make it more likely for employers to prevail in cases in which the employee is hired to work for a competitor doing a job that is very similar to his prior employment, even when a non-competition agreement was not signed.
The Act does not eliminate the need for a non-competition agreement, but should help bolster the employer’s ability to seek injunctive relief, even if an enforceable non-competition agreement does not exist. The provisions of the Act can be utilized in situations where a non-competition agreement does not exist, or in which the non-competition agreement is declared invalid or unenforceable. The Act affords greater relief by permitting injunctions in the case of both actual and threatened misappropriation of trade secrets. As such, employers can use the Act to enjoin former employees from the threat of using trade secrets in their new job or position, even when actual use cannot be shown. Further, the Act provides a broader definition of “trade secret” to include customer lists and supplier lists within the definition, which is often the type of information a former employer seeks to protect.
In sum, the Act provides greater protection for employers whose former employees go to work for a competitor.