A former employer’s claims against a former employee and the former employee’s new employer for breach of a non-compete agreement and violating the Tennessee Uniform Trade Secrets Act (“Trade Secrets Act”) were dismissed in a case which is instructive on a couple of fronts. Mainly, the case illustrates the futility of a former employer attempting to claim that information the former employee acquired during his or her employment amounts to “trade secrets” under the Trade Secrets Act when the former employer allowed third parties to have access to the same information.
Here are the key facts:
- Daniel was employed by one of the two Plaintiffs in the case (Plaintiff One)
- Daniel’s position, at the time of his termination of employment with Plaintiff One, was supervisor of Plaintiff One’s billing department
- Prior to being supervisor of Plaintiff One’s billing department, Daniel’s position at Plaintiff One was as a bill collector
- Plaintiff One was in the business of collecting for amounts owed to Plaintiff Two
- Plaintiff Two provided services to healthcare providers for which it was entitled to a percentage of those healthcare providers’ claims each month
- Daniel went to work for a company called Premier Mobile (“Premier”) after his employment with Plaintiff One ended
- Premier had a prior business relationship with both Plaintiffs
- During that relationship, Premier engaged in the same business the Plaintiffs engaged in, but only in the State of Virginia
- About two weeks before Premier hired Daniel, its relationship with the Plaintiffs ended
- Premier hired Daniel in the position of “scheduler”
- Daniel performed work in Virginia at Premier’s headquarters after Premier hired him
- Daniel’s non-compete agreement with Plaintiff One prohibited him from competing against it in any state having customers of Plaintiff One from whom Plaintiff One received more than 2% of its annual revenue
After Daniel went to work for Premier, Plaintiff One sued Daniel for breaching his non-compete agreement by working for Premier and Plaintiffs One and Two sued Daniel and Premier for violating the Trade Secrets Act.
TRADE SECRETS ACT CLAIM
The Plaintiffs claimed that a number of documents which comprised trade secrets under the Trade Secrets Act were taken by Daniel and used by Daniel and his new employer, Premier. The documents which Plaintiffs claimed amounted to trade secrets included documents regarding how to provide dental treatment and to receive payment for it; “transmittal letters;” emails; spreadsheets; invoices; dental progress notes; memos; orders; and similar documents. To qualify as trade secrets under the Trade Secrets Act, not only must information meet the definition of trade secrets, but also, the party claiming the information is trade secrets must show that it took reasonable efforts, under the circumstances, to maintain its secrecy. As well, if a third party can “readily” obtain the information which is claimed to be trade secrets “through proper means,” the information cannot qualify as trade secrets.
In the case at hand, the court found that all of the information which the Plaintiffs claimed to be trade secrets was available to, and regularly shared with, patients, nursing homes, and state agencies. Thus, and appropriately, the court dismissed the Plaintiffs’ Trade Secrets Act claims.
BREACH OF NON-COMPETE AGREEMENT
The Court also dismissed Plaintiff One’s claim that Daniel had breached his contract not to compete with it, his former employer. Although Plaintiff One brought this claim, when faced with a motion for summary judgment to dismiss it, it did not produce one iota of proof that it derived 2% or more of its annual revenue from the state where Daniel worked for Premier, Virginia. Based on the failure of Plaintiff One to prove this, the court had to dismiss its claim.
In my estimation, former employers (and others, as the Trade Secrets Act protects more than just former employers), all too often make a claim that information constitutes protected trade secrets when it should be obvious to them that such claims will never hold up given that third parties have been given the same information or can readily obtain it. For lawyers representing defendants sued for allegedly taking and using trade secrets, a first line of inquiry in written discovery and depositions should focus on finding out who else had access to the information at issue or could obtain it.