Sixth Circuit Enforces Well-Written Nondisclosure Agreement Against Former Employee

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By Karen L. Piper

 

An employee’s carefully laid plans to circumvent his non-compete and nondisclosure agreement were thwarted by his employer’s well-written employment agreement.  Eric Hunter got his first job as a medical-device salesman with defendant Orthofix, Inc. in 2000.  At the time he was hired, Hunter was asked to sign an employment agreement which contained a non-compete and a nondisclosure clause.  Hunter consulted an attorney before he signed the agreement.  Hunter returned the signed agreement to his employer with the term “confidential information” underlined.

In this agreement, Hunter agreed never to use or disclose “confidential information” acquired during his employment.  Confidential information was defined as including customer lists, business and trade practices, sales or distribution methods, business strategies, confidential information pertaining to Orthofix’s financial affairs, and “trade secrets, and other information” which “could unfairly be utilized in competition with [Orthofix].”

Hunter did well in his 12-plus years with Orthofix.  He developed customers by acquiring information about the doctors and their practices and habits.  He eventually became district sales manager for parts of Ohio, Michigan and Indiana.

In 2012, as Hunter and a colleague were preparing to leave Orthofix for a competitor, Hunter shared a lot of information with his prospective new employer, including his employment agreement, his W-2 statement, copies of his Orthofix sales reports, and an account-by-account breakdown of some of his sales.  To avoid violating the agreement, Hunter, his fellow departing Orthofix colleague and a vice-president of sales for Hunter’s new employer devised a plan: Hunter would not sell his new employer’s devices to his former Orthofix customers.  Rather, he would target the Orthofix customers of his fellow departing colleague and introduce his former Orthofix customers to new colleagues at his new employer.

Plaintiff resigned his employment with Orthofix just after midnight one day and signed with his new employer later that morning.  Plaintiff took with him his laptop computer which contained Orthofix information regarding customer lists, pricing information, sales data, etc.  No one at Orthofix ever asked him to return the computer.  He also had a lot of Orthofix’s confidential information in his memory.  Orthofix sued Hunter for 1) misappropriation of trade secrets under Ohio’s Uniform Trade Secrets Act; 2) violation of Hunter’s contractual non-compete and nondisclosure agreements; and 3) tortious interference with its sale contracts.

Applying Texas law, as provided in Hunter’s employment agreement, the Sixth Circuit Court of Appeals first determined that the term confidential information in Hunter’s employment agreement was not limited to the statutory definition of trade secrets, as Hunter had argued.  The court ruled that “‘a nondisclosure agreement prohibiting the use or disclosure of particular information can clarify and extend the scope of an employer’s rights’ beyond the protection afforded by trade secret statutes.” Emphasis in original.  As written, Hunter’s contract did exactly that.  It defined confidential information more broadly than the applicable trade secret statute.  Because Hunter had agreed never to use confidential information acquired during his employment with Orthofix, Hunter was liable for breach of contract for sharing Orthofix information with his new employer.

The court also rejected Hunter’s argument that his nondisclosure agreement was an unenforceable non-compete agreement without limitation as to time or geography.  The nondisclosure agreement did not prevent Hunter from using publicly available information or his “general” knowledge, experience or skills.  It did not prevent him from working for a competitor.  The nondisclosure agreement only ensured that Orthofix could recover damages if Hunter used and disclosed its confidential information which was “valuable, not readily available, and acquired at great expense and effort by Orthofix and its sales force (including Hunter).”  Hunter breached his agreement when he provided his new employer with an account-by-account breakdown of Orthofix sales, when he failed to return 46 converted customer orders, and when he drew upon his knowledge about his former Orthofix customers’ contact information and their habits when introducing colleagues at his new employer to them. Orthofix, Inc. v. Hunter, unpublished, No. 15-3216 (6th Cir. 11/17/2015).

This case highlights the importance of careful drafting in employment agreements.  Orthofix had carefully drafted a nondisclosure agreement to protect more than its trade secrets.  The agreement did not prevent Hunter from going to a competitor; it only prevented him from using Orthofix’s valuable customer information for the benefit of his new employer.  If you need assistance drafting such agreements or reviewing your existing agreements, contact the author or other experienced employment counsel. 

This article was written by Karen L. Piper, who is Secretary of the Board of Detroit SHRM, a member of the Legal Affairs Committee, and a Member of the law firm of Bodman PLC, located in its Troy MI office.  She can be reached at (248) 743-6025 or kpiper@bodmanlaw.com. 

Detroit SHRM encourages members to share these articles with others, inside and outside their organization, as long as its name and logo, and the author’s information, is included in the re-post of the article. November 2015.