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National Reprographics, Inc. v. Strom

2009 WL 1346660 (U.S. Dist. Ct. D. N.J. 2009) (Unpublished)

EMPLOYER-EMPLOYEE; NON-COMPETITION — To receive judicial protection under the non-competition provision of an employment agreement, the information that an ex-employer seeks to be protected to enforcement of the agreement does not have to rise to the level of the useful trade secret and could even be publicly available if the information is highly specialized, current, not generally known in the industry, and created and stimulated by the environment furnished by the ex-employer.

An employee with an employment contract resigned to join a competing company. The contract had a non-competition clause for the purpose of protecting the ex-employer’s confidential and proprietary information. The ex-employer sued both the departing employee and the competing company. It claimed that the employee, as one of its top executives, had received “unfettered access” to its business strategies and goals, and would violate the non-competition clause if he worked for a competitor. It sought to enjoin the executive from being employed by the competing company.

The District Court issued a temporary restraining order preventing the competing company from hiring the executive. Then, after a hearing, the Court granted a preliminary injunction in favor of the ex-employer. The Court noted that the ex-employer devoted significant time to strategic planning to remain competitive, differentiate itself from competitors, and identify new areas for growth. It found the ex-employer spent a significant amount of its resources to develop and maintain goodwill. The Court also held that the executive was a “key employee” with access to his ex-employer’s most strategic, sensitive, and confidential information. In this regard, the Court stated that to receive judicial protection, the information that the ex-employer sought to be protected through enforcement of the employment agreement did not have to rise to the level of the usual trade secret and could even be publicly available. It found that employers have a legitimate interest in protecting information that is highly specialized, current, not generally known in the industry, and created and stimulated by the environment furnished by the employer. Specifically, it held that this particular executive had knowledge of situations in which customers were dissatisfied with his ex-employer, and this information was clearly confidential. It also found that the competing company was the ex-employer’s primary competitor in New Jersey and offered many similar products and services. It stated that the executive never attempted to negotiate the non-competition clause or any other provision in his employment agreement.

At trial, the trial testimony was that both the executive and the competing company were placed on notice, at the time the executive left the employ of the company, that it would be a violation of the employment agreement if the executive joined the competing company. The Court ruled that, although injunctive relief is an “extraordinary remedy” which should be granted only in limited circumstances, this particular ex-employer, was able to demonstrate both a likelihood of success on the merits and the probability of irreparable harm absent the injunction. It found that this ex-employer had made a prima facie showing of a reasonable probability that it would prevail on the merits. Applying New Jersey contract law, the Court found a valid contract between the ex-employer and the executive with a specific clause restricting the executive’s employment upon leaving the company. The Court rejected the executive’s argument that he did not intend, and the agreement did not provide, that the provision would apply to branches opened after the date of execution. The Court ruled that a plain reading of the clause showed that the geographic restriction applied to branches acquired after the execution of the employment agreement because it made reference to competitors engaged in the company’s business “at the time of such termination.” Further, it held that it would not make sense that the ex-employer would have intended the agreement to apply only to competitors at the time the agreement was signed because the intent of the agreement was to keep its competitors from learning its proprietary secrets after the executive left its employ.

The Court also rejected the argument that the non-competition provision’s 50-mile radius was unreasonably broad since, here, the employee was to be employed only seven miles away. In addition, the Court noted that, in this “Information Age,” where many orders are received over the internet, a per se rule against broad geographic restrictions seemed “hopelessly antiquated.” It also pointed out that the competing company, itself, sought to require the executive to sign its own non-competition agreement. To the Court, this evidenced a recognition that there was, or could be, valuable confidential trade secret information within the industry.

The Court rejected the executive’s contention that enforcement of the non-competition provision would impose an undue hardship on him. In this regard, it noted that the executive: (a) did not object to signing the employment agreement or attempt to negotiate different terms; (b) was aware of the non-competition provision; (c) voluntarily resigned and could work for a competing business outside of the 50-mile radius; and (d) was not prevented from engaging in his livelihood. Public interest favors enforcement of reasonable terms contained in employment contracts, as was the case here. The Court opined that the competing company’s use of the ex-employer’s confidential and proprietary information for its own benefit could potentially destroy the ex-employer’s 100 year old business. Damages, in such a circumstance, would be an inadequate remedy. Finally, the Court ruled that the non-moving parties (the executive and the competing company) would not suffer irreparable harm because: (x) the executive had not yet started working for the competing company, and was well aware of the restrictions contained in the employment contract; and (y) the competing company could continue to operate its business as before and was free to compete with the company without the benefit of using purloined confidential information.

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