Hey Compliance Warriors!
“A recent court decision underscores the need for manufacturers to exercise caution when seeking to impose Post-Employment Restrictions on key employees.
Manufacturers often seek to bind employees to Post-Employment Restrictions (non-compete, non-solicitation and confidentiality obligations) in order to protect customer lists, pricing information and other confidential or “inside” information which gives them a competitive advantage in the market-place. While never a ‘first line” of defense, they serve an important role in protecting manufacturers from unfair competition. But, as we have cautioned repeatedly (see e.g. “I’m New – And It’s No [Trade] Secret” (Oct. 27, 2014) and “Even More Reason for Manufacturers to Update Their Employment Agreements” (June 15, 2015)), these agreements must be carefully drafted to be effective when needed.
The decision in Oxford Global Resources, LLC v. Hernandez (September 2018) offers one example why.
In this case, the Massachusetts-based Oxford Health entered into an employment agreement with Hernandez to work in California. The employment agreement contained traditional post-employment restrictions preventing post-employment competition, solicitation and use of confidential information for a period of time. The agreement expressly provided that Massachusetts law would govern and that any litigation would have to be filed in Massachusetts. When Hernandez quit to work for a competitor, Oxford Health sued in Massachusetts state court.
Ultimately, the court dismissed the lawsuit and the Massachusetts Supreme Court affirmed. In essence, the Court reasoned that even though Massachusetts had an interest in enforcing contracts made under state law, California had a greater interest since the employee lived and worked in California and California public policy overwhelmingly disfavors post-employment restrictions. Thus, Hernandez was free to work for a competitor even though his employment agreement expressly prohibited him from doing so.
The Oxford Health case is merely one recent example of the growing hostility to the use of Post-Employment Restrictions. Manufacturers seeking to protect their business secrets and good will should periodically review their approach to doing so under applicable state law.
A special thanks to the good folks at Ogletree Deakins for bringing this decision to our attention.”
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Until Next Time, Be Audit-Secure!
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