Inevitable Disclosure: An Introduction to the Invisible Non-Compete

Magician Waving Wand over Glowing Top HatThe history of non-competes reveals a long standing hostility to agreements that prohibit competition and freedom, which for hundreds of years resulted in zero-tolerance for non-compete agreements. When the common law finally evolved to permit limited enforcement of restrictive covenants, it is not surprising that a competing freedom, the “freedom of contract,” was the justification.  Sometimes coined “liberty of contract”, this principle recognizes the freedom of people to enter into agreements with others and to have those agreements enforced.

That was then….

The doctrine of inevitable disclosure represents another phase in the evolution of the common law’s permissive attitude toward covenants not to compete, since the doctrine permits a court to prohibit an employee from competing with his former employer even in the absence of any contract.  In a nutshell, the inevitable disclosure doctrine provides that when it is determined that a former employee will ‘inevitably disclose’ the trade secrets of the former employer to his new employer, the employee may be prohibited from assuming the new job regardless of whether the employee ever signed a non-compete agreement. So, how do employers make a non-compete appear out of thin air?

It starts with the Uniform Trade Secrets Act, which in South Carolina and 40 other states, provides that a court may enjoin the “actual or threatened misappropriation” of a trade secret.  Once a trade secret comes to reside on an employee’s brain, the employee is in possession of the employer’s trade secret wherever he goes, even when he changes jobs.  If the employee’s new employer competes with his old company, then the employee’s knowledge of this trade secret may give him an advantage (and by extension his new employer) in competing with the old company.  Even if the employee does not intentionally disclose it or rely upon it, knowing something important about your competitor’s business cannot help but to influence your decision-making. At least this is the theory.

Note:  This is the first in a series on inevitable disclosure.  The next post will discuss PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir.1995), which first used the inevitable disclosure doctrine to grant injunctive relief.  I will also do a general survey of other cases, and then conclude the series with ideas about how to defeat this argument.

However, there is a pretty good discussion of the doctrine from 2001 contained in the South Carolina Law Review, although the author makes the mistake of endorsing its use. South Carolina’s Inevitable Adoption of the Inevitable Disclosure Doctrine: Balancing Protection of Trade Secrets with Freedom of Employment 52 S.C. L. Rev. 895 (Summer 2001).

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