Although the DTSA provides powerful new rights to trade secret owners, Congress balanced those new rights with the interests of employees by placing important limits on an employer’s ability to restrict employee mobility on trade secret grounds.
The DTSA authorizes a federal court to grant an injunction to prevent actual or threatened misappropriation of trade secrets, but such injunction may not: (1) prevent a person from entering into an employment relationship; nor (2) place conditions on employment based merely on information the person knows. Rather, any conditions placed on employment must be “based on evidence of threatened misappropriation.” Moreover, the DTSA precludes the court from issuing an injunction that “otherwise conflict[s] with an applicable State law prohibiting restraints on the practice of a lawful profession, trade, or business.” The latter is a very unusual limitation of a federal equitable remedy with state law.
As a result, state employment law, non-competition law, and public policy articulated by state courts will likely be invoked by employees to limit federal injunctive relief against them based on the possession of trade secrets.
For example, for employers in the State of California, home to many high-tech companies with trade secrets, the DTSA may prove to be little comfort. Under California law, “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Cal. Bus. & Prof. Code § 16600. As the Supreme Court of California explained: “California courts have been clear in their expression that section 16600 represents a strong public policy of the state.” Edwards v. Arthur Andersen (2008). The Court held that the prohibition of section 16600 was absolute, and was not to be interpreted under a “rule of reasonableness” or “narrow restraint” standard.
Indeed, federal courts in California have already held that “section 16600 constrains the breadth of equitable remedies that are available to those that are necessary to protect trade secrets.” PSC Indus. Outsourcing, LP v. Kodysz, (E.D. Cal. July 3, 2013). The PSC Court declined to issue a temporary restraining order requiring the defendant to return all of the “27,000 files and folders and approximately 30 gigabytes of data” claimed to be in his possession, but issued injunctive relief covering specifically identified categories of data likely within the statutory definition of trade secret. Another federal court in California similarly held that “in light of the restrictions of Section 16600 and California’s policy in favor of open competition, the Court will issue only a narrow TRO.” Richmond Techs. v. Aumtech Bus. Sols., (N.D. Cal. July 1, 2011).
Although employers may not be able to completely prevent former employees from working for a competitor under either the DTSA or Section 16600, the DTSA allows courts to place conditions on the employee’s new employment, so long as such conditions do not conflict with state law. It will be interesting to see whether and to what extent injunctive conditions on the employee’s new employment due to trade secret concerns will be deemed a “restraint” under Section 1660 and/or contrary to related California public policy.