As I promised on Monday, today I blog on a few of the lessons learned for employees who receive stock awards from Newell Rubbermaid v. Storm (Del. Ch. March 27, 2014), an important case analyzing restrictive covenants in electronically delivered stock award agreements. In Newell Rubbermaid Inc. v. Storm, the Court granted the company a temporary restraining order against a former employee for actions that appeared to violate the non-solicitation and confidentiality covenants of RSU agreements. The RSU agreements to which the employee assented and which the Court enforced were so-called “clickwrap” agreements.  

Here are four lessons that employees who receive stock awards can learn from the Newell case.

  1. The consideration of a stock award is not diminished or made illusory by the company’s right to terminate the employee at any time for any reason after making the award, which would cause the employee to forfeit the award.
  2. Just because one award agreement does not impose restrictive covenants does not mean that the next one will not – and its corollary. It is never too late for a company to begin imposing restrictive covenants through its stock award agreements. The 2011 and 2012 award agreements did not contain a confidentiality or non-solicitation provision.
  3. An employer’s case for enforcement of a non-compete provision will be stronger if the former employee’s work for a competitor also threatens a violation of the covenants of confidentiality and protection of trade secrets. The Court observed that Ms. Storm was directly responsible for over $100 million in sales to Target in 2013. She was the “face” of Newell at Target for the sale of infant and juvenile goods, and during Storm’s last two years of employment she was involved primarily in selling to, developing sales strategy for, and maintaining the Company’s relationship with Target. Storm had access to confidential information and trade secrets regarding product pricing, marketing strategies, platform innovation, and business incentives, among other things.

Thus, the Court applied the doctrine of inevitable disclosure, which essentially holds that no matter how solid the former employee’s promises not to disclose confidential information and how pure his/her intentions not to disclose confidential information, the former employee’s knowledge of the former employer is so extensive that such disclosure would be inevitable. The concept of breach by inevitable disclosure further expands the reach of the confidentiality restrictions and nullifies the former employee’s sincere promises not to share confidential information or trade secrets.

     4.  Courts generally will enforce forum selection clauses and choice of law provisions.