Many commentators have explored what the Defend Trade Secrets Act of 2016 (the DTSA) offers litigants that was previously unavailable under state law. Now consider the inverse: what might state law take away under the DTSA? The answer may be “a lot,” depending on the jurisdiction.
The DTSA provides for an injunction to prevent the misappropriation of trade secrets as long as it does not prevent a person from gaining employment or “otherwise conflict with an applicable State law prohibiting restraints on the practice of a lawful profession, trade or business.” As a result, if the injunction would effectively create a non-compete that would violate state law, the DTSA says: no injunction.
The federal district court in Colorado recently explored the effect of state law on a request for injunctive relief under the DTSA. In Engility Corp. v. Daniels, an employer sought to enjoin two former employees from contracting with its customers. After an evidentiary hearing, the court found that the former employees likely possessed the employer’s trade secrets and had misappropriated them. To determine whether an injunction was appropriate, the court reviewed Colorado’s non-compete statute, which provides that non-compete agreements are presumptively invalid except in the case of a contract for the protection of trade secrets. Based on that exception, the court determined that the DTSA permitted an injunction against the former employees.
But those same facts in a different jurisdiction might lead to a different result. For instance, California has an exception to its prohibition of non-competes that is applied, shall we say, unpredictably. As one California federal court case shows, a court applying California law may deny injunctive relief under the DTSA if it finds that restraining competition is not necessary to protect trade secrets – even where there is evidence of actual misappropriation. On the other hand, in a more covenant-friendly jurisdiction like Florida, where there is a statute authorizing the enforcement of non-compete agreements which expressly provides that trade secrets are a protectable and legitimate interest, courts would likely be more willing to issue injunctive relief.
As a result, although Engility passed the state law test, the court’s analysis underscores that employers may not take that result for granted. While the DTSA provides a new avenue for employers seeking to protect their confidential information, it does not – by its express terms – give employers a way to restrain competition that is prohibited by state law. Consequently, if an employer wants to assess whether injunctive relief is potentially available to it under the DTSA, it should ask two questions. First, how hospitable to non-competes is the applicable state law? Second, to what extent does state law permit the enforcement of otherwise unenforceable non-compete agreements in order to protect trade secrets?
The Stones once told us that even if you can’t always get what you want, with a little elbow grease, you can get what you need. But that was before the DTSA, where state law may prevent you from getting either.