Substantial Threat of Disclosing Trade Secrets Warrants Injunction Prohibiting Employment with Competitor

In Bimbo Bakeries USA, Inc. v. Chris Botticella, 2010 U.S. App. LEXIS 15314 (3rd Cir. July 27, 2010), the Third Circuit Court of Appeals affirmed the issuance of a preliminary injunction where the former employer established there was a substantial threat that its former executive would disclose trade secrets.

In Bimbo Bakeries, the executive at issue was a Vice President of Operations for the company who had access to unequivocally confidential information concerning long term strategies, operating costs, and customer negotiations.  The executive accepted employment with a competitor, Hostess, and then remained employed by Bimbo Bakeries for another two months while waiting to earn a bonus.  Importantly, the Court noted that while employed by Bimbo Bakeries the executive engaged in unusual use of his computer and was determined to have accessed multiple confidential files in rapid succession without seemingly reading the documents in the ordinary course.  A computer forensic expert verified the access, but could not confirm downloading and/or copying.  Significantly, the executive did not have a restrictive covenant preventing him from working for Hostess.  Furthermore, Hostess required that the executive sign an "Acknowledgement and Representation Form" to assure Hostess that the executive did not have any confidential information from former employers and would not use any confidential information in his capacity at Hostess.

Critically, the District of Pennsylvania and the Third Circuit Court of Appeals both ruled that, notwithstanding the fact there was no non-compete and there was the Hostess Acknowledgment, the executive was enjoined from working for the competition.  The courts both ruled that it is proper to grant a preliminary injunction -- enjoining employment -- to prevent the threatened disclosure of trade secrets where there is a "sufficient likelihood, or substantial threat, of a defendant disclosing trade secrets." 

The Third Circuit concluded that the harm of enjoining someone from earning a living may be warranted where it is "necessary to prevent greater irreperable harm from befalling another party."  Mindful of the harm to the executive, the Court noted, however: "if the Court holds [after a trial on the merits] that Bimbo is entitled to relief, the Court should fashion a remedy appropriate to protect Bimbo's trade secrets without unduly imposing on Botticella's right to pursue his chosen occupation."

 Bimbo Bakeries provides a couple of valuable lessons:

• An employee contemplating resigning for another opportunity who remains on the former company's payroll after accepting a job offer creates certain optical problems.  Specifically, in terms of potential breaches of fiduciary duty and duty of loyalty, as well as garnering new confidential information while planning to depart for the competition, will be frowned upon by a reviewing court.  The Bimbo Bakeries court referenced the time employed by Bimbo Bakeries with a job offer from Hostess with some concern.  If a bonus is in jeopardy, given the timing of a departure, negotiate the bonus from the new employer.

• When an employee, particularly an executive employee, leaves an employer, his or her computer and phones will be meticulously reviewed by a computer forensics company.  While an employee should never take any confidential or trade secret information, the reality that such conduct will be identified by the former employer should be a further reason not to engage in such misconduct.  Further, the proof of such conduct will lead to the imposition of injunctive relief and can form the basis for affirmative claims under federal and state law.