Inevitable Disclosure in the Absence of a Non-Compete? Maybe Not, Says Ohio Court
One of the many novel theories attorneys have come up with to preclude employees from defecting to the competition is the doctrine of inevitable disclosure. The premise is simple: an employee should be barred from working for a competitor of his former employer under circumstances where the employee inevitably will use or disclose the former employer's trade secrets in the course of his duties. Because the doctrine is rooted in trade secret law (as opposed to the common law of contracts), employers will frequently rely upon the doctrine in situations where the former employee is not subject to a non-compete agreement.
Ohio courts have come to embrace this legal strategy. However, the case of Hydrofarm, Inc. v. Orendorff [pdf] suggests that this course of action may not fly in situations where the employee is not otherwise subject to a non-compete.
In Hydrofarm, the employee, by virtue of his employment, had possession of the Company's confidential, proprietary and trade secret information. At the time of his separation, he executed a non-disclosure agreement whereby he promised that he would not use or disclose such information. However, he did not execute and was never subject to a non-competition agreement. The employee subsequently went to work for a direct competitor in a substantially similar position. Hydrofarm filed for injunctive relief arguing that under the doctrine of inevitable disclosure the employee should not be permitted to work for a direct competitor. The trial court granted the injunction and the employee appealed.
The Franklin County Court of Appeals reversed the trial court's decision holding that Hydrofarm failed to prove that the information at issue was so sensitive that it required an injunction to prevent disclosure or that the employee actually used or disclosed any of the information. The court then went on to suggest that the doctrine of inevitable disclosure may only be available in cases where the employee signed a non-competition agreement. Specifically, the court noted "neither this court nor the Supreme Court of Ohio has applied the inevitable disclosure doctrine in a case that did not involve a noncompetition agreement." According to the Hydrofarm court, "[a}n employee possessed of his former employer's trade secrets '[has] the right to take employment in a competitive business, and to use his knowledge (other than trade secrets) and experience for the benefit of the employer." In making these statements, the court seemingly ignores the doctrine's roots in trade secret law and attempts to make it more a creature of contract. Perhaps that is why the court, in closing, backed off its position a bit and noted that in cases where a non-compete is absent the inevitable disclosure doctrine might be available where the employee possesses "timely, sensitive, strategic and/or technical information that, if it was proved, posed a serious threat to his former employer's business or segment thereof."
While this case contains some troubling language that may work in an employee's favor, the court's comments are not likely to become the majority view under Ohio law. Indeed, the court's dicta at the end of the opinion suggests as much. That said, this case does demonstrate that Ohio courts are looking with a more critical eye at employers' reliance upon the doctrine of inevitable disclosure in cases where an employee is not subject to a non-competition agreement. Accordingly, employers should strongly consider utilizing non-compete agreements in connection with other restrictive covenants for key employees and employees who are privy to confidential, proprietary and/or trade secret information.