Can Your Employer Keep You From Working For Someone Else? Maybe…
November 9, 2018
A recent case in the Eastern District of Pennsylvania exemplified how enforcing restrictions on a person’s right to earn a living can be tricky. Courts are often reluctant to deprive someone of the right to work, while also recognizing that companies have legitimate interests in protecting their business and trade secrets. The case of Freedom Medical, Inc. v. Whitman involved a company that rents and sells medical equipment to health care providers through group purchasing organizations. To maintain an advantage in the competitive healthcare industry, Freedom Medical has developed certain information related to its business, which it contended is both confidential and proprietary, including pricing information, business plans and customer lists. Freedom Medical takes several affirmative steps to safeguard this confidential information including requiring all employees to acknowledge and agree with a policy restricts the use of digitally stored confidential information and requires all employees with access to confidential information to sign restrictive covenants at the inception of their employment. The restrictive covenants prohibit unauthorized use or disclosure of confidential information and contain a global non-compete clause that prohibits employees from working for any competitor for a one-year period following the end of employment with Freedom Medical.
Several of Freedom Medical’s employees left the company and joined a similar company called MedOne. Each of them violated the non-compete by working for a competitor and Freedom Medical alleged that they took certain proprietary information with them. Freedom Medical asked the Court to enter an injunction to prevent the ex-employees from violating their covenants. The Court conducted a two-day hearing and issued its opinion a few days later.
As to the protection of “trade secrets,” i.e. pricing information, customer lists, etc., although each of the employees took certain information from Freedom Medical, only one was enjoined from utilizing it. One employee no longer worked for MedOne and could not make use of the information and as to another, there was no evidence the information taken was or could be used. Only one ex-employee had used pricing information and was still employed by MedOne and he was therefore restricted.
As to the non-compete provisions, the Federal Court found that Pennsylvania law applied and ultimately only partially enforced the non-competes. The Court found the non-competes contractually valid but considered, however, whether a worldwide limitation was appropriate. The court stated that Pennsylvania courts have found “broad geographic restrictions reasonable so long as they are roughly consonant with the scope of the employee’s duties.” Because each of the individuals was a “regional” sales manager, the Court found that the appropriate geographic scope would be their particular sales regions. The Court therefore reformed the geographic scope from a global restriction to each individual’s sales territory.
As a practical matter, because one employee no longer worked for MedOne and another had changed his sales territory, only one of the employees was enjoined as he appeared to have the ability to obtain business from his former clients at Freedom Medical. Thus, one ex-employee was enjoined from continuing his work in his region for MedOne although the employees were not enjoined from working for MedOne entirely.
While Freedom Medical had some success in enforcing its restrictive covenants, the Court was very limited in preventing the ex-employees from working and curtailed the scope of the non-competes. Most companies of this type will have their employees sign non-competes and restrictive covenants, but as this case shows, whether or not those will be enforced can often be a mixed bag. The lawyers at Conway Schadler have experience that can make the difference in these types of situations. Please contact our offices for a free consultation so we can discuss how this substantial experience can be used to your benefit.