Beyond noncompete agreements: using Florida's Trade Secrets Act to prevent former employees from disclosing sensitive information to competitors.

• Author: Barber, Tom

The problem is a familiar one: A business client calls and informs you that an employee with highly valuable, confidential information has resigned and is going to work for a competitor. The client is afraid that the employee will disclose the information to the competitor. Legal advice and assistance -- timely and effective -- is requested.

While this problem is by no means new, the theft (and potential theft) of confidential information or trade secrets is a growing concern in the fast-paced, competitive, high-tech "information age." On the eve of the 21st century, employees are more likely to possess specialized, confidential, and proprietary information than their fathers and mothers. Modern employees also change jobs more frequently than their parents, whether it be just to take advantage of new opportunities or to move ahead in their careers. Indeed, employment mobility is a recognized characteristic of "work force 2000." Under such circumstances, lawyers representing modern businesses must be prepared to deal with potentially devastating employee defections.(1)

Traditionally, lawyers have attempted to address this problem in advance by advising clients to use "noncompete agreements."(2) However, there is another weapon in the corporate arsenal that lawyers should be aware of -- Florida's Uniform Trade Secrets Act, F.S. Ch. 688 (FUTSA). This article discusses the law of trade secrets in Florida, with special attention to its application to employment relationships. To this end, methods for dealing with threatened and actual disclosure of trade secrets are discussed in detail.

Significantly, the law of trade secrets serves to protect an employer's confidential information even when an enforceable noncompete agreement or a written confidentiality agreement does not exist. Moreover, an important development in the law of trade secrets, namely the "inevitable disclosure doctrine," makes this body of law a powerful tool for protecting confidential information. As will be discussed in greater detail below, the inevitable disclosure doctrine allows employers to take preventive action before their trade secrets are disclosed to competitors. As such, the inevitable disclosure doctrine makes sense and a Florida court should adopt this theory when presented with the right set of facts.

Background

When an employee announces that he or she is going to work for a competitor, time is of the essence. Clients typically want their lawyer immediately to obtain "a court order" (a temporary injunction) prohibiting the employee from commencing such new employment. Securing the injunction is key, for once the employee has started to work for the competitor the "cat is out of the bag."(3) Employers are surprised to learn that it can sometimes be difficult to obtain an injunction under these circumstances even when there is a noncompete agreement between the parties.

The difficulty in obtaining injunctive relief arises from Florida's noncompete statute and the considerable body of Florida case law governing noncompete agreements.(4) Prior to the enactment of the new noncompete statute in 1996, an injunction could be obtained only when a former employer could prove "irreparable harm" or offer evidence giving rise to a presumption of irreparable harm by showing that the former employee directly solicited former customers or actually used specific trade secrets or customer lists.(5) This can be difficult to do. As such, a former employee could, for all practical purposes, avoid the noncompete agreement by simply claiming that the employee was not using their former employer's confidential information in the new position with the competitor.

Fortunately for Florida employers, the Florida noncompete statute was rewritten in 1996 in such a way as to make noncompete agreements readily enforceable when designed to protect legitimate business interests. However, the new noncompete statute does not affect those noncompete agreements that were entered into prior to July 1, 1996.(6) Moreover, the 1996 amendments, obviously, are of no help where a noncompete agreement does not exist. In such a situation, or in any case when "trade secrets" are involved, F.S. Ch. 688 may provide an independent basis for injunctive relief.

The Trade Secrets Act

FUTSA is an important and sometimes overlooked tool for controlling the dissemination of confidential information through changes in employment relationships.(7) FUTSA arises from the Uniform Trade Secrets Act, a uniform law that has been enacted in at least 40 states.(8) Florida's version was enacted in 1988. As the lack of reported decisions indicates, the usefulness of this statute has not been fully appreciated by Florida lawyers.

Even before FUTSA, Florida courts allowed employers to obtain injunctions prohibiting former employees from disclosing trade secrets to their new employer. This principle was firmly established in 1982 in Unistar v. Child, 415 So. 2d 733 (Fla. 3d DCA 1982). Unistar made clear that injunctive relief was available to an employer even if a written noncompete agreement (or a written confidentiality agreement) did not exist. FUTSA simply codified many of the principles referenced in the Unistar line of cases.

As will be discussed in greater detail below, to obtain relief under FUTSA, the former employer needs to prove: 1) the existence of a "trade secret" and 2) that the former employee has actually misappropriated the trade secret or is "threatening" to misappropriate it. Under the act, injunctive relief, damages, and attorneys' fees are available to remedy any "misappropriation" of a "trade secret."(9)

* What Is A Trade Secret?

In order to invoke the protections of FUTSA, an employer must first show the existence of a"trade secret." FUTSA defines a "trade secret" as:

information, including a formula, pattern, compilation, program, device, method, technique, or process that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

F.S. [sections] 688.002(4).

Unfortunately, there are only a few Florida decisions which interpret FUTSA's definition of "trade secret."(10) One such decision is Thomas v. Alloy Fasteners, 664 So. 2d 59, 60 (Fla. 5th DCA 1995). There, the Fifth District held (without an extensive explanation of its analysis), that "order edit lists," which included the manufacturer's price markup and profit margins, qualified as "trade secrets" under FUTSA. As the court noted, "[t]he value of the lists lay not so much in the fact that the lists contained the names of customers, as in the fact that they revealed [the manufacturer's] pricing and profit structure. This information would obviously be important for a competitor in deciding by how much it could undercut [the manufacturer's] prices." Id. (emphasis added)

On the other hand, in Health Care Management Consulting, Inc. v. McCombes, 661 So. 2d 1223, 1226 (Fla. 1st DCA 1995), the First District held that a "confidential methodology of presenting and interpreting Medicare regulations to clients in the home health industry does not constitute a trade secret." In reaching its decision, the court stated that "[the former employer's] expertise, however, while the subject of confidential treatment by [the former employer] cannot be a trade secret because it principally involves the interpretation of public Medicare regulations and, as such, is `readily ascertainable by proper means' through researching the Code of Federal Regulations." Id.

Although there are few reported Florida decisions discussing FUTSA's definition of "trade secret," the issue of "customer lists" has been a...