Harm to Trade Secrets and Customer Relationships Justifying an Injunction in Federal and State Court

By Fredrick P. Niemann, Esq. of Hanlon Niemann, a Freehold, NJ Restrictive Covenants Law Firm

The disclosure of trade secrets and the interference with customer relationships have been considered irreparable harm warranting injunctive relief in both federal and state court.

Federal courts faced with requests for injunctive relief ”have shown a willingness to issue injunctions to prevent the disclosure of trade secrets”. This willingness is based upon the theory that the disclosure of confidential information or trade secrets constitutes irreparable harm”.

”The loss of good will, the disclosure of confidential proprietary information, and the interference with customer relationships” form the basis for a finding of irreparable harm in federal court”.

A plaintiff must still make a showing that the information it seeks to protect is both confidential and proprietary. The information known to its former employee is information that is ”not common knowledge in the industry”. If so, the court will have little difficulty enjoining the former employee from using information obtained while working for the employer”.

New Jersey courts generally recognize that disclosure of (1) business’ confidential information, (2) unlawful exploitation of customer relationships, and (3) damage to goodwill constitute irreparable harm.

In the context of restrictive covenants, New Jersey courts presume that irreparable harm ensues from the breach of a restrictive covenant where an employee has learned of business practices and methods of the employer. Of course, this requires proof that the information is actually confidential and that the former employee was in the position to exploit the relationships of customers.

One New Jersey court has rejected the imposition of an injunction in a restrictive covenant case, holding:

…Most of the plaintiff’s customers are governmental entities, along with prime contractors doing work for them, and most of the work involves public bidding. The industry as a whole is fully aware when public work is available and the determining factor is generally price rather than personal consideration. There appears to be little likelihood that the plaintiff would be in any position to harm the plaintiff’s relationships with the governmental entities or with prime contractors doing work for them.

To discuss your restrictive covenant matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com. Please ask us about our video conferencing consultations if you are unable to come to our office.

 

Posted in Covenant Not to Compete.