A federal court applying Minnesota law recently clarified the standard for pleading in non-compete cases, ruling that inference of a breach alone will not suffice where an employee accesses but isn’t shown to have used stolen documents. The ruling in the case, H.B. Fuller Co. v. Hamm, 17-cv-5562 (D. Minn. Aug. 24, 2018), is arguably of greater interest to lawyers than to employees (and employers) in guiding their conduct. An “inside baseball” thing, as it were. But it does serve as a reminder of conduct to avoid when leaving a job, and the consequences that follow from doing the wrong thing.
Plaintiff H.B. Fuller hired defendant as a sales manager responsible in the company’s adhesive products division. As a condition of his employment, he had to sign a Non-Disclosure and Non-Competition Agreement prohibiting him from disclosing the company’s confidential sales, pricing and marketing information, as well as barring him from certain competitive activities for one year after his employment ended. A mere six months after coming onboard, defendant quit to work for a direct competitor. Plaintiff thereafter examined its computer systems and discovered that only days before leaving, defendant had downloaded copious amounts of highly confidential company information using a flash drive and over the internet. Plaintiff promptly sued for (1) breach of contract, (2) trade secret misappropriation under the federal Defend Trade Secrets Act, (3) trade secret misappropriation under the Minnesota Uniform Trade Secrets Act, and (4) breach of duty of loyalty and confidentiality. The reported case involved a subsequent motion by plaintiff to amend its complaint to add a claim for breach of non-compete. Evidence to support the claim included defendant’s accessing Fuller customer information on the flash drive (as determined through a computer forensics examination) roughly six months into the new job.
In opposing the motion, defendant argued (1) that he had not in fact solicited his former accounts on behalf of his new employer, and (2) that even if it could be shown otherwise, plaintiff’s claim must fail because it was not harmed by the breach: damages are an essential element of any breach of contract claim under Minnesota law and the accounts weren’t taken. The court agreed, denying plaintiff’s motion to amend to add the new legal claim of breach of non-compete and non-solicitation agreement. It said that the mere coincidence of defendant’s accessing highly confidential customer files is an insufficient basis to claim they were actually used competitively in breach of defendant’s legal obligations. In the court’s words, those facts were “consistent” with a breach, but more must be shown than possessing and accessing the documents under suspicious circumstances, even at the pleading stage of litigation. In the vernacular, where there’s smoke there isn’t always fire. (As an interesting aside, the non-compete in question didn’t actually prohibit defendant from working for a competitor, just from employment that would “likely result in use or disclosure of Confidential Information.” Had it been drafted the normal, old-school way of prohibiting the departing employee from working for a competitor outright, the outcome in the Hamm motion may have been different.) Of note for employment lawyers and other civil litigators, the court in a footnote addressed and dismissed defendant’s alternative argument related to damages. Even though damages are an element of a breach of contract claim that must be shown at trial, failure of plaintiff to allege that it was harmed financially is not a basis for dismissal at the pleading stage.
The takeaway for employees is it’s probably a bad thing to take highly confidential documents days before quitting your job. Or ever, really. The electronic fingerprints are traceable, you will get sued and it’s just plain wrong. Beyond common law and statutory claims alleged by the plaintiff in the Hamm case, which remain unaffected by the decision, unlawfully accessing a computer or employer-owned data could give rise to additional legal claims under the federal Computer Fraud and Abuse Act, and or even under certain circumstances the federal Stored Communications Act, which prohibits accessing data stored by third parties (but is generally more applicable to employer snooping into employees’ personal online accounts). In short, we learn from Hamm that although there isn’t always fire where there’s smoke, the smoke itself can suffocate a disloyal employee’s finances.