Employee Beware: The Irreparable Damage of the Inevitable Disclosure Doctrine

27 Pages Posted: 8 Jul 2011 Last revised: 15 May 2014

See all articles by John H. Matheson

John H. Matheson

University of Minnesota Law School

Date Written: January 1, 1998

Abstract

For most of us, employment is our most significant consumer activity. People shop for employment just as they shop for goods and services. Generally, the at-will employment doctrine gives workers the freedom to leave one company for another whenever they determine that the alternative employer is offering the worker (a “consumer” of employment opportunities) a more attractive employment package or opportunity. Workers compare wage rates, benefits, skills required, and restrictions in determining which job package to “purchase” with their labor. As a society we also recognize employment as a consumer activity. Consumer protection laws regulate workplace safety and health conditions, prescribe a minimum wage for some workers, and specify remedies for workplace related injuries.

Today's businesses, on the other hand, operate in an increasingly competitive global economy where information is a key to success. Profitability turns less and less on building a better mousetrap and more and more on formulating and protecting better ideas, namely trade secrets. Trade secret law has evolved to protect these ideas from disclosure or misappropriation. Courts have expanded the protection of trade secret law beyond traditional notions, such as formulas, processes and product specifications, to nontechnological business information, such as customer lists, marketing plans, and other commercial intangibles.

A critical issue arises when a worker with access to confidential business information leaves one employer to work for a competitor. In one sense, the employee is simply acting rationally to increase his or her overall satisfaction as a consumer of employment. From the former employer’s perspective, however, the result of the employee's choice may be sharing valuable trade secrets with the new employer.

In circumstances where an employee moves to a job similar to his or her previous job, employers sometimes seek to prevent the worker from accepting the new employment by arguing that the worker’s new position will inevitably result in the disclosure of trade secrets to the new employer. The disclosure of trade secrets to the new employer is known as the “inevitable disclosure doctrine.” Some courts have accepted this theory of “inevitable disclosure,” and have enjoined the employee from working at the new job, in effect creating a judicially fashioned non-competition agreement. This result may leave the employee without recourse, except to find work in a job or industry unrelated to the former employer’s business. Consequently, the worker’s skills and marketability are devalued. In essence, the employer’s information provides post-employment prophylactic protection at the cost of the worker’s loss of personal freedom.

This article argues that the inevitable disclosure doctrine operates to harm the employee/consumer like a latent defect in a product harms consumers. The employee’s initial employment package does not reflect the cost that the employee ultimately may bear in terms of restricted mobility. Because this cost is hidden, workers cannot make rational decisions when comparing alternative employment opportunities, which is particularly unfortunate since employers have both the legal means and the comparative information advantage to protect themselves in advance by means of negotiated non-compete provisions.

An understanding of basic trade secret law, the remedies available to employers for trade secret misappropriation, and the ways in which employers can protect themselves in advance is crucial to exploring the inevitable disclosure doctrine. Part II of this article explores the development of trade secret law and the remedies for misappropriation of trade secrets. Part III addresses the nature of the employment relationship and the means by which employers can protect their confidential information and other trade secrets. Part IV analyzes the inevitable disclosure doctrine and proposes its rejection when used for purposes of creating an ex post facto restriction on worker mobility, arguing that the courts should not rush to rescue employers who have not taken precautions to protect themselves.

Suggested Citation

Matheson, John H., Employee Beware: The Irreparable Damage of the Inevitable Disclosure Doctrine (January 1, 1998). Loyola Consumer Law Review, Vol. 10, No. 145, 1998, Available at SSRN: https://ssrn.com/abstract=1874215

John H. Matheson (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-625-3879 (Phone)

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