The former employer failed to prove that the parties entered into an effective non-compete agreement, and also failed to prove that the ex-employee had disclosed or had threatened to disclose trade secrets. But, an Ohio federal judge entered a preliminary injunction forbidding her, until further order, from contacting her former employer’s clients and certain of its prospects. PharMerica Corp. v. McElyia, Case No. 1:14-CV-00774 (N.D. Ohio, May 9, 2014) (Gwin, J.).
Summary of Case
McElyia was one of several salespersons employed by PharMerica, a provider of pharmacy products and services to skilled nursing facilities. At the time she became a PharMerica employee, she covenanted to keep its client information confidential. She never signed a non-competition agreement. On the eve of her resignation, she downloaded to her personal computer extensive PharMerica documents. Then she went to work for a competitor as its sole salesperson. PharMerica sued her and her new employer. She quickly returned the PharMerica documents. But PharMerica nonetheless sought a TRO and preliminary injunction to prevent both defendants from competing with PharMerica. The court denied PharMerica’s motions directed at McElyia’s new employer and the motion for a TRO against McElyia. But after holding an evidentiary hearing on the preliminary injunction motion directed at her, the court enjoined her until after a trial from contacting PharMerica’s clients or any prospective clients she had called on during her final six months of employment by that company. The injunction was conditioned on PharMerica posting a $50,000 bond.
Non-Compete Injunction without a Non-Compete Covenant
Judge Gwin concluded that there was insufficient evidence of an effective non-competition covenant. PharMerica had asked McElyia to sign one. It provided that she would not work for a competitor for six months, and would not solicit current clients and employees for one year, after her termination. However, she declined to execute it.
The judge found that when she took the PharMerica documents she intended to share them with her new employer, but he added that there was no evidence that she did disclose, or was threatening to disclose, PharMerica’s trade secrets. Judge Gwin said that McElyia had not solicited any of PharMerica’s clients.
Although the phrase “inevitable disclosure doctrine” does not appear in Judge Gwin’s opinion, perhaps it was a basis for entering the injunction. He stated that “some Ohio courts do permit injunctions in the absence of a non-compete agreement and without a prior instance of disclosure” of trade secrets. He cited only one decision. While no injunction was entered in that case, the court there did reference (but distinguished) several “inevitable disclosure” cases.
Courts typically find “inevitable disclosure” only when there is a high probability, not a mere possibility, that trade secrets will be revealed. Usually, (a) the parties executed a non-compete covenant, and/or (b) the ex-employee had disclosed or destroyed, or at least had threatened to disclose or destroy, confidential information. Not so in PharMerica. Further, injunctions to prevent “inevitable disclosure” of confidential information despite the absence of a non-compete covenant usually pertain to engineering data or technical manufacturing processes rather than mere marketing information as in PharMerica.
Curiously, the opinion in PharMerica does not suggest the presence of either of two factors some courts have used to justify entering an “inevitable disclosure” injunction:
(a) the former employer went to considerable lengths and expense to develop the purloined information and to keep it confidential; and
(b) the ex-employee was a high-level executive for the former employer.
The facts and circumstances present in PharAmerica would more often warrant denial of an injunction against competition rather than justifications for entering one. If the court was relying on the “inevitable disclosure” doctrine at all, it seems to have been treated as a de facto (partial) non-compete covenant even though the parties did not agree to one. Moreover, the description of the “confidential” PharMerica information McElyea supposedly possessed was extremely general: “pricing, contract terms, and marketing and product packaging strategies.” If the court intended to enjoin its use, more specific and identifiable data would have been required so that McElyia knew precisely what she was forbidden to disclose.
Significantly, the injunction did not order McElyea to refrain from using PharMerica’s trade secrets. It simply circumscribed the universe of prospective clients she could contact.
In the end, PharMerica may have achieved a pyrrhic victory. Judge Gwin’s preliminary injunction is unlikely to be long-lasting, and the company has been required to post a rather large bond. Perhaps the court simply intended to send a message to the parties that failure to resolve the case amicably could entail substantial risk.