The plaintiff corporation — now a Delaware LLC based in Kansas — was headquartered in Alberta, Canada at the time its employees signed agreements containing confidentiality and non-compete covenants. The agreements designated the applicable law to be that of Alberta. When its ex-employees allegedly violated the covenants, the plaintiff sued them and their new employer in a Kansas federal court. Relying largely on Alberta law, that court recently denied the plaintiff’s motion for entry of a preliminary injunction.
Summary of the Case
The court denied the injunction with respect to the covenant of confidentiality, holding that the evidence did not show a substantial likelihood of trade secrets misappropriation. The non-compete prohibited ex-employees from servicing any competitor or customer in any capacity anywhere in the world. No Canadian case was located which enforced such a broad prohibition. The court concluded that neither the balance of harms nor the public interest warranted issuance of the requested injunction. AgJunction LLC v. Agrian Inc., Case No. 14-CV-2069-DDC-KGS (D.Kan., July 23, 2014).
The Corporate and Individual Parties
Plaintiff AgJunction makes and sells “precision” agronomy hardware and software. In November 2012, AgJunction moved its corporate headquarters from Alberta, Canada, to Kansas. Before AgJunction left Canada, its employees signed non-compete and confidentiality covenants governed by Alberta law.
The corporate defendant, Agrian, is a California corporation which, historically, made and sold “compliance” agronomy software. In December 2012, AgJunction licensed Agrian to access the former’s software for the purpose of reselling or sublicensing it to specified companies. The license contained a confidentiality provision. In early April 2013, Agrian began developing “precision” agronomy software. One by one during the period August-December 2013, five employees of AgJunction resigned and went to work for Agrian. They also were named as defendants (subsequently, the cases against two of the individuals were dismissed for lack of personal jurisdiction over them in Kansas).
AgJunction’s largest customer was Crop Production Services (CPS). When AgJunction was informed by CPS of its intent to move its “precision” business to Agrian, AgJunction filed a multi-count complaint against Agrian and the five ex-employees. The complaint alleged trade secret misappropriation, breach of contract, and other wrongs.
“Last peaceable uncontested status”
AgJunction moved to enjoin the defendants from competing. Reviewing Kansas law, the court stated that a preliminary injunction should not be issued unless it restores the “last peaceable uncontested status existing between the parties before the dispute developed.” To warrant an injunction, AgJunction was required to make a “strong showing” that it was likely to succeed on the merits. But Agrian began the process of creating “precision” products prior to the time any of the five employees left AgJunction, and so the court concluded that an injunction would “disturb the status quo and is disfavored.”
Canadian Law Governing Misappropriation of Trade Secrets
A Canadian employer alleging trade secrets misappropriation must demonstrate that particularized “know how” was taken, not just “general skills and knowledge.” AgJunction showed only the latter.
Canadian Law Governing Non-Compete Covenants
The court concluded that “AgJunction has produced some evidence suggesting that defendants, at best, acted in an underhanded manner in their departure from and dealings with AgJunction” but not the requisite “strong showing” that it would prevail at trial. Reviewing Alberta law, the court observed that “Because there is generally an imbalance in power between employer and employee, restrictive covenants in employment contracts receive rigorous scrutiny in Canada.” Further, Canadian courts enforce non-compete clauses “only in exceptional circumstances.”
Geographically broad non-compete clauses have been upheld in Canada, for example, an assets sale agreement restraining competition in the entire country, but no case was located that supports a global provision. The court stated that Canadian jurists are not likely to enforce an employment agreement covenant prohibiting “a nearly unbounded scope of work with no geographical limitation.” Finally, regarding balancing harms and the public interest, the court said that “the harm the injunction would cause defendants is certain, while the evidence that they stole AgJunction’s confidential and proprietary information is not.”
The opinion in AgJunction v. Agrian should be consulted when Canadian law may apply to restrictive covenants. The opinion contains an extensive discussion restrictive covenant disfavor by Canadian courts. Interestingly, AgJunction did not rewrite the choice of law provision in its covenants, to take advantage of the greater likelihood of enforceability, after moving its headquarters to Kansas (see, e.g., Wichita Clinic, P.A. v. Louis, 185 P.3d 946, 951-55 (Kans. App. 2008) (emphasizing the sanctity of contracts in enforcing reasonable restrictions, even in employment agreements). However, a preliminary injunction against Agrian might also have been denied under Kansas law unless the expansive breadth of the territorial and prohibited activities provisions in AgJunction’s covenants was narrowed.