Abstract
An employment agreement was executed five months after the employee was hired. It contained a provision requiring the employee to keep the employer's information confidential. Later, the employee was hired by a competitor and forwarded himself emails containing his employer's confidential trade secret information before he left the employer. The employer sued, alleging that the employee had breached the confidentiality provision of his employment contract. A Pennsylvania court ruled that the claim fell outside the agreement's arbitration provision and that the confidentiality provision did not require new consideration to be enforceable.
Background
West Shore Home and P.J. Fitzpatrick directly compete in the home-remodeling industry. West Shore keeps its specific vendors, material costs, and procurement strategies confidential as trade secrets. West Shore hired Mr. Michael Graeser as its procurement manager. In this role, Mr. Graeser had access to these trade secrets. Five months after West Shore hired Mr. Graeser, the two parties executed an employment agreement that contained a confidentiality provision barring Mr. Graeser from sharing West Shore's trade secrets either during or after his employment.
Mr. Graeser resigned from West Shore several years later to work for Fitzpatrick. Before he quit, Mr. Graeser forwarded three emails containing West Shore's trade secret information from his work email address to his personal email address. In response to discovery of Mr. Graeser's emails, West Shore sent both Mr. Graeser and Fitzpatrick cease and desist letters alleging that Mr. Graeser misappropriated the information and shared these materials with Fitzpatrick, his new employer. Fitzpatrick continued to use the information that Mr. Graeser obtained from his time at West Shore. A short time later, a vendor who had supplied both West Shore and Fitzpatrick cut ties with West Shore. West Shore then filed this litigation against Fitzptrick and Mr. Graeser.
The West Shore Decision
West Shore claimed that Mr. Graeser breached the confidentiality provision of his employment contract. In response, Mr. Graeser contended West Shore's claims should be dismissed because they were subject to arbitration. Failing that, Mr. Graeser argued that the confidentiality agreement he signed five months after starting with West Shore was unenforceable for lack of consideration, namely, that he received no compensation for promising to keep West Shore's information confidential, so the promise was not enforceable.
The court concluded that the agreement's arbitration provision did not govern the dispute over Mr. Graeser's disclosure of confidential information. The plain language of the arbitration clause stated that "[t]hese arbitration requirements shall not apply to any non-solicitation or non-disclosure provisions, rights, and legal remedies contained elsewhere in this agreement."
As to West Shore's breach of contract claim, Pennsylvania law requires three elements to establish a cause of action for breach of a restrictive covenant within a contract: (1) existence of a contract or covenant; (2) breach; and (3) damages. Mr. Graeser challenged the first prong, arguing that no valid contract exists because the restrictive covenants in his employment agreement lacked consideration.
Under Pennsylvania law, restrictions imposed after an employee begins working are generally enforceable only if supported by new and valuable consideration. Mere continued employment is not adequate consideration, but, as the court explained, "not all restrictive covenants are created equal."
The court reviewed precedent and explained that, unlike other post-employment restrictions, Pennsylvania courts have determined that continued employment is sufficient consideration for a confidentiality agreement based in part of the common-law understanding that employers are entitled to protect their confidential information.
The court noted that West Shore claimed that Mr. Graeser entered into the employment agreement fully recognizing he had access to the company's trade secret information, and that the agreement acknowledged Mr. Graeser's desire to work for West Shore, the parties' mutual promises, and their exchange of "other good and valuable consideration." The court found that in view of these facts and Pennsylvania's law, Mr. Graeser's continued employment with West Shore was sufficient consideration to make West Shore's confidentiality provisions binding and that Mr. Graeser had breached those confidentiality provisions.
Strategy and Conclusion
In Pennsylvania, confidentiality restrictions on an employee may be enforceable based on continued employment even if there is no new additional consideration.
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