Earlier this month, Plaintiff Bright Side, LLC dba Herbal Edibles, a manufacturer of cannabis edibles, filed a lawsuit in New Mexico state court to enforce a 3-year non-compete and enjoin the misappropriation of its trade secret cannabis recipes by one its former bakers, Christina Johnson.
Based on the complaint, Ms. Johnson had been employed by Herbal Edibles as a baker for less than one year when she was terminated. Ms. Johnson allegedly started her own competing business, selling cannabis edibles such as "psychedelic sugar cookies" through Instagram and an open air market.
According to Herbal Edibles, Ms. Johnson's competing business is based on the use of Herbal Edibles' recipes. Herbal Edibles sued Ms. Johnson for both breach of a Confidentiality Agreement – Non-Compete Agreement, as well as misappropriation of trade secrets under the New Mexico Uniform Trade Secrets Act.
From a review of the complaint and the attached agreement, Herbal Edibles faces a tough road to enforce its non-compete covenant. For one thing, a three year world-wide non-compete agreement appears to be of dubious facial enforceability, particularly when sought to be enforced against a baker who was employed for less than one year. Herbal Edibles can expect to face some hard questions from the court as to why a local edibles business needs such a far-reaching non-compete to protect itself from a baker who was employed for such a short period of time.
On the other hand, Herbal Edibles' recipes can certainly be "trade secrets" under the Uniform Trade Secrets Act. Use of a confidentiality agreement and enforcement of its terms is a "reasonable measure" by Herbal Edibles to maintain the secrecy and value of its recipes, as required to be a trade secret.
While Herbal Edibles' lawsuit is pending, a couple observations are worth making. First, non-compete agreements are under heightened scrutiny now, both on a state and federal level. Employers, from Herbal Edibles to Fortune 100 companies, should be particularly mindful of the current climate and deploy restrictive covenant agreements using a targeted strategy to protect itself only from unfair competition and using covenants no broader than necessary to meet that objective. Second, trade secret laws provide significant protection for trade secret owners. While Herbal Edibles' non-compete may not pass muster, its prompt efforts to prevent the disclosure and misuse of its alleged trade secrets are a solid business strategy and potentially necessary to maintain the value of its recipes as trade secrets.
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