Inevitable Negative Consequence of the Inevitable Disclosure Doctrine

13th November, 2024 - 6:37 am Categories: News & Updates 0 Comments

Introduction

The “Inevitable Disclosure Doctrine” often stands at the crossroads between corporate protectionism and individual rights in employment law. At least on the outset, the doctrine appears to be necessary to protect proprietary information from abuse through the movability of employees into competing companies. However, on closer inspection, it reflects an undesirable picture: the doctrine works not only a rewriting of employment agreements but also threatens basic rights and fair competition in the labor market.

The Inevitable Disclosure Doctrine, if applied or over-applied incorrectly, has potentially expansive consequences with exceedingly negative effects on employees. To be able to communicate its core issues – impact on employees, impact on employers, and more importantly how it might squeeze the very principles of innovation and mobility in a healthy economy – the doctrine needs explanation.

What is the Inevitable Disclosure Doctrine?

The doctrine of inevitable disclosure allows a court to enjoin the working of a departing employee on behalf of a competitor if the court determines it will inevitably disclose trade secrets or other confidential information from the former employer. Proof of actual wrongdoing is not necessary for this doctrine. Rather, it operates on the potentiality for disclosure—essentially the idea that if an employee moves to a competing firm, he or she will almost certainly disclose sensitive information, either intentionally or unwittingly.

Its most critical objection to the doctrine is that it is most commonly used through preliminary injunction, or a legal tool courts use to keep things as they are when the case is ongoing. It seems like a preventive measure, but it may have a grave consequence for the employee.

Problem in Preliminary Injunctions: Winning Before the Case is Won

A preliminary injunction based on Inevitable Disclosure Doctrine usually is issued at least preliminarily premised on a finding of potential harm rather than wrongdoing. The employer has to prove that the employee has already misused trade secrets, but she might.

This way, the employer wins the case without waiting for its determination. For example, an employee might be barred from taking a new job because a court thinks that employee might reveal sensitive information. A case can take months or years to reach a final decision, and in this time, the employee is unable to work for another employer or further their career. In many instances, the waiting period effectively terminates the employee’s career advance even if the case is subsequently won.

And what is left for the employee? The employee suffers significant financial and professional losses without any proof that they’ve done anything wrong, while the employer gets what amounts to a non-compete agreement without having negotiated or paid for it.

The Judicial Rewriting of Two Employment Agreements

Another problem with the inevitable disclosure doctrine is that it leads to the judicial rewriting of not one but two employment agreements.

1. Original Employment Contract

The first agreement that is modified is that of the employee and their original employer. When a court grants an injunction that prevents an employee from working for a competitor, it essentially adds a non-compete clause to the original employment contract-terms which the employee did not negotiate or agree to. The employer benefits instead with restrictions for which they do not have to pay. Courts, by definition, impose conditions on employees whom they never agreed to; they limit their professional autonomy without anything going back to the employer.

2. The Contemplated Employment Contract

The second contract in need of a rewrite is that which exists between the employee and their contemplated new employer. An injunction, upon its issuance, subjects any previous negotiations between the employee and the new employer to ravage. The new employer may have agreed to employ the employee on certain conditions in anticipation of acquiring strengths developed from the previous job. However, the injunction negates all these discussions and prevents the employee either from assuming the role totally or at least the significant aspects of it. This leaves the employee without bargaining power and subsequently with no influence over his career trajectory.

In this regard, the Inevitable Disclosure Doctrine effectively imposes conditions on employment both in the past and in the future without giving the employee any meaningful opportunity to participate.

Effects on Labor Market and Employment Mobility

The Inevitable Disclosure Doctrine injects quite uncertain and unpredictable uncertainty into the labor market. Employees can never know whether future employment might be foreclosed based upon the doctrine’s broad applicability. The mere threat of an injunction may chill talented professionals from pursuing alternative opportunities, especially in industries in which trade secrets and proprietary information are most highly valued.

Furthermore, the rule is squarely at odds with the well-settled “Employment at Will” rule. The employment-at-will doctrine authorized both employers and employees to terminate the employment relationship at will for any reason-including bad cause-unless they violated public policy. That freedom is basic to the mobility of a labor market, allowing employees to seek better bargains and employers to adapt to changed business conditions.

This freedom can be watered down with the aid of the Inevitable Disclosure Doctrine, in a manner by which employees are denied new jobs. In theory, an employee may keep the right to leave his job, but practically, a new position is denied based on the threat of inevitable disclosure; that is another burden on employees who want to change jobs at the risk of being prevented from so doing through the legalistic maneuvers of the former employer.

Employment at Will vs. Inevitable Disclosure Doctrine

This, therefore, brings out stark contrast between the two Doctrines: the Employment at Will Doctrine is bound to push labor market flexibility and flexibility in the ability of workers to change jobs as they please. The Inevitable Disclosure Doctrine, on the other hand, constrains constraints tending to punish the employee for seeking alternative means of employment. If right to change jobs turns into an illusion with an injunction preventing an employee from exercising his or her accumulated skills and experience at a new company, that would be a very, very bad consequence.

The Inevitable Disclosure Doctrine prevents employment mobility and chills labor market friction, which does not serve an important end. It injures employees who may end up doing less ambitious or more understaffed work than they deserve and companies that are prevented from hiring well-salaried employees because of constrictions under the law. This eventually leads to decreased competition, low innovation, and costs to consumers.

Conclusion: The Chill on Competition

The Inevitable Disclosure Doctrine has a chilling effect on competition and innovation because it threatens too much, and is thus likely to stifle a good deal of properly competitive activity. It chills workers, former employers, and prospective employers of workers, threatening them all with litigation that is costly and uncertain. Workers lose opportunities; the economy suffers as competition declines and perhaps leads to higher consumer prices and less innovation.

While protecting trade secrets and encouraging business fair play are necessary, courts should tread on this doctrine with extra caution, as it puts weighty burdens of proof on the party seeking to stop the future disclosure. Indeed, before the injunction is granted, it must be seen that there is concrete evidence of actual harm if the employee continues along a course of action that would eventually lead to disclosure. Otherwise, the doctrine risks causing more harm than good-in other words, penalizing an employee for looking for better opportunities and not walking according to the tenets of a competitive market.

At its core, society benefits from a labor market that encourages competition, innovation, and mobility. The Inevitable Disclosure Doctrine, as currently designed, poses a significant threat to these values. Courts should treat this balancing act with great care so the protection of trade secrets is not at the expense of workers’ rights or the general economy. An injunction applied in the wrong place may result in grave injustice and more than often is visited upon the worker’s doorstep.

Author: Kaustubh Kumar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

REFERENCES

1. John H. Matheson, Employee Beware: The Irreparable Damage of the Inevitable Disclosure Doctrine, 10 Loy. Consumer L. Rev. 145 (1998).
2. Lumen Human resource Management, Module 12: Employee Rights and Responsibilities, Lumen (November 12, 2021, 10:30 AM), https://courses.lumenlearning.com/wmopen-humanresourcesmgmt/chapter/employment-at-will-doctrine/.
3. Jessica Lee, The Inevitable Disclosure Doctrine: Safeguarding the Privacy of Trade Secrets, Colorado Lawyer 17 (2004).
4. Nathan Hamler, The Impending Merger of the Inevitable Disclosure Doctrine and Negative Trade Secrets: Is Trade Secrets Law Headed in the Right Direction?, 25 J. Corp. L. 383, 388 (2000).