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Forbidden to Flee
Even though a nondisclosure agreement was not involved, a senior executive was ruled ineligible to move on to a new job because of the trade secrets he knew about his former employer. Such an agreement might have helped the company that wanted to hire him, however.
When a senior executive at a major baked goods manufacturing firm recently decided to take a high-ranking post at a rival firm, he sparked a court battle that made headlines when a federal judge barred him from starting the new job. But experts who have studied the case from a human resource perspective say the court battle might have been avoided altogether if HR executives at either company had taken some preventive measures. In his injunction, U.S. Judge R. Barclay Surrick in Philadelphia ruled that Chris Botticella, a former senior vice president at Horsham, Pa.-based Bimbo Bakeries USA, cannot start work for Hostess Inc. because of his extensive knowledge of Bimbo's trade secrets, including the highly guarded secrets for making the famous "nooks and crannies" in Thomas' brand English muffins. According to court papers, Thomas' English Muffins generate about $500 million in annual sales for Bimbo, and there are three secrets for creating their "nooks and crannies" texture -- the recipe, the engineering and the process. Most Bimbo employees know only one of the secrets. Botticella was one of just seven people with knowledge of all three. And as a senior leader earning $250,000 plus bonuses, Botticella was in an elite group that had access to Bimbo's competitive planning, including product-launch initiatives, strategies for cutting costs and plans for securing lucrative contracts for store-brand products, Surrick concluded. Surrick also found that Botticella had continued to work for Bimbo for three months after accepting the Hostess post, and that Botticella removed sensitive documents in his final days as a Bimbo employee. Such evidence "demonstrates an intention to use Bimbo trade secrets during his intended employment with Hostess," Surrick wrote. The case is unusual because Botticella was not subject to any restrictive covenant. Instead, the judge's injunction is premised entirely on the grounds that Bimbo's trade secrets were threatened. Botticella has appealed the ruling as he and his lawyers prepare for a final hearing before Surrick, when the judge will decide whether to lift the temporary injunction, possibly ordering Botticella to wait six months or even a year before starting the new job. Mistakes were made on both sides, experts say. Attorney Paul Greco of Conrad O'Brien Gellman & Rohn in Philadelphia, who regularly litigates trade secret and restrictive-covenant cases, says he would have advised Hostess to speed up the hiring process. "If you look at the numerous factors that seemed to bother the judge, I think the length of time between his accepting the job and starting -- nearly three months -- was a critical factor," Greco says. Greco notes that, during his final months at Bimbo, Botticella continued to attend strategy meetings in which top Bimbo executives discussed sensitive issues such as product-launch dates and pricing strategies. In court papers, Botticella's lawyers argued that, after he was offered the Hostess job in mid-October 2009, he kept his post at Bimbo to ensure he received his annual bonus. But Greco says the litigation is likely to prove more costly and could possibly have been avoided if Hostess had offered to cover any loss of bonus. Greco says he often advises companies who are recruiting sensitive workers to take a series of affirmative steps that can later be used as evidence of good faith if the matter ends up in court. "There are things you can do to lower the temperature," Greco says. "I often advise my clients to offer to talk. That offer might be rejected, but at least you've made the offer." One option that can avoid a host of potential problems, Greco says, is to negotiate a "garden leave" agreement, meaning a period of time in which the worker who is switching firms will be on a paid leave. If the former and future employers can agree on a time frame for such a leave, it's possible to avoid going to court at all, he says. Greco also says that the recruiting company would be wise to put in writing explicit instructions to the employee about honoring all trade secret issues, and to take extra steps to reassure the worker's former organization. "I always say: don't take anything with you and remember to return everything. Employees often have items at home that they may have received years earlier. Returning those things is one way to show good faith," Greco says. In his injunction ruling, Surrick concluded Botticella's extensive knowledge of Bimbo's trade secrets made it very likely he would disclose those secrets to Hostess. "We seriously doubt that defendant will somehow clear his mind of Bimbo's trade secret information when working on related tasks at Hostess," Surrick wrote. Laurence E. Stuart, president of HR Houston, the local affiliate of the Society for Human Resource Management, and an attorney at Stuart & Associates in Houston, who regularly litigates employee-disloyalty cases, says he believes one of the lessons to be learned from the Bimbo case is that HR professionals must work closely with IT departments. Stuart notes it was a computer expert that detected Botticella's transfer of documents to a removable hard drive he attached to his laptop. By understanding that "data is portable and removable by anyone who has access to it," Stuart says HR leaders can play a role in IT security planning by identifying sensitive data and helping to craft a security plan. But he says that, when problems do arise and companies are forced to investigate, it's important to bring in computer forensic experts who have the proper software and training. In-house IT employees, he says, may be very capable, but can run the risk of destroying access to the very evidence they are seeking. In his opinion, Surrick found that the harm to Botticella from a preliminary injunction will be minimal because the case will proceed to a final determination within the next two months. In the meantime, Surrick noted, Botticella will be receiving 11 weeks of accrued vacation time. Stuart says it's impossible to predict how Surrick will rule after a final hearing in April. When a company brings aboard a top-level executive from a rival firm, Stuart says, "the hiring of that person is to get a competitive advantage. Whether it's also for getting access to trade secrets is another matter." The courts have long struggled with such cases, Stuart says, because of the tension between protecting corporate trade secrets, on the one hand, and protecting a worker's right to change jobs, on the other. To avoid protracted litigation, Stuart agrees with Greco that the recruiting company can use a best-practices approach that includes drafting detailed agreements with high-level workers they hire from rival firms that discuss the specifics of honoring all trade secrets. "By doing that, you can send the strong message that you're just looking for talent and not for any trade secrets," Stuart says.
March 8, 2010 Copyright 2010© LRP Publications |
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