Trade Secret Ruling Is a Head Scratcher
An Illinois appellate court decision that recently overturned an employer’s effort to protect against the disclosure of its trade secrets by a departing employee gives guidance to employers about drafting and enforcing post-employment restrictions.
In Archer Daniels Midland Company v. Sinele, et al., the employer (ADM) lost because it only claimed that the departed employee would inevitably disclose trade secrets and confidential information. However, the employer did not provide evidence that the departed employee actually did make such disclosures. Also, the post-employment restrictions at issue did not specifically prohibit the departed employee from soliciting customers. Based on these issues, the employer’s effort to block the ex-employee from working with ADM customers failed.
The departed employee, Lane Sinele, had worked for ADM for 28 years, most recently as a manager of national accounts for sales of one of ADM’s key products – food sweeteners. There were several specific customers assigned to Sinele and he had access to a critical ADM internal database with information about pricing, product margins, specific customer buying preferences and other key information. Sinele had signed a typical non-disclosure agreement that prevented post-employment use or disclosure of ADM trade secrets or confidential information about customers, markets and pricing. The court noted that there were no separate non-compete or customer non-solicitation restrictions in this agreement.
Sinele “retired” in 2018 and immediately started his own consulting business, representing buyers of sweetener products from ADM and four other major sweetener manufacturers. Some of his clients were buyers whose accounts he was specifically responsible for at ADM and about whom he had ADM proprietary information. We have written previously about steps employers should consider upon learning that an employee has departed. ADM chose to sue immediately to enforce Sinele’s non-disclosure agreement and to enjoin Sinele “from threatening to disclose or actually disclose” ADM trade secrets or confidential information to ADM customers. The claim, though, was that Sinele would inevitably disclose confidential information, not that he actually did.
The trial court granted injunctive relief to ADM, but the appeals court disagreed. Even though the “inevitable disclosure” doctrine is still recognized in Illinois, the appeals court held that ADM had not sufficiently shown that disclosure of its trade secrets was inevitable, only that ADM was concerned that Sinele would do so. The court also pointed out that there was no evidence Sinele actually took any ADM records or other customer information and there was no suggestion of a flurry of activity by him to access the ADM customer database just prior to his departure from ADM.
However, the court went even further, explaining that it saw little risk of Sinele misusing ADM’s confidential information because he was representing customers/buyers of sweetener as opposed to joining a competitor. The court rationalized that joining a competitor would clearly be detrimental since a critical goal would be to gain market share at the expense of ADM. Instead, Sinele was representing buyers who were “potential enrichers” of ADM. The court concluded that it was possible for Sinele “to represent buyers in negotiations for the purchase of sweeteners…without disclosing or using any confidential information he might remember” from the ADM client database.
We assume that the appeals court ruled this way because there was no evidence that Sinele had actually used or disclosed ADM confidential information. However, it is worth noting the distinction the court made about whether the departed employee had joined a competitor or a customer. While the use or misuse of confidential information in either case should typically violate a non-disclosure agreement, employers should be aware that at least one court has factored into that analysis whether the departed employee’s landing spot was with a “friend or foe.” Together with guidance we have previously provided about protecting trade secrets, another cautionary tale is that employers who entrust employees with significant responsibility for key customers or other business relationships should impose specific post-employment non-solicitation restrictions that are as robust as permitted in the particular jurisdiction at issue. And employers should not rely exclusively on non-disclosure agreements to protect those relationships.