Instances do not strive fairly often. Doubly so in commerce secret/non-compete litigation. So many of those disputes get resolved on the injunctive reduction part of the continuing that, when one goes the space, it’s virtually all the time price peeking beneath the hood.
In MWK Recruiting, Inc. v. Jowers, No. 1:18-cv-444-RP (WD Tex.), a federal district court docket decide just lately entered a judgment for $3.6 million—earlier than charges and prices—towards a former exterior legislation agency recruiter. The info will not be complicated. A recruiter left his employer and joined a competitor. However earlier than the recruiter left his former employer, he started utilizing his private electronic mail for candidate submissions and allegedly laundered six lateral candidates via the founding father of his new employer. His former employer sued him and alleged that he misappropriated commerce secrets and techniques and breached non-compete and non-solicitation covenants in his employment settlement. At trial, the district decide discovered within the plaintiff/employer’s favor on each claims and entered a $3.6 million damages award, with about $500,000 awarded beneath the misappropriation declare and $3 million beneath the breach of contract declare.
Three facets of the order piqued my curiosity. First, this was a bench trial—not a jury trial. As we now have beforehand blogged, choosing a bench trial is perhaps extra advantageous, relying on the info of the dispute. This case is an efficient instance of a case the place a decide is perhaps preferable to a jury, as there isn’t any instantly obvious avenue for a blockbuster damages discovering, and a district court docket decide won’t shrink from imposing a big judgment.
Second, the district court docket simply discovered that the data the recruiter collected about purchasers and potential purchasers certified as a commerce secret beneath Texas legislation. The court docket particularly discovered that the candidates’ names, purchasers, e-book worth, language abilities, targets for switching companies, and their legislation faculty information constituted commerce secrets and techniques. The district court docket emphasised the recruiter’s testimony that candidates anticipated their info to be saved confidential and that one other recruiter couldn’t merely be taught this info and monetize the data.
Third, the district court docket awarded the quantity of placement charges that the recruiter obtained as damages for breach of contract. The one cause the district court docket might accomplish that is as a result of this settlement included a liquidated damages provision. Usually, disgorgement-type damages will not be accessible for a breach of contract. As a substitute, the basic contractual treatment for such a breach is expectation damages—the misplaced revenue that the employer would have obtained had the breach not occurred. This employer requested and obtained extra as a result of this settlement included a liquidated damages provision. That provision reads as follows:
9.1 The precise damages ensuing from violation of Sections 7 and/or 8 of this Settlement by the Worker can be troublesome or unimaginable to establish. Within the occasion of such a violation, the Worker shall pay the Firm, upon demand, as liquidated damages, and never as a penalty, the next:
9.1.1 Any payment paid for providers rendered in violation of Sections 7 and/or 8, whether or not paid to the Worker or to some other individual, agency or entity; plus
9.1.2 All prices and bills, together with cheap legal professional’s charges, incurred by the Firm within the enforcement of its rights regarding such violations.
For my part, this liquidated damages provision functionally creates a disgorgement treatment for a breach of contract declare. The profit to doing so is that, in contrast to a traditional misplaced revenue damages exhibiting, the previous employer didn’t want to indicate that the previous employer would have made the identical placement. As a substitute, the previous employer met its damages exhibiting by establishing (1) a violation of a covenant and (2) receipt of charges by the recruiter in reference to that breach. Consequently, the previous employer might make a simple exhibiting based mostly solely off exercise by the recruiter without having to show up its potential to seal the position.
If this method sounds too good to be true, it is perhaps. Usually, a liquidated damages provision can be challenged on the idea that it was an unenforceable penalty clause relatively than a liquidated damages provision. Whereas the precise necessities differ from state to state, most states will implement liquidated damages in a contract provided that precise damages are troublesome to calculate or not readily ascertainable and when the quantity is an affordable estimate of the damages that may outcome. However right here, the recruiter waived his potential to problem the enforceability of the liquidated damages provision.
Implementing a liquidated damages provision would possibly make a damages exhibiting simpler, however it will very probably draw an objection as a penalty clause within the ensuing litigation. So any employer contemplating whether or not so as to add a liquidated damages provision to a restrictive covenant settlement ought to severely look at the legislation within the related jurisdictions earlier than revising its kind restrictive covenant settlement.
General, the choice and judgment supplies a powerful reminder that pre-employment unhealthy acts decided by a trier of truth can generate materials legal responsibility and that candidate info could also be considered not solely as confidential info, but additionally even attain the extent of a commerce secret if a adequate exhibiting is made. And the choice supplies an inspiring threat have a look at the advantages of a liquidated damages provision—although any reader also needs to be cognizant of the related.