Unenforceable Restrictions on Use of Confidential Information

Employers have a legally protectable interest in prohibiting disclosure or use of certain information by current and former employees. But for those interests to be enforceable, the employer must carefully tailor the restrictions so that they restrict only the disclosure and use of information that is truly confidential.

The two most common forms of truly confidential information are trade secrets and customer information.

A “trade secret” is entitled to protection from misappropriation, Calisi v. Unified Fin. Servs., LLC, 232 Ariz. 103, 106 ¶ 14, 302 P.3d 628, 631 (App. 2013), and customer information, if “truly confidential, and to a substantial degree inaccessible, [also] may be given a measure of the protection accorded true trade secrets,” Amex Distrib. Co., Inc., 150 Ariz. at 516, 724 P.2d at 602.

An employer cannot restrict the disclosure or use of information…by an ex-employee…that is not truly confidential.  When a restrictive covenant purports to restrict “any information” an ex-employee “learn[ed] of, possess[ed] as a result of, or access[ed] through employment” with the employer, or something similar, the restriction will be determined by Arizona courts to be unreasonably overbroad, and thus unenforceable.

An employer cannot deem by fiat all information an ex-employee acquired through his/her employment “confidential.” Orca Communications Unlimited, LLC v. Noder et al., p. 12 ¶ 17, 2013 Ariz.App. LEXIS 221, 671 Ariz.Adv. Rep. 15 (Oct. 17, 2013)

A prohibition of an ex-employee’s use of any information she may have acquired during her employment with her employer, whether or not the information is truly confidential, is nothing more than an unlimited restriction against competing with the employer. Amex Distrib. Co., Inc., 150 Ariz. at 517, 724 P.2d at 603 (an unrestricted and overbroad confidentiality covenant “simply boils down to a noncompetition covenant”).

A restriction on a former employee’s right to compete against a former employer is enforceable, but only if the restriction is limited in time and in geography. Id. (restriction must have temporal limitation); Valley Med. Specialist v. Farber, 194 Ariz. 363, 370 ¶ 25, 982 P.2d 1277, 1284 (1999) (“A restraint’s scope is defined by its duration and geographic area.”).

Because most confidentiality restrictions have no geographic and  temporal limitations, and thus would prohibit an ex-employee from working in his chosen field of work forever if the restrictions were to be enforced, such restrictions are facially unenforceable.

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