No Disparagement Or Non-Compete Means No Injunction – IL Court

In Xylem Dewatering Solutions, Inc. v. Szablewski, 2014 IL App (5th) 140080-U,  the plaintiff corporation sued some of its ex-employees after they joined a competitor and started raiding plaintiff’s office staff.

The trial court denied plaintiff’s request for an injunction and then it appealed.

Result: Trial court’s order upheld. Plaintiff loses.

Reasons: To get a preliminary injunction, a plaintiff must establish (1) a clearly ascertained right in need of protection; (2) irreparable injury; (3) no adequate remedy at law; and (4) a likelihood of success on the merits.

The plaintiff must establish a “fair question” on each of the four elements. A preliminary injunction is an extraordinary remedy that is only granted in extreme, emergency settings. (¶¶ 20-21).

Irreparable harm can result from commercial disparagement of a plaintiff’s product but the plaintiff must show the defendant repeatedly made false or misleading statements of fact regarding the plaintiff’s goods and services to establish irreparable harm.  Statements of opinion (“their services suck!”, e.g.) don’t qualify as commercial disparagement. 

Here, the Court found that there were no repeated factual statements made by the defendants.  In addition, all statements that were attributed to the defendants were purely interpretive: they weren’t factual enough to be actionable.  (¶¶ 23-24).

In finding that the plaintiff lacked a protectable interest in its employees or customers, the court pointed out that neither individual defendant signed a non-compete and didn’t violate any fiduciary duties to the employer.

In Illinois, absent a non-compete, an employee is free both to compete with a former employer and to outfit a competing business so long as he doesn’t do so before his employment terminates.  And while a corporate officer owes heightened fiduciary duties not to exploit his position for personal gain, the ex-employee defendants were not corporate officers. (¶ 26).

Plaintiff also failed to establish a protectable interest in its pricing and bid information.  The Illinois Trade Secrets Act, 765 ILCS 1065/1 et seq. (“ITSA”) extends trade secret protection to “information” that is (1) sufficiently secret to derive economic value, from not being generally known to others who can obtain economic value from its use, and (2) that is the subject of reasonable efforts to maintain the information’s secrecy (i.e., “kept under lock and key”)

Information that is generally known in an industry – even if not to the public at large – isn’t a trade secret. Also, information that can be readily copied without a significant outlay of time, effort or expense is not a trade secret. 

The pricing data the plaintiff was trying to protect was several years old and the defendants testified that the bidding information was well known (and therefore not secret) in the pumping industry.  In combination, these factors weighed against a finding of trade secret protection for the pricing and bidding information. (¶¶ 29-31).

Afterwords:

(1) Stale data likely won’t qualify for trade secret status – no matter how arcane the information;

(2) If information is well known or can be easily accessed within an industry, it won’t be given trade secret protection;

(3) Noncompete agreements can serve vital purposes.  If a business fails to have its workers sign them, the business risks having no recourse if an ex-employee joins a competitor and later raids the former employer’s personnel.

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PaulP

Litigation attorney at Bielski Chapman, Ltd. representing businesses and individuals in business litigation, post-judgment enforcement, collections and real estate litigation.