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In 2017, EMC Outdoor, LLC (EMC) terminated Jennifer Stuart’s employment. After, EMC filed suit against Ms. Stuart, Grandesign (Ms. Stuart’s current employer), and another former employee, alleging inter alia claims for misappropriation of trade secrets under federal and state law. On March 31, 2021, the Pennsylvania District Court granted summary judgment against EMC’s trade secret claims, finding no misappropriation because, under EMC’s employment agreement, Stuart was not required to keep trade secrets confidential following her termination.

EMC alleged that Ms. Stuart (1) provided Grandesign information that EMC used for a prospective client’s proposal; and (2) copied proposals that she authored at EMC to sell the same services to the same potential clients on behalf of Grandesign. Ms. Stuart gained the information properly in the course of her employment and personally disclosed the information after she left the employment. Thus, to prove misappropriation under federal and state law, EMC needed to show that Ms. Stuart acquired the trade secrets under circumstances giving rise to a duty to maintain the secrecy of the trade secret. Surprisingly, the court found, based on EMC’s employment agreement, that no misappropriation occurred.

The decision relied on two relevant provisions of EMC’s employment agreement: (1) Section 5, which contained several restrictive covenants including a duty to “hold in confidence and protect EMC’s trade secrets and confidential information”; and (2) Section 12, which provided:

Upon termination, all obligations of [EMC] and Employee under this Agreement will cease as of the date of termination. Employee’s obligations under Section 5 and 6 and under Exhibit B shall survive willful termination of employment by Employee only.

The court determined that Section 12 ended any obligation or duty under Section 5, since Ms. Stuart was terminated and did not willfully choose to end her employment. Based on this finding, the court reasoned:

[W]hile Stuart did acquire the client information “under circumstances giving rise to a duty to maintain the secrecy” thereof, that duty—as sourced from her employment contract—only required Stuart to maintain the secrecy of the client information while she was employed at EMC, or after she left EMC’s employ if she resigned. Therefore, because all of Stuart’s conduct occurred after EMC terminated her, Stuart did not violate any duty sourced from her employment contract when she engaged in the conduct.

As of April 23, 2021, the case has not been appealed and the case moves forward with several other counts against the defendants. Regardless of what the final resolution of this claim may be, there is a word of warning  protect your trade secrets by making sure that your employment agreements cover involuntary termination.

The case is: EMC Outdoor, LLC v. Stuart, No. 17-5172, 2021 WL 1224064 (E.D. Pa. Mar. 31, 2021).