Legal Services for Startups & Savvy Businesses in Colorado

Inevitable Disclosure Doctrine: When Your Employer Can Keep You from Working for a Competitor

Most people have heard of non-compete agreements. But there’s another scenario where an employer can keep you from working for a competitor, even in the absence of a prior agreement: the Inevitable Disclosure Doctrine.

Three tests must be met for a court to invoke the doctrine. 1) You must possess trade secrets that you do not have permission to share from your prior employer; 2) The new position must be with a direct competitor; and 3) The new position you plan to take with a competitor must be similar, to the point where disclosure of your prior employer’s trade secrets would be inevitable be part of the new job. Also, evidence of a bad-faith intent to disclose trade secrets is another factor that courts look at in deciding whether to invoke the doctrine.

The most prominent case involving this scenario is Pepsi, Co., Inc. v. Redmond, from 1995. In this case, William Redmond worked for Pepsi in its sports drink division. He had access to the company’s financial goals and its strategic planning. He left Pepsi to work for the company’s direct rival in the sports drink industry, Quaker, which owned Gatorade at the time. Even though he signed an agreement saying that he would not provide confidential information to Quaker, Pepsi sued to prevent him from working with Quaker, arguing that disclosure of their trade secrets would inevitably be part of the job.

The court enjoined Redmond from working for Quaker for five months, citing his lack of candor about his position at Quaker Oats and the similarity of the two positions.

This is a scenario that comes up more than you might expect, because if you have skills that make you valuable to your employer, it is often the case that you may be valuable to your competitor as well.

Colorado has a strong bias against restrictions that prevent job mobility. But that does not mean that a court won’t employ the Inevitable Disclosure Doctrine given the right circumstances. A 2011 case has suggested that Colorado may enforce an employer’s right to prevent disclosure of trade secrets obtained through improper means. Colorado employs a two-pronged test : (1) the court will “examine the factual situation to determine whether a restrictive covenant is justified at all; and (2) the court will look at the terms of the covenant to determine whether it is reasonable.” Saturn Sys., Inc. v. Militare, 252 P.3d 516, 526-27 (Colo. App. 2011).

When laws are as vague as that, it’s important to minimize damage as much as possible. If you leave your company to work for a competitor, avoid any behavior that could be construed as “bad faith.”

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