Call Us For a Consultation: 775-210-0499

Department 7 of the Washoe County Business Court entered a December 5, 2016 Order denying a temporary restraining order and preliminary injunction enforcing a former employee’s covenant not to compete.

Background

The plaintiff was a trading firm engaged in trading, investment, and other business activities in United States, European, and Asian markets. The defendant was a former trader for the plaintiff, who conducted trading activities on the Chicago Mercantile Exchange and Intercontinental Exchange. Prior to his employment, the defendant signed an “Agreement to Protect Company’s Information and Other Business Interests.” Among other restrictive covenants, the agreement contained a non-compete provision stating that the employee agreed not to “directly or indirectly, alone in or association with or on behalf of any other person or entity, engage in or provide competitive services” during the “restrictive period” of one year.

The defendant employee resigned effective March 2016. Per the Agreement, the defendant was to receive monthly payments for the 12 months following his employment so long as he abided by the non-compete covenant. The plaintiff trading company told the defendant that it would in fact enforce the covenant not to compete. In May 2016, the former employee unsuccessfully attempted to negotiate with the plaintiff trading firm regarding the non-compete covenant. At that time, the former employee told the plaintiff trading firm that he intended to take a position with another trading firm.
In September 2016, the former employee began his employment with another trading firm. Shortly thereafter, the plaintiff trading firm brought suit against the former employee and filed a motion for temporary restraining order and preliminary injunction.

Legal Discussion

After a hearing and supplemental briefing, the court denied the request for preliminary injunction and found that the plaintiff did not present sufficient evidence to establish a reasonable probability that it would suffer irreparable injury in the absence of a preliminary injunction.
The plaintiff trading firm argued that the defendant’s employment by another trading firm created the potential for its former employee to divulge critical proprietary data and thereby cause irreparable damage. The court rejected this argument because the defendant’s new employer put into place an arrangement whereby the defendant would not engage in operational trading; instead, the defendant would “work only in a compliance role for the duration of the non-compete agreement.” The court found this to be “a reasonable alternative to a complete prohibition” of the defendant’s new employment.

The plaintiff trading firm also argued that irreparable harm could occur through trade secret misappropriation or disclosure of confidential information under the doctrine of inevitable disclosure. Under the doctrine of inevitable disclosure, a plaintiff may prove a claim of trade secret misappropriation by demonstrating that the defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets. When applying the doctrine of inevitable disclosure, courts have considered the degree of similarity between the employee’s former and current positions, the degree of competition between the former and current employers, the current employer’s effort to safeguard the former employer’s trade secrets, and the former employee’s lack of forthrightness both in his activities before accepting his job and in his testimony. The court rejected this argument because Nevada has not adopted the inevitable disclosure doctrine and the court was not inclined to do so either.

The court stated that another factor militating against a finding of irreparable harm is that the continuing development of new trading signals and strategies would likely be critical to the success of a business such as the plaintiff’s, which engages in high frequency trading in multiple markets. Because the defendant began his employment with a new trading firm six months after resigning from his employment with the Plaintiff, the court believed the any proprietary knowledge the defendant gained during his employment with the plaintiff would be outdated.