Business Startup

Moore v CAI: Non-Disclosure Agreement May Have Similar Effect to Non-Compete

In Moore v. CAI, a recent Washington Court of Appeals case, the Court discussed a number of important issues related to employment law.

Case Background
Robert Moore worked at Commercial Aircraft Interiors LLC (CAI) as VP of sales and marketing. Moore was laid off by CAI in a general work force reduction. During his tenure with CAI Moore signed a document acknowledging that he understood and agreed to abide by CAI’s “policy of non-disclosure of any and all company policies, trade secrets, intellectual properties, and customer contacts to outside entities or persons.”

Moore sought employment from Volant, a CAI competitor. Volant was prepared to hire Moore, so long as CAI stipulated that such employment would not violate any agreement CAI had with Moore.

CAI replied that Moore had an obligation to protect CAI trade secrets, and that he would necessarily disclose them if he were to be employed by Volant. Accordingly, they objected and reserved their right to file a lawsuit enforcing the non-disclosure agreement, if Volant hired Moore. Because of this, Volant refused to hire Moore.

Moore initiated a lawsuit against CAI claiming that CAI had tortiously interfered with a business expectancy, and that CAI had violated a statute criminalizing employee “blacklisting”.

Both the trial court and the court of appeals ruled against Mr. Moore.

Non-Disclosure Agreement May Have Effect Similar to Non-Compete Agreement
The primary takeaway from this case is that a non-disclosure agreement, in practice, may have the same effect as a non-compete. Mr. Moore did not enter into any non-compete agreement. Yet, because of his non-disclosure agreement, CAI was, as a practical matter, able to keep Mr. Moore from seeking employment from a competing business. The mere threat of the lawsuit was sufficient to prevent Volant from hiring Mr. Moore; and Mr. Moore was without remedy to legally remove the threat.

What is Required for Showing of Tortious Interference with Business Expectancy?
To prevail on a claim of tortious interference with a business expectancy, a plaintiff must prove five elements: (1) the existence of a valid contractual relationship or business expectancy; (2) that defendants had knowledge of that relationship; (3) an intentional interference inducing or causing a breach or termination of the relationship or expectancy; (4) that defendants interfered for an improper purpose or used improper means; and (5) resultant damage.

Here, Mr. Moore was able to prove the first, second, third, and fifth elements, but the fourth element was in dispute. Whether CAI had improperly interfered with Mr. Moore’s business expectancy was the focus of much of the appellate opinion. Ultimately, the court concluded that Mr. Moore had not demonstrated that CAI had acted improperly. A threatened lawsuit is not improper where a party “in good faith asserts a legally protected interest of his own, which he believes may be impaired by the performance of a proposed transaction.” Mr. Moore had to show that CAI was not acting in good faith when it was threatening to enforce the non-compete agreement; according to the courts, Mr. Moore was unable to make this showing.

The court was sympathetic to Mr. Moore’s position, but determined that his business expectancy had not been tortiously interfered with:

“CAI’s objection to Volant’s desire to hire Moore does put Moore in a difficult position. Nevertheless, his claim of tortious interference lacks an adequate evidentiary showing, and therefore may not proceed to trial.”

The Inevitable Disclosure Doctrine
In some jurisdictions, a plaintiff in a trade secrets case may obtain an injunction preventing an employee from working for a competitor by demonstrating that the employee would inevitably disclose the former employer’s confidential or trade secret information. Washington courts have yet to rule on this issue:

“Washington courts have neither adopted nor rejected the inevitable disclosure doctrine, and we make no decision whether it should be adopted or rejected. This is a tortious interference case, not a trade secrets case or a suit for an injunction, so a ruling adopting or rejecting the doctrine is not required.”

Mr. Moore argued that it was improper for CAI to threaten to seek an injunction preventing employment by a competitor, when Washington law did not explicitly provide for such a remedy. However, the Moore Court determined that CAI was within its rights to assert an arguable interpretation of existing law.

Blacklisting Employees–Criminal Statute Provides Civil Remedy
RCW 49.44.010 makes it a crime to “wilfully and maliciously make or issue any statement or paper that will tend to influence or prejudice the mind of any employer against the person of such person seeking employment.” CAI argued that this statute does not provide civil remedies (meaning that only government actors could enforce the statute in a criminal context); but the court disagreed, citing Dick v. North Pacific Railway Company (1915). Although the court determined that a civil cause of action exists under the blacklisting statute, Mr. Moore was unable to demonstrate that CAI acted willfully and maliciously in preventing his employment with Volant. Thus Mr. Moore was without remedy under the blacklisting statute.

 

        


Kyle Hulten

When I'm not in the office I enjoy cooking, gardening, and watching my toddler son explore his little universe.


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