"Confidential Information" in Non-Compete Agreements
Many people mistakenly assume that a signed contract is automatically enforceable. However, that’s simply not the case when analyzing a non-compete agreement. The first step in analyzing a non-compete agreement is determining whether it creates an unreasonable restraint of trade. The answer to that question depends on whether the restraint is necessary to protect a legitimate business interest. The agreement isn’t worth the paper it’s printed on unless it protects a legitimate business interest. A legitimate business interest can take the form of confidential information, special customer relationships, or a substantial investment in an employee’s education or training. The bullets below will explore the meaning of confidential information in more detail and show you why it doesn’t always mean what you think it means in the world of non-compete agreements.
What is Confidential Information: Parties seeking to enforce a non-compete agreement will often make generic confidentiality claims about their company’s methods, processes, or strategies. They’ll mark evidence as “confidential” expecting the company's internal designation to satisfy their burden under the law. However, as noted above, anything alleged to be confidential information must protect a legitimate business interest, meaning that it must (1) be valuable, (2) not be readily available to other competitors in the industry, and (3) allow the defendant to engage in unfair competition.
Who Bears the Burden of Proof: In Florida, the plaintiff bears the burden of proving that a legitimate business interest exists. That means the plaintiff must show that the information it seeks to protect is truly proprietary, valuable, and unavailable to other industry competitors. Thus, in attacking the validity of a non-compete agreement, a defendant should (1) tie the plaintiff down to specific documents or information rather than general categories, (2) attempt to diminish the value or prove lack of confidentiality of the information on a document-by-document basis, and (3) utilize cross examination and impeachment evidence in support of their argument. A useful source of impeachment evidence is often the plaintiff’s competitors who happen to share the same exact “confidential information.”
How Do I Prove It: Even after the plaintiff has shown that it possesses valuable, confidential information that's unique within the industry, they must still show how the defendant could use the information to unfairly compete or cause the plaintiff harm. This extra hoop the plaintiff must jump through is especially helpful to defendants in cases where there's some competitive overlap between the parties, but where the defendant’s new venture isn't competitive in every aspect of the plaintiff’s existing business.
Rick Duarte is the owner of The Duarte Firm, P.A., where he focuses his practice on business law. He received his law degree from the Emory University School of Law and has been named a “Rising Star” in Business Litigation by Florida Super Lawyers for 2016 – 2018. Rick also serves as outside general counsel to emerging and medium-sized businesses, guiding clients through corporate governance, risk management issues, and strategic decisions where business and law intersect.