The U.S. Court of Appeals for the Fifth Circuit recently upheld an adverse decision against a legal recruiter, finding that he misappropriated trade secrets and violated restrictive covenants after leaving his former employer and using candidate and client information to place attorneys through his new employer. The appeals court affirmed the lower (district) court’s decision that awarded over $6 million in damages and attorney’s fees to the recruiter’s former employer.
The legal recruiter had signed noncompete and nonsolicitation agreements with his former employer. After resigning to work for a competitor, he utilized and revealed to his new employer attorney candidate names, their clients, worth of their practices, their language skills, their goals in switching firms, and their law school records, all of which the appeals court held were trade secrets. The Fifth Circuit stated that this information “was not generally known and not readily ascertainable” because the legal recruiter acquired this information only because of his employment with his former employer.
The legal recruiter also signed an agreement that he would not work with any candidates or clients he had “contact with, knowledge of, or access to” during the 12 months preceding termination of his employment. Florida law allows restrictive covenants as long as they involve a “legitimate business interest.” By Florida statute, trade secrets are a legitimate business interest. For this reason, the district court found part of the restrictive covenant lawful. Interestingly, the district court used the “blue pencil” rule to strike the “knowledge of, or access to” language from the restrictive covenant. This means, according to the district court, the legal recruiter could only be restricted for 12 months from working with candidates or clients he had contact with through his prior employer. The Fifth Circuit did not address this finding in its brief opinion.
This case is of interest to staffing firms because the type of trade secrets at issue are particularly germane to staffing firms. Regarding restrictive covenants, every state’s law is different, and not all state courts will fix an overly broad restrictive covenant using the blue pencil doctrine. Staffing firms contemplating using restrictive covenants therefore should seek the advice of knowledgeable legal counsel.
To read this case, see Counsel Holdings v. Jowers, No. 22-50936, 2024 WL 1374845 (Fifth Cir. April 1, 2024) and MWK Recruiting v. Jowers, No. 1:18-CV-444, 2022 WL 4245537 (W.D. Tex. Sept. 15, 2022).
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