HR Management & Compliance

Lessons on Drafting Employee Agreements

The U.S. 4th Circuit Court of Appeals (which covers Maryland, North Carolina, South Carolina, Virginia, and West Virginia) recently issued a published decision on an employer’s second appeal of a judgment in favor of its former employee on claims of breaching an employment agreement and misappropriating trade secrets under the Maryland Uniform Trade Secrets Act (MUTSA). The court’s ruling offers insights on correctly drafting employment contracts.

Facts

Accounting software company AirFacts, Inc., hired Diego de Amezaga in 2008 and eventually promoted him to director of product development. His duties included handling client relationships as well as developing new products. At the start, he signed an employment agreement including an acknowledgement that he would return all documents containing confidential information and was barred from disclosing them.

De Amezaga resigned in 2015. Before leaving, however, he sent documents about a new product to his personal e-mail account because he said AirFacts had told him there may be questions about his work.

After leaving, de Amezaga used his credentials to download flowcharts he had created from a document storage system used by AirFacts. He then submitted them in support of his job application with a company that was neither a customer nor a competitor of his former employer. The now-former employee claimed the information was needed to help the prospective employer understand the work he had done in his previous job.

AirFacts sued de Amezaga for breaching the employment agreement and misappropriating trade secrets. He prevailed on all claims at trial. After an appeal and a return of the case to the trial court for further consideration, he was found to have breached the agreement in part. Because the breach was limited in scope, the court awarded nominal damages to the employer. No royalties were awarded under the MUTSA claim because the employer couldn’t prove harm. The company filed a second appeal.

4th Circuit’s Decision

The 4th Circuit found de Amezaga had breached the agreement by keeping the downloaded confidential information, not by using his credentials to access the flowcharts.

The court also addressed the proper measure of damages for the MUTSA claim but sent the case back to the trial court (again) for further findings on the issue. Airfacts, Inc. v. Diego De Amezaga (4th Cir., April 6, 2022).

Bottom Line

You should draft employment agreements to clearly define an employee’s obligations regarding the work product and what use can be made of confidential information upon separation from employment. In the present case, the court didn’t fault the employee for using his credentials to access the material because the agreement didn’t restrict him from doing so after he left his job. It did deem the agreement clear, however, on the point that he couldn’t keep the downloaded info on his personal computer.

The case proved to be a costly lesson for the employer. Because of the language in the agreement, the liability couldn’t be shifted to the employee.

Tracey Eberling is an attorney with Steptoe & Johnson PLLC in Martinsburg, West Virginia. You can reach her at tracey.eberling@steptoe-johnson.com.