Legal Memo: Trade Secrets and WARN Act at Greene's Jewelry

Introduction

Legal situations are largely impossible to avoid in the course of conducting business. For this reason, the importance of awareness and proper assessment of such scenarios — when and if they arise — cannot be overstated. This memorandum provides a formal brief of the lawsuits at issue, offering an informed assessment to the corporate stakeholders of Greene's Jewelry Wholesale with regard to the legal concerns raised. At the outset, it should be noted that as an intern in the legal department of Greene's Jewelry Wholesale, the company does have significant strengths in its legal claim.

Jennifer Lawson, a former employee at Greene's Jewelry, signed a confidentiality agreement whereby she committed to keeping any information gathered relating to the creation of Ever-Gold secret. The process involved in creating this synthetic material is essentially a trade secret of Greene's Jewelry. Being a trade secret, the process was not publicly known. Further, thanks to its unique properties, the company markets the material as everlasting gold — meaning it has intrinsic economic value to the company. It is important to note that Jennifer never signed a non-compete agreement. This, however, has no bearing on the issue at hand because Jennifer has not established an enterprise competing with Greene's Jewelry. On the other hand, when it comes to the company's legal defense, it would be prudent to note that Greene's Jewelry's position would be weak against the countersuit. The subsequent sections of this memorandum analyze the facts and laws relevant to the scenario, evaluate the various facts to be determined, and highlight cases that support the position of Greene's Jewelry.

Facts, Applicable Law, and Precedent

Jennifer has been sued by Greene's Jewelry for breach of the confidentiality agreement she signed. In that agreement, Jennifer committed not to share any information gathered in the course of her employment — relating to the processes Greene's Jewelry uses to create and develop Ever-Gold — with any third party. Following her dismissal from the company, Jennifer unintentionally left with a letter detailing Ever-Gold's secret creation process. She should have returned the letter the moment she discovered she had it. Instead, while seeking new employment, she called Howell Jewelry World — one of Greene's Jewelry's main competitors — and disclosed that she possessed confidential information relating to the creation of Ever-Gold. After signing her employment contract at Howell, Jennifer handed the letter detailing Ever-Gold's secret creation process to Howell's hiring manager.

From a legal perspective, breach of a confidentiality agreement occurs when an employee discloses material information — such as a trade secret — that they had committed not to disclose. More specifically, in the words of Bagley (2012), "an individual misappropriates a trade secret when he or she (1) uses or discloses the trade secret of another or (2) learns of a trade secret through improper means" (p. 333). A trade secret is an undertaking, procedure, or operation that is kept secret by an enterprise for business, economic, operational, or similar reasons. Trade secrets often give their bearers a competitive advantage over peers in an industry or marketplace. For these reasons, and because of the resources deployed in their development, trade secrets carry legal protection. It is therefore clear that Jennifer did disclose the trade secret of Greene's Jewelry. This is especially true given that the process involved in creating "Ever-Gold" remains the company's primary asset in the manufacture of bracelets, earrings, rings, and necklaces.

Some of the key properties of this synthetic gold-colored material include, but are not limited to, resistance to oxidation and the ability to withstand scratches. It is on the basis of this disclosure to a third party that Greene's Jewelry sues its former employee for breach of the confidentiality agreement. Following the enactment of the Defend Trade Secrets Act of 2016, Greene's Jewelry is in a strong position to pursue a civil suit under federal law. According to Chociey (2018), this law "grants a trade secret's owner the right to sue in federal court for 'trade secret' 'misappropriation' if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce."

Jennifer has also countersued Greene's Jewelry for wrongful termination. As noted in the introduction, the company may not be in a strong position to defend itself against this countersuit. This is particularly relevant given the provisions of the Worker Adjustment and Retraining Notification Act of 1988 — the so-called WARN Act. Although the case study does not specify the number of employees to be affected by the downsizing, a reasonable assumption can be made that, given the total workforce of Greene's Jewelry (502 individuals), the downsizing would affect at least 50 persons. This is an important consideration because, for the WARN Act to apply, planned layoffs must affect a minimum of 50 employees at a specific employment site. In basic terms, the WARN Act requires that employers with more than 100 employees provide advance notification of not less than 60 days to employees in connection with the closure of operations or layoffs (U.S. Department of Labor, 2020). More specifically, according to the U.S. Department of Labor (2020), "advance notice gives workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain other jobs, and if necessary, to enter skill training or retraining." In the presented scenario, Jennifer was instructed to clear out her desk immediately — no 60-day notice was given. The WARN Act would, however, not be applicable if the number of persons affected by the downsizing (i.e., junior executive secretaries) falls below 50 employees.

In Hallmark Cards, Inc. v. Janet L. Murley (2013), the defendant (Murley) parted ways with the plaintiff (Hallmark Cards) and received a severance package totaling $735,000. As Hallmark's marketing vice-president, Murley had encountered and retained confidential information regarding the company's operations, including market research and business plans. Upon receiving the severance payment, Murley agreed, among other things, to dispose of any confidential documents and to refrain from disclosing Hallmark's confidential information to any third party. Years later, Murley was hired by a company called RPG as a consultant for $125,000. In the course of that engagement, she passed key Hallmark documents and information to RPG. Hallmark initiated a lawsuit upon learning of these developments. According to Peacock (2013), "the jury returned a verdict in Hallmark's favor for $860,000 — equal to her severance pay plus her consulting fee with RPG."

In Chestnut v. Stone Forest Indus. Inc. (1993), the defendant initiated a mass layoff as a consequence of its assessment of prevailing business conditions. Changes in market dynamics required Stone Forest Industries Inc. to lay off a total of 81 employees in order to remain viable. The affected employees brought a class action suit pursuant to the WARN Act, arguing that the company had not afforded them the mandated 60-day notice. Stone Forest Industries Inc. responded that the layoffs were necessitated by unforeseeable business conditions and sought to invoke the Act's exception. In the final analysis, the court found "that the defendant qualifies for the exception set forth in section 2102(b)(2)(A)" (Justia, 2020).

Facts to Be Determined

For Greene's Jewelry's claim under the Defend Trade Secrets Act of 2016 to succeed, the company must demonstrate that Jennifer engaged in conduct that constitutes "misappropriation." Several considerations are relevant. First, Greene's Jewelry must show that Jennifer disclosed a trade secret that was by its nature confidential. Second, it must demonstrate that Jennifer had an obligation of confidence with respect to that trade secret. Third, it should show that Jennifer lacked authorization to disclose or share the trade secret. The breach of contract claim would be further supported by proof that Greene's Jewelry suffered actual business damage or loss as a consequence of the disclosure.

With respect to Jennifer's countersuit, there are several exceptions that Greene's could invoke in its defense. As the U.S. Department of Labor (2020) indicates, exceptions to the WARN Act exist "when layoffs occur due to unforeseeable business circumstances, faltering companies, and natural disasters." Whether the downsizing resulted from unforeseeable business circumstances is a key fact to be established, as the reason for the layoff has not been specified in the case study.