Corporate Mergers Can Create Potential Restrictive Covenant Violations

David Poppick of Epstein Becker & Green, P.C.

An employee who joined a corporate employer that was not a competitor with his former employer was still enjoined and restrained by restrictive covenants he signed with his former employer when his new employer merged with his prior employer’s competitor.

In Amphenol Corporation v. Paul, 3:12-cv-543, (D. Conn. Jan. 8, 2013), the United States District Court for the District of Connecticut granted an injunction and temporary restraining order because after the new employer merged with a competitor of the employee’s former employer, the new employer did not take adequate measures to insulate the employee from information and activities that provided the possibility that documents could be used to violate non-competition agreements signed by the employee with his former employer. Also, before his departure for his new position, the employee had emailed to his personal email thousands of work related emails and downloaded business files.

Amphenol is a multi-national corporation that designs, manufactures and markets electronic and fiber optic connectors, cable and interconnect systems. Richard Paul, a former decades-long employee was the business unit director of Amphenol’s high speed interconnect unit, with an expertise in a device that joins electrical circuits together. He had unlimited access to marketing information regarding sales history, markets and customers.

Paul and Amphenol executed various non-competition agreements over the years, which restricted him from engaging in the development, production, sale or distribution of any product, sold, distributed or in development: (i) by the operation of Amphenol during the 12 months preceding Paul’s termination of employment, or (ii) by Amphenol or its subsidiaries about which Paul received Confidential Information. The agreements also restricted Paul’s ability to divert customers or employees from Amphenol for 24 months following his termination.

The Defendant, TE Connectivity, Ltd., designs and manufactures products that connect and protect data and power, serving customers worldwide in some of the same industries as Amphenol. Although TE and Amphenol were not direct competitors, within the past year, TE merged with Deutsch Group, a manufacturer of electrical and fiber optic connectors that is in direct competition with Amphenol. When Amphenol learned of that merger, it created a team to form a strategic response to the merger, and Paul had access to the team’s findings and documents during his employment with Amphenol.

Paul voluntarily terminated his employment with Amphenol to join TE in March 2012, as global vice president for production management and pricing for TE’s aerospace, defense and marine business unit. The business unit that Paul oversees is not in competition with Amphenol; he works from home; and he does not have direct physical contact with any TE or Deutsch employee who deals with connectors. While those facts are strong arguments against enforcement of Paul’s restrictive covenants, the Court found that after joining TE, Paul was copied on various emails related to TE’s merger with Deutsch and the pricing and marketing connectors. Also, a forensic study of Paul’s computer activity at Amphenol before his departure found 2,000 work related emails forwarded to his personal email address, and the computer hard drives that Paul returned to Amphenol revealed that he had removed various files which had business relevance.

The Court found that Paul could continue in his current capacity, subject to certain restrictions. He was restrained from having any involvement or input regarding the merger, acquisition or integration of TE with Deutch. Also, he was restrained from using Amphenol’s confidential information, trade secrets or sales information and restrained from soliciting Amphenol’s employees, customers and suppliers, among others.

In addition, the Court required TE to implement precautions to confirm that Paul did not share Amphenol’s confidential, trade secret or proprietary information. TE had to distribute a memo reminding senior leaders and managers about Paul’s restrictions; search TE’s IT systems for any evidence that Paul uploaded Amphenol’s documents or data; certify that those IT searches were performed; implement a word-based filter including the terms “Amphenol” and “Deutch” on Paul’s email accounts so that Paul remained “fire walled” from competitive activities; and required Paul to work in the TE’s secure and limited access facility when he was not working from his home.

When corporations merge, the employers and employees must be proactive and consider steps to protect against claims that the merger created a violation of restrictive covenants that did not exist before the merger. Also, an employee who sends work emails to his personal email address and who downloads business files is likely to be caught and to create adverse legal consequences for himself and his new employer. Requiring new hires to certify that they have not brought to the new job any of their work product from past employers, and incorporating the same rule in company policies, are proactive steps employers should consider.

David Poppick, Member of the Firm,

DAVID S. POPPICK is a Member of the Firm in the Labor and Employment, Litigation, and Health Care and Life Sciences practices, in the firm's Stamford and New York offices. His practice focuses on labor and employment law and commercial litigation, including, among other matters, corporate, non-compete, trade secret, health care, and shareholder disputes.

In the 2011 and 2012 editions of Chambers USA: America's Leading Lawyers for Business, Mr. Poppick was identified among the "Leaders in Their Field" for Labor and Employment. In addition, Avenue magazine named Mr. Poppick to its "Legal Elite" list of top litigation attorneys in New York, and he was selected for inclusion in Connecticut Super Lawyers and New England Super Lawyers in 2006, 2007, 2010, 2011, and 2012.

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