Imitation: A Risky Form of Flattery in the Business World
Imitation may be the sincerest form of flattery, but, when it comes from a former employee working for a direct competitor, it poses serious legal and financial risks. When imitation crosses the line into misappropriation, it threatens the safety of proprietary information and undermines the strategic advantages that businesses work hard to develop and protect. Companies invest countless hours and significant resources into safeguarding trade secrets and confidential information making non-competition, confidentiality, and non-solicitation agreements more than mere formalities. They are essential tools to protect the sensitive information and business relationships critical to ongoing success.
Prospective employers must take seriously the ongoing legal obligations of their new hires or risk substantial financial consequences. A stark example of this is seen in the case of Prysmian Cables & Sys. USA, LLC v. Szymanski, 573 F. Supp.3d 1021 (D.S.C. 2021), where flattery turned into a cautionary tale. A former Senior Vice President violated his non-compete, confidentiality, and non-solicitation agreements after accepting a similar position at a direct competitor. He then used his insider knowledge to solicit customers and poach former colleagues involved in an ongoing expansion.
At trial, a South Carolina jury found that the executive unjustly enriched his new employer by sharing the confidential information, awarding $96 million in damages for misappropriation of trade secrets. The evidence revealed the SVP took thousands of pages of confidential information, including customer information, upcoming product plans, and expansion strategies. The message sent by the United States District Court for the District of South Carolina was clear: businesses have powerful legal remedies available to protect their proprietary assets. Former employees disregard their contractual obligations to confidentiality and non-competition at their own peril.
Notably, even in the absence of formal agreements, employees are not free to exploit confidential information. In Jennings-Dill, Inc. v. Israel, 442 S.C. 98, 897 S.E.2d 201 (Ct. App. 2024), the South Carolina Court of Appeals reaffirmed this principle. Here, a plumbing superintendent abruptly resigned and was asked to return company property, including an iPad containing sensitive documents about payroll data and project information. Instead of returning the information, he quietly downloaded it to his own device. Within three weeks of joining a competing company, nearly half of his former employer’s Plumbing Division workforce had quit and several went to work for the competitor. Many of these employees previously showed no signs of discontent.
It soon became clear that the former superintendent was visiting job sites without legitimate business reasons, likely to solicit his competitor’s employees. The lack of employees forced the company to cancel three projects, ultimately losing millions of dollars in revenue. Based on strong circumstantial evidence of his misappropriation of confidential information, the Court granted a preliminary injunction, finding a credible risk that trade secrets had been and would be misused. This case serves as a reminder that employees, even those without signed non-compete or confidentiality agreements, are still legally barred from misappropriating proprietary information.
The Bottom Line:
While imitation may flatter, it can also cost millions. Employers must be vigilant in enforcing their rights, and employees, especially those transitioning to competitors, must respect the boundaries of confidentiality and fair competition. The lesson from these cases is clear: legal obligations don’t end with a resignation letter.