Attorneys from PilieroMazza’s Litigation & Dispute Resolution Group scored a major win on a motion to dismiss for a tribally owned government contractor and its employees facing complex trade secrets, non-compete/non-solicitation, and tortious interference litigation related to the award of a federal contract. The team, led by Practice Group Chair Matt Feinberg, included contributions from attorneys in the Firm’s Government Contracts and Labor & Employment practice groups. “We couldn’t be more pleased for our clients, who were completely exonerated,” said Matt. “The fact that our defense strategy combined efforts of attorneys from three of our four primary practice groups made this win a true team victory.”
The case represented the misdirected frustrations of an incumbent contractor, previously performing on an information technology contract, whose bidding team was not selected for award when the contract came up for re-compete. While protests were pending, the government elected not to issue a contract extension to the incumbent; instead, it issued a sole-source direct award of a bridge contract to our client, which was part of the successful team receiving the award of the re-compete contract.
With only three weeks until performance began on the bridge contract, our client reached out to employees performing on the incumbent contract and offered them the opportunity to apply for their same positions on the bridge contract. Many incumbent employees elected to continue in their same roles and transitioned their employment to our client.
In response, the incumbent contractor filed suit in the United States District Court for the District of Colorado against our client and several former employees, claiming:
- The employees breached their non-compete, non-solicitation, and confidentiality agreements from their employment with the incumbent.
- The defendants intentionally interfered with the incumbent contractor’s expectation of receiving a bridge contract pending resolution of the protests.
- The defendants misappropriated the incumbent contractor’s trade secrets.
- In addition, the incumbent contractor claimed the defendants engaged in a conspiracy, through unlawful competition and misappropriation of confidential information, to improperly obtain the bridge contract and poach the incumbent contractor’s employees.
PilieroMazza attorneys filed a motion to dismiss all claims. Our motion to dismiss arguments included, among other things:
- The incumbent employees’ non-compete and non-solicitation agreements were unenforceable because Colorado has a strong public policy disfavoring restrictions on future employment, and the employment agreements at issue were not tailored appropriately to meet any of the exceptions to that public policy.
- The agreements also were unenforceable because, once the bridge contract was awarded to a different contractor, the incumbent lacked a legitimate protectable business interest in retaining its incumbent employees.
- To maintain an intentional interference claim under Colorado law—typically referred to as a tortious interference claim in other jurisdictions—a plaintiff must show that a defendant engaged in “improper interference” (i.e., physical violence, fraud, force, threats of civil or criminal prosecution or competition by other “wrongful means”). However, our client did none of these things. Rather, our client engaged in appropriate contract transition activities to maintain continuity of service for the federal government.
- The defendants did not engage in any misappropriation of the incumbent’s trade secrets because the information the incumbent claimed had been misappropriated was either already publicly available or constituted general business knowledge or information the incumbent employees gained through standard work experience.
On September 29, 2021, the Court ruled on the motion to dismiss, adopting PilieroMazza’s arguments and dismissing the incumbent contractor’s suit with prejudice.
Key Takeaways from the Court’s Decision
The decision serves as a reminder to government contractors everywhere (not just those doing business in Colorado) that restrictive covenants, such as employee non-competition, non-solicitation, and non-circumvention agreements, sometimes can be difficult to enforce. While a properly worded agreement will withstand judicial scrutiny, the requirements for meeting that standard vary from state to state, with some states—like Colorado—setting a very high bar for enforceability. Understanding the law in each state in which a company employs workers is critical to enforcing restrictive covenants.
The decision also highlights the types of information protected by trade secrets statutes, such as the federal Defend Trade Secrets Act or the Uniform Trade Secrets Acts of various states, are more limited than many government contractors would expect. To qualify for trade secrets protection, a company must take affirmative steps to protect the information from disclosure and dissemination. This may include password-protecting information, housing data on secure servers, and only granting access to a select few employees. While information does not always have to be a company’s “secret sauce” to qualify as a trade secret, only the information a company truly treats as confidential or secret will be entitled to protection.