Legal question regarding NDAs during job interview process

[Bozo_Casanova 25498]

I'm up for a senior executive (C-suite or SVP, negotiating) position with a company that competes with two of my former employers. 

Obviously if I was hired I would have to execute an NDA, and I'm familiar with the issues there. However, I'm being asked to sign an NDA in connection with the interview process, and I have a few concerns related to what happens if I am not offered or do not accept the position. 
They are asking me to sign so that they can disclose enough for me to go through a strategic exercise with the other senior execs - mainly me creating strategies, plans and recommendations that I would lead if I come aboard based on my understanding of the business and their disclosures. First, I'm concerned that to a certain extent about my knowledge of my recommendations - not because I'm worried they will take them and not hire me, but the optics if I wind up competing with them somewhere else. Second, I'm concerned about the contents of the NDA - their remedies to protecting their disclosures include entitling them to injunctive relief in addition to all legal remedies without showing or proving any actual damage. 

I don't think anybody has anything but good intentions, but the fact is that this industry is a small pool of experts who move though multiple stops and we all know each other. If this doesn't work out I want to be able to land an another spot and compete with these guys in good faith with no hard feelings or gotchas. Thoughts?

[Handcruser 2799]

I'm up for a senior executive (C-suite or SVP, negotiating) position with a company that competes with two of my former employers. 

Obviously if I was hired I would have to execute an NDA, and I'm familiar with the issues there. However, I'm being asked to sign an NDA in connection with the interview process, and I have a few concerns related to what happens if I am not offered or do not accept the position. 
They are asking me to sign so that they can disclose enough for me to go through a strategic exercise with the other senior execs - mainly me creating strategies, plans and recommendations that I would lead if I come aboard based on my understanding of the business and their disclosures. First, I'm concerned that to a certain extent about my knowledge of my recommendations - not because I'm worried they will take them and not hire me, but the optics if I wind up competing with them somewhere else. Second, I'm concerned about the contents of the NDA - their remedies to protecting their disclosures include entitling them to injunctive relief in addition to all legal remedies without showing or proving any actual damage. 

I don't think anybody has anything but good intentions, but the fact is that this industry is a small pool of experts who move though multiple stops and we all know each other. If this doesn't work out I want to be able to land an another spot and compete with these guys in good faith with no hard feelings or gotchas. Thoughts?

[TwiceHorn 30715]

Well, a couple of things.  Kind of regardless of what the NDA says, if they want to be dickholes about you going to work for a competitor, they can sue.  And that's one of those deals where you can beat the rap but not the ride.  Hopefully your employer would assist with footing that bill.

Does the NDA contain carve-outs for your preexisting knowledge and skill and/or public domain information?  Because that's what's really going to be at issue:  are you just a seasoned __________ pro, or did you use something you learned during an interview?  And, that's mostly independent of the NDA, but it's kind of nice if it's written in there.

As to injunctive relief, and damages without proof of damage, well, that's probably just not going to happen.  If you do get sued, you might get hit with a two-week TRO without much real proof, that's just the nature of TROs.  After that, they're going to have to prove a breach of the NDA/the misappropriation of some information that they passed along to you.  And they'd have to prove any damages they seek.  You can have liquidated damages in certain instances, but I don't believe you can just waive proof of damages in litigation.

So, I'd probably try to line through that injunction/damages stuff with the following reasoning:  If I breach this, and you can prove it, and you're damaged, you'll get all this stuff with or without this language.  And you'll have to prove it, anyway, again, with or without this language. Trying to make me agree to be enjoined and pay damages without proof is a little over-the-top.

Kind of a pro-tip:  You don't even need a written NDA to bring a misappropriation of trade secrets case.  But it does go a ways to showing a) there was an understanding of confidentiality and b) that the proprietor was taking reasonable steps to protect its trade secrets.  The actual terms of the NDA don't often come up all that much, in the way they might in a breach of contract case.

One kind of bummer of Texas' adoption of the UTSA is that, formerly, a claim of misappropriation of trade secrets mostly subsumed/pre-empted claims of breach of contract, for limitations, damages, and other purposes.  The Texas version of the UTSA tries to kind of undo that.  Not sure where the case law has gone on that issue.  https://statutes.capitol.texas.gov/Docs/CP/htm/CP.134A.htm  See in particular 134A.007.

Edited September 9, 2023 by TwiceHorn

[troph 23963]

I think you start from a position of revising as little as possible and look for reasons to sign as is. BUT if it’s more than a down the middle NDA you might have to.
 

there are easy fixes on remedies and ancillary provisions.  Most lawyers will start with “shall be entitled” to injunctive relief, and most will accept “shall be entitled to seek injunctive relief” there are other changes in that section including “may” instead of “shall” on the predicate language. But this kind of language is standard. 
 

you could ask for prevailing party attorneys fees if you are worried they will be trigger happy.

There should not be any assignment of IP or warranty  language - if there is that’s too far. 

general knowledge and know how can be carved out but if you had the knowledge to begin with it should fit an exception under the NDA if the exceptions are standard.

I would avoid non solicitation clauses because that indirectly binds your current employer.

you should check your existing employment documents to make sure this or future employment won’t violate those agreements.

in the end the NDA for executives pre employment is normal. You just have to sign and move on if the document doesn’t contain outliers.

 

Edited September 9, 2023 by troph

[Bozo_Casanova 25498]

@TwiceHorn @troph 

Thank you for the good advice - agree it's standard and FTR I am looking for reasons to sign as is. The part that concerns me is that the language of the remedies clause. Essentially the recipient (that's me) agrees that any violation or threatened violation will cause them irreparable harm and entitle them to relief without showing damage. 
Top of mind are two situations I am aware of in my industry where a company disclosed information to a prospective exec, didn't hire them (in one case he wasn't offered, in another he decided to go a different direction), and then sicced their outside counsel on the new employers. In one case that I have direct knowledge of, the offer was rescinded.

cc: @Brisketexan

Edited September 9, 2023 by Bozo_Casanova

[troph 23963]

You can ask to change it to “may” cause and accordingly the company shall be entitled to “seek” injunctive relief. 
 

I always give that when the ask comes in.

 

[Brisketexan 103131]

39 minutes ago, Bozo_Casanova said:

@TwiceHorn @troph 

Thank you for the good advice - agree it's standard and FTR I am looking for reasons to sign as is. The part that concerns me is that the language of the remedies clause. Essentially the recipient (that's me) agrees that any violation or threatened violation will cause them irreparable harm and entitle them to relief without showing damage. 
Top of mind are two situations I am aware of in my industry where a company disclosed information to a prospective exec, didn't hire them (in one case he wasn't offered, in another he decided to go a different direction), and then sicced their outside counsel on the new employers. In one case that I have direct knowledge of, the offer was rescinded.

cc: @Brisketexan

@Ghost of LL knows this subject matter better than I do.  So, tagged him.

But I do know this....in all of these negotiations, demand a retainer, and tell at least one person in the room "ya're suspect!"

 

[TwiceHorn 30715]

If nothing else is offensive about the agreement other than the damages provisions, I'm not sure I'd worry that much.  

As alluded to earlier, I come at these things from the IP perspective, where you're looking at a trade secret case of which the NDA is an element of proof (of a confidential relationship), not the be-all end-all of that relationship, where the terms of the contract will be strictly construed.  That is, the misappropriation of trade secrets cause of action nearly completely subsumes any breach of contract causes of action (aside from those that don't deal with misappropriation of confidential information). Perhaps that is mistaken, but it has not steered me wrong over the years.  

I don't think I have ever seen a trial judge substitute recitations in a contract (other than a valid liquidated damages clause, which this is not) for actual proof of the elements required to obtain injunctive relief or monetary damages.

Perhaps it is helpful to look at what the statute says is available:

Sec. 134A.003. INJUNCTIVE RELIEF. (a) Actual or threatened misappropriation may be enjoined if the order does not prohibit a person from using general knowledge, skill, and experience that person acquired during employment.

(a-1) On application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.

(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include a material and prejudicial change of position before acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.

(c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.

Sec. 134A.004. DAMAGES. (a) In addition to or in lieu of injunctive relief, a claimant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator's unauthorized disclosure or use of a trade secret.

(b) If willful and malicious misappropriation is proven by clear and convincing evidence, the fact finder may award exemplary damages in an amount not exceeding twice any award made under Subsection (a).

Sec. 134A.005. ATTORNEY'S FEES. The court may award reasonable attorney's fees to the prevailing party if:

(1) a claim of misappropriation is made in bad faith;

(2) a motion to terminate an injunction is made or resisted in bad faith; or

(3) willful and malicious misappropriation exists.

So, rather obviously, injunctive and monetary relief are available to them under the statute.  As a practical matter, I don't know how you come up with a damages number that doesn't require proof.  Do they just get to exclaim "tree-fiddy" and that's it?  And I really have trouble seeing a trial judge going along with that and it's incompatible with the statute.

Also note that "threatened" disclosure is contemplated by the statute and can be enjoined.  That goes back to the common-law "inevitable disclosure" doctrine where the employee is placed in a position where disclosure or use is inevitable at some point during their competitive employment.  I never saw this asserted until the dotcom/telecom wars in North Dallas in the early oughts.  I don't think Texas courts bought into it very heavily and it certainly was not a part of longstanding Texas law.  It has some new life under the Uniform Trade Secrets Act, as set forth above.  But I think "threatened" is going to require some actual proof beyond, "hey, he's going to work for a competitor," especially when you just left a job with a competitor.  That reeks of knowledge, skill, and experience.

Edited September 9, 2023 by TwiceHorn

[troph 23963]

I agree if the injunctive relief section is the only one causing heart burn, I'd sign and move on. 

not a litigator but I tell litigators what to do all the time - well at least the men who like bossy women - and so I can't tell you how a judge will look at a "shall" clause in a contract on injunctive relief. My gut tells me the judge is still going to require the plaintiff to prove their case for extraordinary remedies no matter if the contract says the parties agree the plaintiff is entitled to it, basically it's not a decision for the parties to make, it's a decision for the court to make.

provisions like waiving a bond or an otherwise enforceable liquidated damages clause, that's different.  the language we are talking about is evidentiary in nature and is only one factor I suspect the court would consider.

again, if that's your only concern, I'd sign it and get to persuading them along the lines of Brisket, and DON'T forget the white tube socks man!  That's the cred right there.

Edited September 11, 2023 by troph

[Bozo_Casanova 25498]

Epilogue - I got the GC on the phone,  we had a productive discussion, and my concerns were satisfied.

All good!

[troph 23963]

On 9/13/2023 at 4:12 PM, Bozo_Casanova said:

Epilogue - I got the GC on the phone,  we had a productive discussion, and my concerns were satisfied.

All good!

Sounds like a company that could be worth working for! Good luck!

[TwiceHorn 30715]

Good deal.  Sometimes, people get handed an NDA by their lawyer that may be heavy-handed and pretty much refuse to negotiate it unless it's a really big deal.

Other times, you get a result like this.  Sometimes having an in-house guy or gal can facilitate that.

[Bevo 13417]

On 9/11/2023 at 2:57 PM, troph said:

the language we are talking about is evidentiary in nature and is only one factor I suspect the court would consider.

[troph 23963]

2 hours ago, Bevo said:

Wood.