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Dean Johnson on Hewlett-Packard’s Uphill Battle in the Mark Hurd Case

September 16, 2010

Hewlett-Packard faces an uphill battle in its recently filed lawsuit against former CEO Mark Hurd.

HP hopes to prevent Hurd from accepting a job offer from HP’s competitor, Redwood City-based Oracle. HP has alleged that Hurd’s employment with Oracle would necessarily result in a breach of Hurd’s employment contract and severance agreement with HP. HP contends that Hurd was intimately familiar with HP’s corporate strategy, business plans and technological secrets. In working for Oracle, HP says, Hurd would necessarily use that knowledge to the detriment of his former employer.

We haven’t seen the evidence yet. HP’s allegations may, or may not, be true. But even if they are, HP has a tough row to hoe in court. California has long standing policy against clauses in employment contracts that prevent former employers from practicing their profession after quitting or being discharged. So-called “non compete” clauses are illegal by statute in California. So corporate employment contracts in California generally don’t include a non-compete clause (Hurd’s contract doesn’t have one). And, even if there is a non-compete clause in a California contract, it generally isn’t invoked in litigation.

What corporations commonly will do in order to prevent an employee from working for the competition is to invoke the “trade secrets” portion of the contract-the clauses that prevent a former employer from disclosing confidential information that he might have obtained during the term of his employment. The doctrine is called “inevitable disclosure.” The notion is that a high level employee will “inevitably” disclose the trade secrets of his former employer, or, even unconsciously, use those secrets to his advantage if he goes to work for his former employer’s competition.

California courts thus far have rejected the “inevitable disclosure” doctrine. The leading case is FLIR Systems v. Parrish (2009) 174 Cal. App. 4th 1270. In FLIR Systems, the second district court of appeals said that the practical effect of applying the inevitable discovery doctrine to prevent a former employer from working for the competition was the same as the effect of a non-compete clause: it prevents the employee from practicing his profession. The doctrine was therefore rejected as against public policy.

In its complaint, HP alleges “on information and belief” that Hurd “is violating and will continue to violate his…obligation to.. maintain the confidentiality of HP’s trade secrets and confidential information.” The first test of this allegation, and our first taste of how the case will fare in court may come very soon. HP indicated in its complaint that it intended to file an application for injunctive relief. In order to get the injunction, HP will be required to produce sufficient evidence to show that they are likely to be successful on the merits of the case. We shall see….

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