Research Handbooks in Law and Economics series
Edited by Cynthia L. Estlund and Michael L. Wachter
Chapter 12: Intellectual property justifications for restricting employee mobility: a critical appraisal in light of the economic evidence
An employee of Employer 1 proposes to quit his or her job and either go to work for a competing employer in the same industry (Employer 2) or to found his or her rival company. Employer 1 wishes to prevent this. May it do so or plausibly threaten litigation that might slow or discourage the employee’s moving to a rival? In many cases, the answer is yes. Lawyers for Employer 1 will study at least the following five legal theories, which, as applied to this scenario, comprise the subject of this chapter: 1. Duty of loyalty. Every state implies a duty of loyalty running from incumbent employees to their current employer. While an employee may make “preparations” to join or start a rival, the employee may not, while on Employer 1’s payroll, “solicit” customers or fellow employees for the new venture or divert opportunities from Employer 1. 2. Patent or copyright infringement. Employee might be sued for infringement if his or her duties at Employer 2 threaten to make use of Employer 1’s patents or copyrights. 3. Trade secrets. Every state imposes a duty on employees and former employees not to disclose trade secrets, a very broad category, of their former employer. 4. Noncompete (or covenant not to compete). Most states enforce “reasonable” covenants by employees not to compete with their former employer.
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