The Similarities Between Noncompetition Law and the Doctrine of Inevitable Disclosure
Written by attorneys David McGrath and John-Mark Turner
Published: NH Bar News (p23)
The seminal inevitable disclosure case, Pepsico, Inc. v. Redmond, 54 F.3d 1262 (7th (1995), was decided more than 30 years ago. The case involved a high-level employee with access to top secret company information, including key marketing plans. He had no noncompete agreement, though Pepsico argued that allowing him to work for a competitor company in a similar position would inevitably lead to disclosure of Pepsico’s trade secret information. Based on that central argument, bolstered by evidence that the employee was untrustworthy and lied about his plans to compete, the court enjoined the employee from working for the owner of Gatorade, a competitor.
The Pepscio court’s emphasis on bad behavior is curious. If the employee’s high-level position, access to highly proprietary information, and substantially similar competitive job made it essentially impossible for him to “compartmentalize” and refrain from disclosing and sharing that information for the benefit of his new competitor employer, why should it matter if he is a saint or a sinner? If it is inevitable that he would disclose or use confidential information because of the human inability to compartmentalize under those circumstances, it should make little difference whether he was or was not well intended.
Since Pepsico, courts in many jurisdictions have followed its reasoning and holding. Relying on the idea that high-level employees would be unable reliably to compartmentalize highly sensitive information, the cases have similarly enjoined high-level employees from working for a competitor, even in the absence of a noncompete agreement. Yet, as in Pepsico, these courts typically also relied at least in part on some evidence of bad faith by the departing employee. The courts thus seem to judge “inevitability” of disclosure by weighing both the employee’s access to confidential information and the employee’s predisposition to wrongfully using that information, as evidenced by past bad behavior.
The inevitable disclosure doctrine has not been widely followed in New Hampshire or the First Circuit and technically applies only under trade secret law when there is no noncompete agreement. See Business Court case, CMG CIT Acquisition, LLC v. Perron, 216-2025-CV-00901 (J. Anderson 2025)(“declining to engage with Defendant’s arguments concerning the inevitable [disclosure] doctrine, because… that doctrine applies to claims of misappropriation of trade secrets and involves circumstances where the parties did not execute a non-competition agreement”). But even if the doctrine is not firmly embedded in New Hampshire jurisprudence, its principles overlap with our law concerning the enforceability of noncompete agreements in New Hampshire.
The CMG case is illustrative. In CMG, the employee signed a noncompete agreement when he was promoted to Vice President of Finance. The agreement prohibited him from, among other things, working for a competitor that serviced common clients of the Plaintiff, CMG, without any limitation that the restricted clients be ones with whom Perron interacted or about whom he learned confidential information. In most circumstances in New Hampshire, broad restrictions like this would run afoul of New Hampshire Supreme Court precedent, like Syncom Industries, Inc. v. Wood, 155 N.H. 73 (2007) and Merrimack Valley Wood Prods. V. Near, 152 N.H. 192, 197 (2005), because the restriction extends potentially beyond the legitimate protection of goodwill or confidential information. In CMG, though, the Court upheld the broad noncompete, enjoining Perron from working for the new employer.
Though it declined to formally apply the inevitable disclosure doctrine, the Court’s rationale is like that in Pepsico. The Court enforced the broad noncompete restriction because Perron – with his high-level position and high-level access to highly proprietary information – would inevitably disclose that information if he were allowed to work for the new employer. Id. (citing Data Intensity LLC v. Spero, No. 21-CV-781 – PB (D.N.H. 2024)(holding that allowing employee to work for competitor in a substantially similar position would present too much risk that employee would disclose confidential information, even if inadvertently). Similarly, as in Pepsico, the Court noted some conduct by Mr. Perron that might be considered questionable, including sharing certain information with the prospective employer during the interview stage. However, the CMG Court’s ruling did not expressly rely on bad behavior.
ACAS (Precitech) v. Hobert, 155 N.H. 381 (2007), a case decided at the same time as the Syncom case, is similar. In that case, the Court upheld the trial court’s finding that a broad noncompete was valid and necessary to prevent the high-level employee from using highly proprietary financial, marketing, strategic and other sensitive information on behalf of a competitor. As in Pepsico and CMG, the Court highlighted some of the trial court’s factual findings concerning Hobert’s apparently expressed and demonstrated bad intentions to use the confidential information to the detriment of ACAS, but, like CMG, its holding did not depend upon it. Instead, the Court focused on Hobert’s high-level position at ACAS, his access to highly sensitive information, and the similarity of the positions. Importantly, the Court did not find that ACAS should have used a narrower restrictive covenant, one that for example only prevented Hobert from interacting with customers with whom he had some relationship or about whom he gained significant confidential information or a nondisclosure covenant that would have prevented him from disclosing sensitive information. Thus, although broad noncompete restrictions are strictly construed against an employer and must be narrowly tailored to protect legitimate employer interests, the Court upheld it as written.
Where does this leave us? One thing seems clear. In New Hampshire broad non-compete agreements are likely to be enforced where (a) high level employees, (b) with high level access to highly proprietary information, (c) work (or desire to work) for a competitor in a similar position that would cause those employees necessarily to use that information on behalf of a competitor. Less clear is the degree to which bad behavior by the departing employee should matter in the analysis. While New Hampshire courts do not explicitly rely on such bad actions to uphold a noncompete, they are relevant. In other words, just like demonstrated bad motivations seem to make a disclosure more “inevitable” in the inevitable disclosure cases, New Hampshire courts seem more comfortable enforcing broad noncompetes to prevent disclosure of truly proprietary information against high level employees, particularly those who have shown unscrupulous behavior. Thus, even if the inevitable disclosure doctrine is not widely applied in New Hampshire trade secret cases, its principles run through (intentionally or not) certain New Hampshire noncompete cases.
