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Arizona Supreme Court Limits Preemptive Scope of Arizona Trade Secrets Act

Labor & Employment Law Update Eric B. Johnson

In Orca Communications Unlimited, LLC v. Noder et al., __ P.3d __ (Ariz. 2014), the Arizona Supreme Court determined that the preemptive scope of the Arizona Uniform Trade Secrets Act (“AUTSA”) does not extend to common law tort claims that are based upon the misappropriation of confidential information when such information does not rise to the level of a trade secret.

In the underlying case, Orca Communications Unlimited, LLC (“Orca”), an Arizona-based public relations company, brought suit against its former President, Ann Noder (“Noder”), as well as Noder’s new company, Pitch Public Relations (“PPR”). Orca alleged, among other things, that Noder had violated confidentiality, non-competition and non-solicitation provisions of an employment agreement and that she had also committed various other torts and/or violated the AUTSA by misappropriating confidential and trade secret information belonging to Orca.

In a decision handed down by the Arizona Court of Appeals in October 2013, the Court of Appeals found that the confidentiality, non-competition and non-solicitation provisions in Noder’s agreement with Orca were overbroad and unenforceable. However, the Court of Appeals determined that Orca’s unfair competition claim which was based, at least in part, upon the misappropriation of confidential information not rising to the level of a trade secret, was not preempted by the AUTSA.

The Arizona Supreme Court granted review of the case solely upon the issue of whether Orca’s unfair competition claim was preempted by the AUTSA. In holding that the AUTSA did not preempt Orca’s unfair competition claim, the court rejected the position taken by various other courts addressing this issue and explained that it was unwilling to displace a common law cause of action “[a]bsent a clear manifestation of legislative intent.” Due to the lack of explicit direction in the statutory language of the AUTSA, the court reversed the dismissal of Orca’s unfair competition claim by the trial court. Interestingly, while finding that the unfair competition claim was not preempted by the AUTSA, the court did note that it was not deciding whether Arizona recognizes a common law action for unfair competition. To the extent it does, however, the court found that such a claim was not preempted by the AUTSA.

How This Decision Impacts Employers

One way in which employers can try to protect their confidential information is to have their employees execute narrowly drawn confidentiality agreements. The Orca decision suggests that employers may also be able to assert other tort claims for misappropriation of confidential information not rising to the level of a trade secret. As cautioned by the court, however, the viability and scope of such tort claims remains to be seen.

As noted above, the Supreme Court did not review the Court of Appeals’ decision as it pertained to the unenforceability of the various restrictive covenants that were contained in the agreement between Orca and Noder. For the reasons discussed in the prior alert of the Court of Appeals’ decision, enforcing restrictive covenants continues to be a challenge for Arizona employers, particularly for those employers who have not modified old agreements that were drafted prior to recent developments in Arizona law for restrictive covenants. As such, employers should review their restrictive covenant agreements and modify them as necessary in order to increase the likelihood of enforcing such agreements should litigation ever become necessary.

Quarles Can Help

Quarles & Brady LLP has an entire group of attorneys — the Trade Secrets and Unfair Competition Team — dedicated to helping clients with these issues. Their experience in this area of the law allows them to provide you with efficient and reliable advice. Quarles has assisted clients with these issues on both an hourly and flat fee basis. If you need assistance, please contact Eric Johnson, at (602) 229-5425 or [email protected].

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