April 2024

Employer sues former traders for using an allegedly confidential trading strategy but loses bid for emergency injunctive relief. 

On April 12, Jane Street Group LLC (“Jane Street”) sued two of its former traders and their current employer, Millennium Management LLC (“Millennium”), in federal court in New York. Jane Street accused the defendants of misappropriating one of its confidential trading strategies. Jane Street also sought a temporary restraining order (“TRO”).

On April 19, the court denied Jane Street’s TRO motion after a hearing. The court found that Jane Street had not demonstrated that it would suffer irreparable harm if the TRO was not granted because money damages were alleged and could compensate Jane Street for any lost profits incurred. The court also held it was “too early to tell” whether the trading strategy was protected property, noting also that Jane Street had not spelled out the strategy in detail. Finally, the court held that the balance of equities didn’t tip in either direction, but rather turned on who was likely to prevail. In sum, the court determined that discovery was needed before it could issue the requested relief.

After losing its TRO motion, Jane Street filed an amended complaint withdrawing its request for injunctive relief but maintaining its remaining causes of action.

Jane Street asserts that the trading strategy at issue is a protectible trade secret because the firm expended significant time and expense researching and developing it based on a “a latent economic opportunity in a specific market.” Jane Street contends that the former traders were “intimately involved” in the development and deployment of the strategy during their employment, and that the strategy proved very lucrative for the company as no other competitor had previously implemented a similar strategy in the specific market. Jane Street alleges that its profits form the strategy significantly decreased shortly after the employees left and a new entity entered the market and placed orders mirroring the strategy, indicating that Millennium was improperly utilizing the same strategy.

Millennium and the former employees argue that the trading strategy is not sufficiently defined and dispute that it is a protectable trade secret. They assert that the employees have merely applied their own knowledge and experience in utilizing generic trading techniques.

S&K Take: This is a significant dispute in the investment management industry. There are two aspects particularly interesting to us. First, Jane Street does not have non-competes with the traders, and the traders argued in opposition to the TRO motion that were they enjoined from utilizing their strategy, the TRO would function as a de facto non-compete. This issue was mooted when Jane Street withdrew its request for injunctive relief. Second, this case, if litigated to judgment, is likely to affect the extent to which trading strategies can be considered protectable as “trade secrets.” We’ll be monitoring closely.

Fifth Circuit affirms that client information is a trade secret, the misappropriation of which can warrant enforcement of non-compete and a non-solicit.

On April 1, the U.S. Court of Appeals for the Fifth Circuit affirmed a lower court’s holding that a former legal recruiter misappropriated trade secrets and breached his non-competition and non-solicitation covenants by submitting candidates through a rival recruiting firm. The court agreed that the plaintiff recruiting firm’s customers’ “names, their clients, how much their practices were worth, their language skills, their goals for switching firms, and their school records” constituted protectible trade secrets because such information could only be learned through the defendant recruiter’s employment with the firm and his long-term relationships with the candidates, in which the firm invested resources to develop. Further, the recruiter’s employment agreement explicitly required confidentiality of client information. Accordingly, the court affirmed that the recruiter misappropriated trade secrets by using such information to place candidates through a rival firm. The court also held that the plaintiff firm had a legitimate business interest to enforce the recruiter’s non-compete and non-solicit.

S&K Take: This is not the first case we covered where compilations of client information were found to be a trade secret. However, this case is notable because the court held not only that the information justified trade secrets protection, but also enforcement of a non-compete and non-solicit. Client information can be a most valuable asset and its misappropriation can cause significant damage. Whether client information rises to the level of a trade secret is often a disputed issue in litigation. Employers should ensure they take measures to protect the confidentiality of client information so that the information qualifies as a protectaible trade secret.

New York State appellate court permits executive to pursue wage and retaliation claims for failure to pay salary increase and bonus.

On April 16, in Neu v. Amelia USA LLC, the New York Appellate Division, First Department, reversed the dismissal of a former Chief Legal Officer’s New York Labor Law claims. The plaintiff’s employment contract provided for a performance-based increase in his annual base salary after six months of employment and for annual bonuses equal to a percentage of his salary. The agreement was silent as to the timing of bonus payments. Although the plaintiff’s employment was at-will, the employment agreement also provided that if the plaintiff was terminated by the employer without cause or if the plaintiff resigned for “good reason,” he would be eligible for a severance payment and continuation of COBRA benefits.

According to the complaint, the plaintiff notified his employer of his intent to resign for “good reason” under his contract after the company failed to pay him his 2022 bonus by March 2023 and assigned him a new reporting structure. Less than a month later, the company terminated his employment.

The plaintiff then sued. His claims include breach of contract (for not making all required payments), violations of the New York Labor Law (for making unlawful deductions from his “wages”), and retaliation under the New York Labor Law (for terminating his employment after he complained about his employer’s failure to pay him).

A lower court dismissed the plaintiff’s claims. It characterized the matter as a “straightforward breach of contract case” and held that the allegations did not give rise to claims under the New York Labor Law due to the plaintiff’s position as a “highly paid executive.”

The Appellate Division reversed. It made three key findings:

• First, it held that even a “highly paid executive” was entitled to protection under the New York Labor Law for improper wage deductions. This is significant because employers had previously argued that the relevant provisions do not apply to executive employees.
• Second, it held that the dispute was not purely contractual. Rather, the court permitted the plaintiff to pursue claims under the Labor Law, in addition to his contract claims, for nonpayment of severance and post-termination health benefits. This is significant because statutory claims, unlike contract claims, carry the potential for liquidated damages and attorneys’ fees for a prevailing plaintiff.
• Third, it held that the plaintiff stated a viable retaliation claim for complaining about violations of the Labor Law. Specifically, it held the plaintiff’s notice of resignation for “good reason” was protected activity as a complaint about unlawfully withholding his bonus—a complaint that preceded his involuntary termination by less than a month. The court noted that although the employment agreement was silent as to the timing of annual bonus payments, “it was not unreasonable for plaintiff to believe that he should have received his 2022 bonus” by March 2023 when other employees received their bonuses.

S&K Take: This is a significant decision. It broadly construes the New York Labor Law in terms of both what constitutes “wages” and what constitutes protected activity for retaliation plaintiffs. It also permits contract and statutory claims based on the same set of facts to proceed simultaneously, which is contrary to most opinions on this point. It may provide a roadmap for future claims. Employers should ensure that (i) their employment agreements and offer letters sufficiently establish an employee’s expectations regarding compensation (including bonuses), and (ii) they have policies and procedures in place to recognize employee communications about compensation as potential protected activity before making adverse employment decisions.