Multiple lawsuits have been filed involving Panera Bread Company and its former CEO, Ronald Shaich, who worked for the company for 36 years. Since leaving in early 2019, he has opened a restaurant management company called Act III Management. It offered jobs to Panera’s top three technology employees. Upon learning this, Panera immediately fired the trio and then sued them in federal court. The lawsuit asks a federal judge to bar them from working for Act III, referencing a non-compete clause in their contract.
Such a clause prohibits workers from using the skills and knowledge gained at a workplace for a specified period of time after their employment ends. The clauses are intended to protect businesses. Not all such clauses are enforceable. To be upheld by a court, the following three requirements must be met:
The lawsuit also seeks to prevent the employees from sharing Panera’s trade secrets, particularly those involving digital operations. A trade secret consists of valuable information that provides a business advantage to a company, and is not known by competitors. Examples can include inventions, customer lists, and recipes.
Panera identifies its advanced technology as as a trade secret and the company’s “most important asset, highly confidential and proprietary.” Indeed, Panera has been a leader in the fast food casual restaurant field , having doubled its digital sales in 2018 to $2 billion. Panera claims the three employees have valuable technological knowledge that has contributed significantly to the company’s success. Included in the technology they developed are Panera’s systems for digital ordering, digital payment, improved technology-based kitchen display, and quality assurance. Additionally, the three workers are familiar with Panera’s strategic technology plan for the next few years.
Panera has also sued Shaich claiming wrongful interference with a business relationship. This tort refers to disruption of a contractual relationship that causes a contracting party (the three employees) to breach the contract for the purpose of doing business with the interfering party (Act III), resulting in economic harm to the other contracting party (Panera).
The bread company is also suing Shaich for conspiracy to steal trade secrets. Conspiracy means two or more people work together to plan and execute criminal activity. Panera accuses Shaich of hiring the three employees to create computer systems for Act III akin to those of Panera.
ACT III has counter-sued Panera for violating an alleged agreement the two companies signed when Shaich left the board. According to Shaich, the parties had recognized the possibility that Act III might solicit Panera’s top employees. Per Shaich, he and Panera had made a contract that requires Shaich’s company to notify Panera when Shaich makes an offer to one or more of Panera’s employees, giving the bread company an opportunity to offer the workers a compensation package that would induce them to stay. Consistent therewith, Shaich sent a letter to Panera on February 8th informing it of Act III’s intention to hire the three Panera employees. That triggered the terminations.
Said Shaich, “I would never do anything to hurt Panera or violate its trade secrets. But I think people should have the right to work where they want to work. We are asking the court to step in and allow that.”
The case is currently pending.
Why must non-compete clauses satisfy certain requirements to be enforceable?
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