Logistics Company Files Suit Against Employer of Former Employee for Misappropriating Confidential Information (Pittsburgh Logistics Systems v. Traffix)
Earlier this week, Pittsburgh Logistics Systems, Inc. (“PLS”) filed a fifteen page complaint against Traffix USA, Inc. in the Northern District of Illinois. The complaint includes both state level and federal claims, the federal claims involve 18 U.S.C. Section 1836, the Defend Trade Secrets Act.
The factual background begins by describing the type of trade PLS is involved in. Specifically, PLS is a third-party logistics company servicing a wide array of industries such as lumber, automative, and oil. In short, PLS is a third-party logistics provider which seeks to connect carriers and customers in order to make the transfer of goods more efficient.
PLS claims that its operations are based upon a propriety system which includes client information and which are able to make the transport of goods as efficient as possible. Notably, PLS on its own, does not own or operate any of the vehicles or other equipment used in the transportation of goods. PLS is solely involved with connecting carriers and customers.
The proprietary information that PLS has, according to the complaint, includes a list of identifiable customer information such as the customer contacts which are primarily responsible for transporting certain types of goods, the shipping lanes which said customer uses, typical contract terms, and other similar information.
PLS outlines its typical hiring process, which often includes hiring people who previously had no experience in the industry. These individuals are then trained in a process in order to gain a thorough understanding of the industry. PLS claims that a major reason why the company can afford to have such an expensive process for onboarding it because it requires employees to enter into certain restrictive covenants when they begin employment. Specifically, employees are required to enter into confidentiality, non-solicitation, and non-compete clauses. PLS outlines that said covenants are essential for the business as its competitors would be able to poach its employees without recourse.
In July 2018, PLS hired an Associate Director of Intermodal, Intermodal referring to the shipment of freight between two or more distinct modes of transportation. The new Associate Director’s employment agreement included the above mentioned typical provisions, including the confidentiality provision.
After leaving the company in December 2021, the Associate Director left the company, at which time he was reminded of the presence of the employment agreements. He did not contest. At one point the following year, PLS received information that said former Associate Director was attempting to change user information for an industry platform. The new email he was trying to use was for a different logistics company.
The complaint is being brought against Traffix, the Associate Director’s new employer, not against the breaching employee. The complaint says (among other factors) that Traffix knew or should have known about the restrictive covenants and that Traffix had actual or constructive knowledge of the former Associate Director’s previous employment.
The specific Counts included in the complaint include:
I. Tortious Interference With Contract;
II. Tortious Interference With Business Relationships;
III. Violation of Illinois Trade Secrets Act; and
IV. Violation of Defend Trade Secrets Act (18 U.S.C. Section 1836).
Two factors stand out as to what makes this complaint interesting. First, that non-compete restrictions now face steep restrictions to implementation and are categorically illegal for many employees in Illinois beginning on January 1, 2022. However, the law’s effective date only applied to new employment agreements, not on pre-existing agreements. I bring this up because confidentiality covenants are still permitted under the Illinois law, which demonstrates how this type of litigation is likely not to go anywhere.
Second, this lawsuit was filed against the new employer, rather than against the current employee. This goes to show how effective indemnification or other sorts of provisions in employment agreements can help to shield the employee. That is, even though it would not have made much of a difference to the employee here, since the claim was not brought against him.
Read the entire complaint here.
Pittsburgh Logistics Systems, Inc. v. Traffix USA, Inc, Case. No. 1:22-cv-4323, Northern District of Illinois.