North Carolina
North Carolina: Court Clarifies Trade Secret Misappropriation Standard
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APPLIES TO All Employers with Employees in NC |
EFFECTIVE MAY 22, 2026 |
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Quick Look
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Discussion
In Relation Insurance, Inc. v. Pilot Risk Management Consulting, LLC, the Supreme Court of North Carolina laid out the statutory definitions of a “trade secret” and clarified the standard for when a trade secret is “misappropriated” under North Carolina law. Additionally, the Court refused to “blue pencil” excessive provisions in agreements deemed unenforceable.
This case involves a dispute between competing insurance agencies. Several employees left the first employer for the second. Each person had signed employment agreements containing non-solicitation provisions, and the first employer alleged the departing employees forwarded company documents to personal email accounts, allegedly breaching those agreements. The first employer sued the second for trade-secret misappropriation claims under both the federal Defend Trade Secrets Act (DTSA) and the North Carolina Trade Secrets Protection Act (NCTSPA), which the Court analyzed together.
To prevail under either Act, a claimant must show two things: (1) that the information at issue is a “trade secret,” and (2) that the trade secret was “misappropriated.” On the first element, both statutes define a trade secret as business or technical information that derives independent economic value from not being generally known or readily ascertainable and that is the subject of reasonable efforts to maintain its secrecy. Courts assess this using a six-factor guide drawn from the First Restatement of Torts (how widely the information is known outside and inside the business, the secrecy measures taken, its value to the business and competitors, the effort/money spent developing it, and how easily it could be properly duplicated)—which the Court emphasized is an instructive guide, not a rigid six-part test.
Applying that framework, the Supreme Court said that whether the first employer’s client lists (including a client list and a policy renewal list) qualified as trade secrets was an issue of fact that a jury should decide. The Court pointed to evidence in support that: a compiled client list was not shown to be publicly available (individual client names may be online, but a brokerage’s specific compiled list is not); there was no evidence other employees had access to or knew of the list; the lists were password protected; the lists were valuable and took significant time and money to compile; one employee emailed a renewal list from her first employer’s account to her personal email shortly after accepting a job with the second employer; and many of the employees’ clients at the second employer appeared on the first employer’s lists.
Most significantly, the Court clarified the standard for when a trade secret is “misappropriated” under North Carolina law. It held that mere access to, or mere possession of, a trade secret is not enough to make out a prima facie case. Instead, the employer must show that the employee acquired, had a specific opportunity to acquire, or used the trade secret without the employer’s express or implied consent or authority. In other words, an employer cannot establish misappropriation simply by showing it once gave the employee authorized access to the information; it must instead point to an identifiable instance of the employee downloading or accessing the trade secret beyond the scope of their job duties or without consent.
Finally, after the lower court found the former employees’ non-solicitation agreements overbroad and unenforceable, the first employer asked the Supreme Court to invoke the “blue-pencil” doctrine to strike overbroad portions of the agreements. The Court declined to do so, explaining that the blue-pencil doctrine is not a mechanism for rewriting a contract, but only for striking “separable” or “divisible” terms from an otherwise enforceable agreement. Because the first employer sought to strike nearly fifty provisions from each employee’s non-solicitation agreement, the Court concluded that this went far beyond removing a single separable or divisible provision and would effectively require rewriting the contracts—something the doctrine does not permit.
Action Items
- Have nonsolicitation, noncompete, and nondisclosure agreements reviewed by legal counsel for compliance.
- Evaluate protections in place for trade secret information to ensure security processes exist and are followed.
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Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2026 ManagEase