A recent survey by Manpower suggests that employers across the country are planning to increase their hiring during the second quarter of 2011. Are your employees poachable?  Consider the following:

1)  Is employee morale down?
If so, it may not be long before the word is out.  With the use of social media growing exponentially, there are more ways than ever before for recruiters to learn if employees are fed up with their companies and ready to tip toe out the door. You want to know if your employees are unhappy before your competitors do. Don’t wait until they are broadcasting their discontent on social networks. If you are unclear about how your employees feel, conduct an internal survey to measure morale before it’s too late.

2)  Is upheaval shaking up your industry?
Employees working in industries that are facing increased regulation, an onslaught of mergers or uncertainty about tomorrow’s profitability are more apt to want to leave to find a more stable environment. If your industry is in transition, don’t leave your employees guessing about what’s going on. Be open and honest. Employees who feel like they are being kept in the know feel more loyalty to their companies and are less likely to bolt for the door when turbulence is afoot.

3)  Are you experiencing turnover at the top?
CEO turnover is higher than it’s ever been. Unfortunately, unrest in the upper levels of management can cause a chain reaction of defections. Employees may either want to follow their boss out the door or may feel that a new manager is chasing them away. Before making changes at the top, consider how managers closest to the CEO will respond. Will they likely be relieved or more willing to leave? Conversely, involve top managers in the decision-making process to replace their leader.

4)  Are your employees well trained and/or specialized?  
Having the best of the best employees is a blessing and a curse. A popular exchange rounding the internet these days between a fictitious CFO and CEO reads as follows:  “CFO to CEO: What if we train our employees and they leave us?  CEO to CFO: What if we don’t and they stay?” The fact is, employees with highly specialized expertise are probably the most poachable of all.  Your competitors will be pleased to find talent with fine-tuned skills and low-learning curves, and they may believe such employees are well worth the risk of litigation. If you’re investing heavily in training, invest equally in retention by rewarding employees. But, don’t focus solely on money as a motivator. Provide personalized options. Some employees might choose a flexible work schedule over a plump paycheck and these employees are worth being catered to.
 
5)  Is your competition moving in?
If your competitor has opened a new office in one of your territories, they are probably making a beeline for your back door. It’s cheaper to poach your talent than to fly in candidates from across the country. Now is an optimal time to let your employees know that you care.

6)  Are you in the professional services industry?
Employees who embody the product are prime candidates for poaching because they often have clients that are willing to come along for the ride, exponentially boosting their value.  Remember that your client list may qualify for trade secret protection, and of course, you should protect your company with suitable restrictive covenants.  But the best prevention is to keep your employees happy.

7)  Are you sharing the bounty?
During the recent economic downturn, many employers were forced to tighten their belts.  In turn, employees were asked to make sacrifices.  Many employees responded favorably because they were grateful to have a job, and putting in a few extra hours or foregoing an annual raise was viewed as a reasonable sacrifice to remain employed in a difficult economy.  But as the economy rebounds, employees are taking notice.  As your profits increase, are you sharing the bounty with employees?  As noted above, this does not always mean paying employees a bonus or giving them a raise.  Consider offering employees special training opportunities. Ambitious employees are always looking to improve themselves.  Are you providing them with training opportunities to expand and sharpen their existing skillsets?

In this environment where many employees are looking for a change and recruiters are happy to oblige their wishes, noncompetes are not optional. When used in conjunction with competitive intelligence and retention techniques, you can have a comprehensive strategy to fend-off intruders from absconding with your valuable talent, trade secrets and clients during these precarious times.Let your employees know you care, and cater to their interests.  But of course, some employees may choose to join a competitor.  For these departures, it is important to be prepared with a plan of action.

Michael R. Greco and Christopher P. Stief are partners in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts by Mr. Greco, Mr. Stief or other members of the Practice Group, you may subscribe to this blog's RSS feed or follow Mr. Greco on Twitter on on LinkedIn or follow Mr. Stief on Twitter or LinkedIn.  As always, please feel free to share your thoughts or pose your questions in the comment field below.

Many employers consider their customer list to be a trade secret.  As this blog has previously noted, 46 states plus the District of Columbia have enacted a version of the Uniform Trade Secrets Act.  In some states, the statute goes so far as to expressly provide that a customer list may qualify for trade secret protection.  For example, in Colorado, a trade secret may include “names, addresses or telephone numbers, or other information relating to any business or profession which is secret and of value.”  See Colo. Rev. Stat. Ann. § 7-74-102(4).  Other states are more generic and do not expressly mention customer lists.  Rather, generally speaking, a trade secret is a (1) compilation of information, (2) that derives independent economic value to the owner, (3) because it is not generally known or easily ascertained by others through proper means.  It is important to note, however, that trade secret status is not automatic in any state.  Stated differently, although a customer list may qualify for trade secret protection, the trade secret owner will bear the burden of showing that the information is in fact a secret and valuable.

There is no magic “formula” for achieving trade secret status for a customer list, but there are many different steps a company can take to improve its odds.  Here are five:

1. Establish Ownership. Contractual clarity is helpful.  Employment agreements should require employees to acknowledge that customer records and information, specifically including their identities and other data about their preferences, contact information and the like belong solely to the employer and are considered to be the company’s trade secrets.  This may even mean taking steps to ensure customer information is not disclosed through social media such as LinkedIn, Facebook or Twitter.

2. Prohibit Misuse Through Nondisclosure Agreements. Employment agreements should contain nondisclosure agreements with language stating that employees may not use or disclose customer information except for the sole purpose of conducting business on behalf of the  employer.

3. Maintain Computer Security. Customer information should be protected in all forms, including on computers.  Maintaining a secure computer system is not a simple task, but the following steps should be considered: require passwords; limit employee access to certain information on a need-to-know basis; implement controls on what can be downloaded; make sure your system has all of the latest security patches and fixes installed; and if the company’s system is on the internet, use a firewall and routinely audit servers for security gaps. 

4. Remind Employees. Don’t let employees forget that your customer information is company property and may not be disclosed. Flag computer systems with messages and dialog boxes with reminders. Include confidentiality language in policy manuals and handbooks. Send written reminders in annual compliance or business practice updates.  Remind employees during meetings and review sessions.  Periodic emails can be used.  In short, take advantage of natural opportunities to remind employees.

5. Limit Access. In addition to protecting computer systems, carefully monitor and limit access to customer files. Do not store customer records in areas that are accessible to the public or to all employees. Limit employee access to information only about the customers they personally service.

For more details on protecting your trade secrets, see our prior post regarding implementing a trade secrets protection program.  And as always, please feel free to let us know your thoughts and questions in the comment section below.

You are the Assistant General Counsel for Employment with a national company and just learned that the Branch Manager and the entire sales team from your Kansas City branch office have jumped ship and joined your largest competitor.  The Branch Manager attended all of your strategic planning meetings in late 2009, which led to the roll-out of your company’s 2010 marketing plan.  The sales reps control four of the company’s ten biggest accounts, and already you have heard that they are calling your customers.  Your Regional Vice President’s first reaction:  "let’s go after them."  But HR reminds you that all these employees were from the company that you acquired a few years back – the one that didn’t have any of its employees sign non-competes.  So now you are asked, “what can we do when we don’t have a contract?” 

Well … you are not necessarily out of luck.  Here are some of the key claims to consider:

Misappropriation of trade secrets.  For sales employees, the key question is whether your customer list can qualify as a trade secret.  It may qualify if it is a “retail” list of individuals.  Their names may be in the phone book, but of course the phone book doesn't have any cross reference that identifies names might be your customers.  But if your customer base is “institutional” -- well-known companies that obviously would need your product, such as if you sell windshield glass auto manufacturers – your list is easy to figure out and probably isn’t secret enough to qualify.  Compare, for example, Merrill Lynch v. Zimmerman, 1996 WL 707107 (D. Kan. 1996) (retail stockbrokerage customer list is a trade secret) with Reed, Roberts Assocs. v. Strauman, 353 N.E.2d 590 (N.Y. 1976) (customer list not a trade secret; plaintiff’s consulting business advised companies on unemployment compensation and workers compensation issues).  Even if your customer list is not a secret by itself, additional data about customers, such as sales history, preferences, and the like, may qualify, if you can prove it meets the common law or statutory standards.  See, e.g., Zoecon Corp. v. American Stockman Tag Co., 713 F.2d 1174 (5^th Cir. 1983) (in this case, trade secret customer information included “type and color” of items purchased, “date of purchase,” “amount purchased,” as well as names and addresses of otherwise obvious purchasers of livestock ear tags).

The Branch Manager has knowledge of marketing and business information.  You may be able to argue that the information he learned during your strategic planning qualifies as a trade secret.  See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7^th Cir. 1995).  The question is whether it has been kept secret, or is it now obvious because you rolled out the plan?

What kind of relief can you get on a trade secrets claim?  Listed from easiest to obtain, to hardest, you may be able to get:  (1) non-disclosure – an order prohibiting the employees from disclosing information; (2) return of information – requiring them to return it; (3) non-use -- an order prohibiting the competitive use of the information; (4) non-solicit – prohibiting them from soliciting trade secret customers; and (5) non-compete – prohibiting them from working for your competitor.  The non-compete order relies on a theory of "inevitable disclosure" of the trade secrets.  Such relief is hard to get, and in some states is completely unavailable.  Where available, it usually requires evidence that the employee cannot be trusted, and that lesser relief is inadequate. 

Breach of duty of loyalty:  This focuses on pre-resignation conduct.  Before they resigned, did they:  (a) solicit customers; (b) recruit employees; or (c) divert business opportunities?  Soliciting customers and putting a business opportunity in the “back pocket” to pursue at their new place are both out of bounds.  Some discussions with employees may be okay, but in certain jurisdictions managers may not solicit underlings to follow them to their new company.  This sometimes boils down to a question of whether communication about the new jobs constituted "solicitation" or something less. 

Unfair competition / raiding:  Unfair competition or “raiding” tends to be an “I know it when I see it” type of claim.  This vagueness is both an asset and impediment.  The claim is elastic enough to use it in unusual situations, but its vagueness also makes it difficult to assess its chances of success.  In most instances, you'll have to prove “malice”:  an intent by the hiring firm to harm your business, rather than just an intent to help their own business by adding talent. 

Computer Fraud & Abuse Act, 18 U.S.C. § 1030:  Under the CFAA, you must prove (a) the employees either fraudulently or "intentionally" accessed your computers; (b) they did so without authorization or exceeding the scope of their authorized access; and (c) that they caused damage.  Did they go into your computer and take information, such as customer lists or business data?  If so, you may have a claim, although the decisions are far from unanimous in applying the CFAA to departing employee cases (including differing interpretations of what constitutes "damage").  Advantages of a CFAA claim:  (a) no need to prove the information was secret; and (b) no need to prove “malice.”  See, e.g., Shurgard Storage Centers, Inc. v. Safeguard Self-Storage, Inc., 119 F.Supp.2d 1121 (W.D. Wash. 2000).  But see Condux Int'l Inc. v. Hangum, 2008 US Dist. LEXIS 100949 (D. Minn 2008).  There also are special provisions in the Act that apply in a medical or financial business context.  For further discussion, see Heather Steele's blog entry: "Establishing the 'Without Authorization' Element under the Computer Fraud & Abuse Act".  

Civil conspiracy:  This is an option for multiple employee departures.  Generally, co-conspirators may be held liable for all violations of each conspirator, but there must be an underlying and independelty actionable improper act by one of the conspirators.  This works well with tort claims such as trade secrets or duty of loyalty, and may apply with statutory claims such as the CFAA.  In certain states, it may even work where some employees have contracts and others don’t – you may be able to bind them all to the contracts if they all are conspiring to violate.  See, e.g., Catercorp, Inc. v. Catering Concepts, Inc., 431 S.E.2d 277, 282 (Va. 1993).  Other states don't recognize claims for conspiracy to breach a contract.     

So, there may be some things you can do, even without a contract.  To enhance your position, consider taking these steps now:

• Get contracts:  sign employees up if you acquire a company that did not use them.  Consider whether you should roll out contracts if your company is not using them yet. 
• Protect your information:  to help establish trade secret status you can use non-disclosure agreements; build computer system firewalls; remind employees of confidentiality (in manuals, log-in screens, memos, bulletin board postings); and limit access to files, lead lists, and other sensitive data. 
• Monitor computer activity:  make sure you can determine -- quickly -- if someone accessed or removed information via computer prior to their departure.