Everybody in the modern workforce is involved in social media in one way or another.  Think about it.  Even if your company does not utilize social media (which is becoming less and less likely), it is almost certain that your company’s employees do.

Whether or not your company has a policy regarding social media is another matter.  As is recommended, more than half of all employers now have formal social media policies in place. Sometimes these policies are simple, and state only that employees are not to engage in social media activities (i.e., surfing Facebook) while on company time. Other policies are more comprehensive, and dictate what employees may or may not say about their employer, or reveal about their employer, via social media.  It is the latter type of policy that has some employers running afoul of the National Labor Relations Board (the “Board”).

Trade Secrets, Social Media, and the Board

The problem arises when a company’s policy dictates that employees may not communicate, via social media, confidential or proprietary company information.

As a refresher, the Board is the federal agency that enforces the National Labor Relations Act, or “NLRA.”  The NLRA grants nearly all private-sector employees (regardless of whether they are unionized or non-unionized) the right to act together to improve their wages or working conditions.
More specifically, the Board protects the rights of employees to engage in “concerted activity,” which is when two or more employees take action for their mutual aid or protection regarding terms and conditions of employment.  A single employee may also engage in protected concerted activity if he or she is acting on the authority of other employees, bringing group complaints to the employer’s attention, trying to induce group action, or seeking to prepare for group action.

From the Board’s website, some examples of protected concerted activities are:

• Two or more employees addressing their employer about improving their pay;
• Two or more employees discussing work-related issues beyond pay, such as safety concerns, with each other; and
• An employee speaking to an employer on behalf of one or more co-workers about improving workplace conditions.

Amazingly, the Board has taken the position that many social media policies, which are (in part) intended to protect company trade secrets and confidential information from dissemination via social media, could be interpreted as prohibiting employees from discussing and disclosing information regarding their own conditions of employment, as well as the conditions of employment of employees other than themselves – activities that are  protected by Section 7 of the NLRA.

Board’s Third Report on Social Media

The Board restates this position via its most recent effort to clarify its stance on social media. On May 30, 2012, the Board’s Acting General Counsel Lafe Solomon released a third Report summarizing seven different cases involving employers’ social media policies, confidentiality, privacy, protection of employer information, and intellectual property.

In the first six policies reviewed, the Report concludes that at least some of the provisions in the employers' policies and rules are overbroad, and therefore unlawful under the NLRA. Only one social media policy out of seven included in the Report is found to be entirely lawful.

As pointed out by various blogs and legal experts, the Report contradicts itself in dictating what policy verbiage violates the NLRA.  For example, the Board finds (on page 8 of the Report) that a social media policy prohibiting employees from disseminating “[Employer] Secret, Confidential or Attorney-Client Privileged information” is lawful.  In comparison, the Report finds the following policies to be in violation of the NLRA:

• “Don’t release confidential guest, team member or company information…” (p. 4).
• “Make sure someone needs to know. You should never share confidential information with another team member unless they have a need to know the information to do their job.” (p. 5).
• “[D]o not reveal non-public company information on any public site.” (p. 7). 
• “[E]mployees [are prohibited] from posting information regarding the Employer that could be deemed ‘material non-public information’ or ‘confidential or proprietary.’” (p. 13).

How to Protect Trade Secrets While Keeping a Lawful Social Media Policy

So how can an employer draft a social media policy that protects its confidential, proprietary, and trade secret information, while simultaneously complying with the NLRA?  Notably, the Report does find one policy entirely lawful.  Why was it lawful?  According to the Board, the policy:

• Clarifies and restricts its scope by including examples of clearly illegal or unprotected conduct;
• Provides sufficient examples of prohibited conduct so that employees cannot reasonably interpret the policy to prohibit Section 7 activity;
• Specifically requires employees to maintain the confidentiality of the Employer’s trade secrets and private and confidential information (because employees have no protected right to disclose trade secrets); and
• Provides sufficient examples of prohibited disclosures (i.e., information regarding the development of systems, processes, products, know-how, technology, internal reports, procedures, or other internal business-related communications) for employees to understand that the policy does not prohibit communications about working conditions.
(A copy of the lawful policy is attached to the Report on page 22.)

To summarize, the Board seems to have a problem with ambiguous, all-encompassing policies that, while drafted with the lawful intention of protecting trade secret or otherwise protected information, could be interpreted as prohibiting employees from engaging in concerted activity. 

Thus, if drafting a social media policy, it should be specific, use numerous examples, keep a narrow scope, and make it abundantly clear to employees what is being prohibited and why.  It would also be wise to utilize direct quotes from the policies included in the Report that the Board found to be lawful.

The debate rages on concerning the scope and extent of the federal Computer Fraud & Abuse Act.  In simple terms, the CFAA makes it unlawful to access a protected computer without authorization (or in excess of one's authorization) and to damage the computer or obtain information that one is not entitled to obtain.  Originally a criminal statute, the CFAA also provides for a civil claim if certain conditions are met.  Courts have long debated whether the statute applies in the context of an alleged faithless employee who accesses an employer's information contained on a computer for an improper competitive purpose.  Regardless of the varied judicial opinions addressing this point, the United States District Court for the Middle District of Florida recently rejected as "dubious" a somewhat novel argument that an employee violated the CFAA by accessing Facebook and her personal email at work.  (A copy of the Court's opinion is available in pdf format below.)

In Wendi Lee v. PMSI, Inc., Lee sued her former employer, PMSI, for pregnancy discrimination.  PMSI counterclaimed under the CFAA stating that Lee engaged in "excessive internet usage" and "visit[ed] personal websites such as Facebook and monitor[ed] and [sent] personal email through her Verizon web mail account."  In its opinion dismissing the CFAA claim, the Court began by noting the CFAA is originally a criminal statute designed to target hackers who access computers to steal information.  The Court noted that some courts have permitted CFAA claims against employees who send an employer's trade secrets or proprietary information via email.  Lee citing Shurgard Storage Centers v. Safeguard Self Storage (W.D. Wash. 2000).  Notwithstanding these cases, the Court concluded that "[b]oth the letter and spirit of the CFAA convey that the statute is not intended to cover an employee who uses the internet instead of working."

The Court's conclusion was based on more than it's impression of the purpose underlying the CFAA.  The Court examined the statute and observed that a CFAA violation occurs if a defendent damages a computer or obtains information to which the employee is not entitled.  In this case, PMSI failed to allege that Lee somehow damaged its computers or accessed its information.  The Court also recognized that a civil claim under the CFAA only exists if the alleged wrongful conduct causes a loss to one or more persons during a one-year period aggregating at least $5,000 in value.  18 USC. 1030(c)(4)(A)(i)(l).  Despite PMSI's creative argument, the Court held that the "statute does not contemplate 'lost productivity' of an employee" as the type of loss required to sustain a CFAA claim.

No doubt, the debate over the scope and applicability of the CFAA will continue to unfold in courts across the country.  Employers will continue to use the CFAA as a tool to protect their confidential and trade secret information, and eventually, the Supreme Court or Congress will likely address the split of opinion.  Wherever the line may be drawn eventually, for now, at least, the line has not been so broadly drawn as to apply the statute to employees who spend too much time on the internet at work.  Employers who seek to address this problem should do so through appropriately tailored written policies and careful implementation.

As always, we welcome your thoughts and input in the comment section below.  Let us know your reaction to this Court's opinion.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed. 

Lee v. PMSI.pdf (29.40 kb)

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.

Profit isn’t always the motive underlying trade secret theft.  Sometimes people simply want revenge or to wreak havoc.

Last month, a group of hackers self-denominated as “Anonymous” set out to do just that against federal contractor HBGary.  Until recently, Anonymous was best known for launching attacks on Visa and MasterCard in retaliation for the companies’ perceived hostility towards WikiLeaks.  In those attacks, Anonymous used a method known as DDos to direct its ire at Visa.com and MasterCard.com, knocking the sites offline with seemingly little effort.  Illustrating the power of social media, the group rallied its members to the cause via Twitter.

In February, however, Anonymous turned its attention to HBGary, a computer security firm enlisted by the FBI to help investigate the cyber attacks. Departing from its previous mode of DDos attacks, Anonymous hacked into HBGary’s computer systems and publicized its success on HBGary’s own website.  Seizing the website, Anonymous explained that it had hacked into HBGary's computers systems and reviewed thousands of emails.  HBGary had boasted that it had discovered the identities of Anonymous' leaders.  Anonymous taunted HBGary in response:  "Your recent claims of 'infiltrating' Anonymous amuse us.... You think you've gathered the full names and home addresses of the 'higher-ups' of Anonymous?  You haven't....  We've seen your internal documents, all of them, and do you know what we did?  We laughed."  That's not all Anonymous did.  It also posted over 60,000 HBGary emails on the web for anyone to read.

Among the many lessons for companies is that threats to your trade secrets do not always emanate from within.  You need to think about more than the risk that your employees may resign to join a competitor.  If you want to claim you have a trade secret, you need to take steps that are reasonable under the circumstances to protect your secrets.  This means doing more than simply requiring your employees to sign confidentiality agreements.  It means taking steps to secure your company's computer system and network.  If you fail to do so, you just may log on to your website and see a message similar to the following message left by Anonymous:

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

1. Texas Supreme Court Decision: Can Money Serve as Consideration for a Non-Compete?

In April of 2010, the Texas Supreme Court agreed to review an appellate court decision that will require the Court to answer the following question: Can money serve as consideration for a non-compete?  In Marsh USA v. Cook, a high level employee received stock options in exchange for a signing a non-compete.  After the employee left, the employer attempted to enforce his restrictive covenants and failed.  Why?  In simple terms, Texas has a statute governing non-compete agreements.  The statute says restrictive covenants must be ancillary to an otherwise enforceable agreement at the time the agreement is made, and the otherwise enforceable agreement must give rise to the need for protection.  What does that mean?  It seems a lot of courts and lawyers in Texas have been asking the same question.  For example, suppose an employer promises to provide an employee with confidential customer information, but requires the employee to agree not to solicit clients.  Various Texas cases find this to satisfy statutory requirements.  The employer has made “an otherwise enforceable agreement” – an agreement in which it obligates itself to provide the employee with confidential information – and at the time the agreement is made, the employee executes a restrictive covenant that is ancillary to the "otherwise enforceable agreement" which gives rise to the need for protection.  In Marsh USA, the employee argued that providing stock options did not give rise to a need for a restrictive covenant.  In response, Marsh argued that such a holding is hostile to economic development and that employers should be able to protect goodwill that exists in the form of customers relationships.  The Texas Supreme Court accepted the case in early April 2010.  Perhaps a decision will be issued in 2011.

2. California Clarity on Trade Secrets Exception  

In 2008, the California Supreme Court addressed the ‘narrow restraint’ exception to enforcement of non-competes in California.  Specifically, in Edwards v. Arthur Andersen LLP, the California Supreme Court rejected the argument that California’s statutory proscription on non-competes only applies to restraints that totally prohibit an employee from engaging in his or her profession.  Prior to Edwards, some courts held that a restrictive covenant was permitted if it contained a mere limitation on an employee’s ability to compete.  The Court expressly stopped short of addressing the validity of what it termed the “so-called trade secret exception” in which California courts permit contractual restrictions that are “necessary to protect an employers’ trade secrets.”  Look for California appellate courts to address this ongoing issue in 2011.

3. Computer Fraud & Abuse Act: A Split Among the Circuits

In recent years, there has been an ongoing debate within the judiciary over whether the federal Computer Fraud & Abuse Act applies in the context of a faithless employee. Namely, some federal courts question whether the CFAA applies to a faithless employee’s misappropriation of his or her employer’s confidential information or trade secrets by means of the employer’s computer, to which the employee had authorized access as a result of his or her employment.  On this legal issue, there is a continuum of interpretations of the CFAA within the federal judiciary.  Some district and appellate courts hold that the CFAA gives employers a federal cause of action against their disloyal departing employees, in what has been perceived as a pro-employer interpretation.  On the other end of this continuum are what would appear to be employee-favorable opinions holding that the CFAA does not create such a right in employers.  As the federal circuits line up on each side of this issue, it is reasonable to assume the issue will be pressed on appeal at some point.  2011 seems as good of a time as any to do so.

4. Non-Compete Legislation to Resurface in Massachusetts 

Much was written about the non-compete bill working its way through the Massachusetts legislature in 2010.  In March of 2010, the bill was favorably reported out of committee and, on May 25, 2010, it was submitted to the Judiciary Committee for its consideration. Later in the year, it was attached to an economic development bill, and then removed.  Look for the bill to be reintroduced in 2011.

5. Social Media Issues Gain Traction 

In a sobering reminder that online social media is changing the way many companies do business in unforeseen ways, a federal court shot down an employer's trade secret claim in 2010 based largely upon the availability of information via the internet.  In Sasqua Group, Inc. v. Courtney, a magistrate judge for the United States District Court for the Eastern District of New York held that although an employer's customer list may have been a trade secret years ago, "the exponential proliferation of information made available through full-blown use of the Internet [presents] a different story."  The district court subsequently adopted and approved the magistrate's lengthy and detailed opinion.  Others have debated the extent to which non-solicitation agreements and other restrictive covenants apply to conduct undertaken by employees through online social media, such as post-employment communications with clients through sites such as LinkedIn.  As online social media spreads in popularity and usage, look for more and more courts (and commentators) to address this interesting issue.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or subscribe to this blog's RSS feed.
 

Protecting a company's non-compete and trade secret interests can be a daunting task.  There are so many things to consider.  Here's a list of ten things to keep in mind and some resources to help you take action. 

1. Implementing a Trade Secrets Protection Program – Protecting your trade secrets cannot be left to afterthought.  Companies are well advised to implement a trade secrets protection program.  If you don’t know where to start, consider conducting an audit of your company’s confidential information.

2. Drafting Non-Competition Agreements --  Many employers with offices or employees located in multiple states use the same non-compete/confidentiality agreement in each state in which they do business. Typically, the form of the non-compete/confidentiality agreement originated in the employer’s home state, and the employer went on to use this same agreement wherever the employer does business. However, these employers may find out too late that a non-compete/confidentiality agreement enforceable in their home state may not be enforceable in another state.

3. Online Social Networking Policies -- Chances are that one-quarter to perhaps as much as one-half of your workforce (or more if your workforce is younger) are regular users of social networking websites.  Any business that does not have a social networking policy or does not train its employees on the do’s and don’ts of social networking may have a critical security gap in the protection of its trade secrets.  A recent case suggests that LinkedIn can present a threat to your trade secrets.  If you have expectations concerning the manner in which your employees may or may not use LinkedIn, it is wise to address these concerns upfront through contracts and written policies.

4. Can Your Lawyer Keep a (Trade) Secret? -- Ensuring that your trade secrets are kept secret is not a new requirement.  Internal controls on use and dissemination of confidential information may not be entirely sufficient.  Businesses need to recognize that risks sometimes involve the handling of their data by third parties specifically entrusted for that purpose, such as their attorneys.  Remote storage of client data presents several concerns including unauthorized access to confidential client information by a vendor’s employees or by hackers, a failure to adequately back up data, or insufficient data encryption. 

5. Can Litigation Place Trade Secrets at Risk? --  The last place you might expect your trade secrets to be at risk of disclosure is in a court action intended to protect them, but courts around the country have held that plaintiffs alleging trade secret misappropriation must identify the secrets at issue with specificity. So what is a plaintiff to do if it wishes to minimize disclosure of its trade secrets during litigation while maximizing its ability to discover what information may have been taken by the defendants?  Click here.

6. Open Source – Hidden Exposure --  Open source code is computer code that is publicly available on the internet for use by anyone.  Typically, in order to copy open source code from the internet, a party must agree to the terms of a “click” or similar pop-up license.  Although there are hundreds of different open source code licenses, many require that the user of the code must make publicly available any subsequent use of the code.  In other words, if your software programs are built using open source code, it may be more difficult to claim trade secrecy for such programs.

7. Taking Control of Litigation Budgets in Non-Compete Cases -- Litigation budgets can be difficult to prepare under the best of circumstances.  Budgeting for non-compete litigation, with its unpredictable nature and often front-loaded cost structure, is even more difficult.  Although many factors are outside the control of parties and their counsel when it comes to litigation costs, the litigation strategy you choose can have a particularly significant impact on your budget in a non-compete case.  Moreover, given the fast pace of non-compete litigation, there is an increased need to continually reassess your budget early on as developments unfold.

8. Handling Employee Defections -- When employees leave to join a competitor, you can often be taken by surprise.  In order to secure your confidential information and customer relationships, rapid action may be required.  Consider these ten tips for responding to employee defections.

9. Advising Recruits -- Just as employers must be prepared to respond to employee defections, they must be prepared to advise their incoming recruits on what not to do when resigning from a former employer.  Here are ten things to keep in mind.

10. Mergers and Acquisitions -- Good mergers can turn bad without attention to employee retention -- be sure to carefully analyze the existence and enforceability of non-competes signed by key employees early in the process.

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.

In a sobering reminder that online social media is changing the way many companies do business in unforeseen ways, a federal court recently shot down an employer's trade secret claim based largely upon the availability of information via the internet.  In Sasqua Group, Inc. v. Courtney, a magistrate judge for the United States District Court for the Eastern District of New York held that although an employer's customer list may have been a trade secret years ago, "the exponential proliferation of information made available through full-blown use of the Internet [presents] a different story."  The district court subsequently adopted and approved the magistrate's lengthy and detailed opinion.

Sasqua Group is an executive search consulting firm specializing in the recruitment and placement of professionals for the financial services industry.  When it parted ways with a former recruiter named Lori Courtney, Sasqua sought an injunction to preclude Courtney from misappropriating its trade secrets.  According to Sasqua, Courtney had access to its customer database prior to her departure, and the database was the "lifeblood" of its business.  The database contained client contact information, individual candidate profiles, contact hiring preferences, employment backgrounds, descriptions of previous interactions with clients, resumes and other information.  From Sasqua's viewpoint, the database was highly proprietary.  Courtney had a different perspective, and the Court agreed.

Courtney testified that "virtually all personnel in the capital markets industry...have their contact information on Bloomberg, LinkedIn, Facebook or other publicly available databases."  During the hearing, Courtney was asked what she would do "if she had amnesia tomorrow, lost her blackberry" and "needed to identify" decision makers and prospective clients.  Her answer resonated with the court: she would use the internet and the vast amount of information available on it, which she claimed she could find through a five-minute search.  Courtney explained that she could start with LinkedIn "because people put their whole profile on LinkedIn."  She explained that if she wanted to find the decisionmaker at a particular company, she could simply enter the name of the company in the search box.  Seconds later, she would have a list of employees, their positions, current title, prior jobs, undergraduate school, dates of attendance, experience, objectives, and even contact information.  If she wanted more information, she could do a search on Google and she would have thousands of search results, many of which pointed to news stories recounting companies' hiring plans.  The court concluded that the information publicly available "exceeded the amount and level of detail contained in the Sasqua database."  The clients, their contact information, and other data was readily accessible.

Does this mean that employers seeking trade secret status for customer lists and related information should throw up their hands and surrender?  No.  This case presents a textbook example of what not to do if an employer regards its client information as confidential.  For starters, Sasqua did not require Courtney to sign a confidentiality or nonsolicitation agreement.  Nor did it take reasonable measures to protect the database in question.  Its computers were not password protected; all employees had free access to the database, including at work and remotely from home.  The database did not contain legends designating confidential information embedded within its pages to remind employees that the information was confidential.  The database was shared with potential business partners without restriction.  Firewalls and security software were not installed.  As the court stated, "Sasqua failed to take even basic steps to protect the secrecy of the information contained in its database."

The "takeaway" from this case is not that social media and the proliferation of information via the internet will undermine protection of customer lists and related information.  Rather, the lesson is that employers need to be vigorous in the efforts to keep their secrets secret.  A copy of the magistrate judge's opinion and the district court's confirmation is available in pdf format at the bottom of this post.  As always, please feel free to share your comments, thoughts and questions in the comment section below.

Sasqua Group Magistrate's Report & Recommendation.pdf (202.46 kb)

Sasqua Group Order Adopting Magistrate's R&R.pdf (11.84 kb)

A sales manager has signed a contract with his employer agreeing that client lists are confidential and agreeing not to solicit clients for a period of six months after the end of his employment.  Shortly after resigning to join a competitor, the sales manager updates his LinkedIn profile to reflect that he has changed jobs and is now working for the competitor.  The profile update is broadcasted by LinkedIn to the sales manager’s contacts, which includes dozens of the clients he serviced at his previous employer.  Has the sales manager breached his contract?  Arguments can be made on both sides.

The former employer will argue that its customer list is confidential and that the sales manager obtained his knowledge of the clients’ identities by virtue of his employment.  The employer will note that even novices on LinkedIn understand that the service will notify contacts of a user’s profile updates.  After all, why bother updating your profile if you don't intend to share this information with others? And many, though admittedly not all, courts have held that contacting former clients regarding a change in employment constitutes a solicitation.  See e.g., Merrill Lynch v. Schultz, 2001 WL 1681973, *3 (D.D.C. 2001) (noting that “such initiated, targeted contact is tantamount to solicitation because there is no reason to believe that a customer on the receiving end of such a [communication] does not assume that the [employee] wishes for him to transfer his account.”).

The sales manager will undoubtedly take a different view.  He will argue that he didn’t take any records or other information with him when he left, and that the identity of his former employer’s clients has always been publicly available to anyone who wanted to look at the sales manager’s LinkedIn contacts.  He will also note that he did not initiate contact with clients.  Rather, all he did was update his profile to reflect a change in employment and sat back providing clients – or anyone else for that matter – with the option to contact him.

So who is right?  As with any non-compete case, the answer may vary on a case by case basis and require a close examination of the contract language and the surrounding facts and circumstances.  A court is likely to ask the following questions (among others):  Does the contract specify that client information (such as client identities, names, addresses, and other contact information) is confidential?  Did the former employer actually treat such information as confidential?  What is the wording of the non-solicitation agreement? 

Because the enforceability of a restrictive covenant is highly discretionary in many states, employers who seek to preclude employees from contacting clients via LinkedIn may take steps ahead of time to eliminate any confusion.  Such steps may include any or all of the following:

1. Draft non-solicitation agreements that:

• expressly preclude employees from contacting clients to notify them of the employee’s change in employment;
• specify that communications made through an online social networking website such as LinkedIn, Facebook, etc. constitute a violation of the contract.

2.  Draft confidentiality agreements that:

• expressly define confidential information to include client identities and contact information;
• unambiguously state that confidential information may not be used or disclosed for any purpose other than on behalf of the employer, including through social media.

3. Include a social media paragraph in non-competes that specifically addresses the use of computers and social media.  The paragraph should state that:

• It is not intended to limit the scope of the confidentiality and non-solicitation covenants;
• Employees may only use the employer’s computer systems (e.g., computers, internet, servers, internal e-mail, external e-mail, World Wide Web access, etc.) for business purposes only.  Recognizing the rigid – perhaps impractical nature of this restriction – the agreement may provide that incidental personal use of computer systems is permitted, but state that such usage shall not violate the terms contained the confidentiality and non-solicitation provisions; 
• All e-mail and internet usage is subject to monitoring and that access to any website on the Internet must be for legitimate business only;
• The Employer may choose to block access to certain sites on the Internet at its discretion, and that available access to a site does not constitute approval to use or access that site by the employer.
• The employee is not permitted to have a webpage or website on the Internet for business purposes through a provider without prior written approval from the employer.  This includes social networking sites like Linked-In for business purposes.  The employee should agree that mentioning his or her affiliation or employment with the employer on these types of sites without prior written approval of the content by the employer is not permitted.  If the employee is permitted to connect with clients via LinkedIn, they should be required to set their settings so that other users cannot see their contacts. 
• The employee agrees that the use of text messages, e-mails, IM’s, and/or other communications via Blackberry or other wireless service/devices not routed through the employer’s systems is not permitted for business communications with Clients;
• The employee agrees that participation in chat rooms or other online forums for business purposes is not permitted, and that the employee will not direct Clients to chat rooms, blog sites, or other social networking sites which contain information prohibited by the employer or applicable regulatory authorities;
• The employee agrees that he or she will not discuss the employer, its business relationships, its managers and employees, its customers or its products/services in any chat room or other online forum without prior express written permission from the employer’s management;
• The employee agrees that the restrictions outlined above apply to his or her use of any computer (within or outside of the employer) for any business purpose.

In short, businesses that do not address social networking through their contracts and written policies may find that they have a critical security gap in the protection of their trade secrets and customer relationships. 

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed.