LinkedIn: A Violation of Your Employee’s Non-Compete?
News, commentary and legal updates from the attorneys in the Employee
Defection and Trade Secrets Practice Group at Fisher & Phillips.

LinkedIn: A Violation of Your Employee’s Non-Compete?

October 3, 2010 11:13
by Michael R. Greco

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.

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Comments

10/5/2010 10:36:31 AM #

This is good advice.  I recently handled a similar case on behalf of an employee in which the employer actually required employees to keep customer data in LinkedIn and essentially used it as its CRM system.  Then when the employee left it sued the employee for updating his LinkedIn status and declared everything in his LinkedIn account to be owned by the company.  

Bad idea.  The employer lost.

Chris McKinney

10/5/2010 10:47:02 AM #

Chris, thanks for your comments.  I think we will see this issue tested over time, and I expect to see courts come down on both sides of the issue much the same way we have seen courts react differently to the question of what constitutes a violation of a non-solicitation agreement.  At the end of the day, the facts of each case are going to drive the results.  

Readers:  check out Chris McKinney's blog at http://www.hrlawyersblog.com/

Mike Greco

10/6/2010 5:47:23 AM #

This is a great post, but I think that the recommendation you make:
" 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."

might be a bit drastic. I understand that the clients are "acquired" on the company's money and thus the company has the right to deny "connecting" with them, but one can imagine alternative ways in which they keep in contact. If the employee becomes a friend with a client (or with most clients, as they must in the case of salespeople), then it is only normal that she might add them on either Facebook or LinkedIn.  I am taking this a bit to the limit.

George Ciobanu

10/6/2010 6:52:15 AM #

If the only issue is the notification, why not temporarily switch off the change notification functionality before making the update? Others will still see your new employer's name, but only when they come looking for you, or scroll through their contact list.

Ralph Jung

10/10/2010 4:40:40 PM #

With all due respect, I think the advice given is draconian and ultimately untenable and virtually impossible to enforce. It may make sense with respect to a very narrow definition of risk management, but organizational leaders need to take a broader perspective. Do they really want to create such a culture of mistrust and control from the outset of an employment relationship, promulgating an unbalanced sense of relative power? How much risk does doing so create, especially with their top performers and key executives? Employers' interests would be much better served by focusing on attracting and retaining the best talent possible, and by providing the highest quality goods and services. It's also in their best interests to consider the end of an employment relationship as a transition rather than a termination, maintaining positive ties and keeping doors open.

Courtney Hunt

10/10/2010 8:58:00 PM #

Courtney, thanks for commenting.  I think many people share your view, and in some lines of business, I think you are correct.  But I think the fact is that in some (though admittedly not all) industries, employers have long claimed their customer lists to be a trade secret, and they have long sought to protect this interest through non-solicitation and confidentiality agreements.  This is not going to change any time soon.  One writer recently observed, “To whom the contacts ‘belong’ will remain to be decided on existing principles.  What LinkedIn will change is practice in relation to contractual provisions which ought now to be designed to regulate use and state to whom those connections belong.”  Echoing this thought, another writer commented: “Revolutionary though social media may be, the existing law of restrictive covenants covers such a situation…. The employee could equally have called, texted, or written a handwritten letter with ink and feather quill.”  For these reasons I suggested that employers who seek to preclude employees from contacting clients via LinkedIn should take steps ahead of time to eliminate any confusion, and I suggested ways in which they could clarify their intent.  I suspect we are going to see contracts drafted along these lines; and as has been the case for many years, courts are going to sometimes uphold and sometimes strike these provisions.

Mike Greco

10/23/2010 5:09:42 PM #

I like Courtney's comments because they focus on relationship principles and not legal principles. Possibly, her comments as well as mine do not have a place on a legal blog.

Courtney refers to culture as the balancer of equitable distribution of trust. Afterall, is it not the employees that most often contribute economical value to the company and as such are compensated for the value. Quite often it is the employee that establishes the relationship between the company and the customer. Most employees understand that the company has rights to the customer until the non solicitation agreement expires. I have come to understand that most courts have ruled that any non solicitation agreement that is too long in length will not be enforceable. Given that fact, it should be understood that all relationships have a shelf life and the goal of the company should be to work diligently to foster that relationship.

The suggestion that companies seek to include social media in their restrictive covenants will probably appeal to a lot of companies as yet another way to govern and restrict their employees activities. I recently read the social media policies of many major corporations as well as state and local governments. My opinion is that companies that are most favored have the least restrictive policies. Ironically, The Whitehouse had one of the longest, however, it was more of a to do list and not a restrictive policy. Barrack Obama has 15,000,000 Facebook "likes" on his page. The point is that companies will not be able to regulate or restrict social media. The genie is out of the bottle and they won't be able to put it back in. Given that, many companies that are using social media to advance their agendas to promote their business will probably be reluctant to create more restrictions.

If I leave a company will I be required to "unfriend" all my Facebook friends and delete all of my Linkedin connections, and drop my Twitter followers? My actions are already limited by agreements and generally protect against solicitation and revealing confidential information. Is adding a friend on Facebook a solicitation? How about "join my connections" on Linkedin, is that a solicitation? Whats next, erase my blackberry (the one I pay for)? How about we get one of those "flashy'  things that have on "Men in Black" to erase all our memories?

Courtney is right, its about transition and not termination. Treat people fair and equitably and they will most likely treat you fair and equitably, if they don't hire a lawyer.

Mark Moreno

10/24/2010 4:08:10 PM #

I see much of my perspective on this matter has already been discussed in the comments, particularly by Courtney and Mark, and I'm interested to see whether Ralph's excellent suggestion meets a narrow legal distinction to fit social networking within current legal precedent -- but I point out one additional aspect which I don’t think has been fully addressed:

Any company which imposes such draconian restrictions on employees today will find it difficult to recruit qualified talent able and willing to perform the now-necessary tasks to leverage social networking in business.  Such a company will surely find itself in the unhappy situation of having to decide to either litigate (when the circumstance of violation of those restrictions arises) or to throw out those restrictions having benefitted little and already cost itself much in reduced employee choice and performance up until that point.


My hope is that, when this does reach a court, the court finds that the terms, though fitting well within established legal principles, in fact become so unbalanced in the light of modern communication technologies (social networking, including how it is used to business’ advantage) that the restrictions become unconscionable terms of a contract.

My further hope is that business adapts to the new reality and finds ways to take positive advantage of it, and allows the no longer tenable old standards to fade away.

Jay Libove, CISSP, CIPP, CIPP/IT, CISM

10/29/2010 8:14:35 PM #

I'm jumping back in here...

Mike - I was going to bring up the recent case in which a judge decided that a client/customer list was not a protected trade secret, but I see you've posted a separate entry on that. As for your point about "to whom th(e) connections belong," I think a better focus is on the actions taken with respect to those connections. Why not let people stay connected as long as they don't inappropriately leverage those connections for commercial gain. I don't disagree with the basic premise behind non-compete/non-solicitation agreements, but I do take issue with their being legally overengineered... As for the second quote you included, there is a key difference in the forms of announcement. A general announcement re: a LI profile update is more like an ad in a newspaper than a personal communication (which is what a hand-written letter would be). If it's not specifically targeted to former clients, but also reaches former colleagues, fellow alumni, friends, etc., it seems much tougher to interpret it as a violation of a non-compete. And BTW, there are ethical reasons for making the change: would the former employer want the employee still presenting him/herself as being their agent? Given how LI works, an individual has both a right and a responsibility to update his/her profile after experiencing a job change. The only way an employer could really protect its clients would be to restrict employees from connecting with clients on LI in the first place, which would NOT be in their best interests.

Mark and Jay - I appreciate your follow-up comments and agree with them. One thing I'll add with respect to Twitter is that the "who owns" question is an important one for employers to address. Same thing for blogs. Generally speaking, if an individual tweets and/or blogs on behalf of an employer, it should be made clear to whom the digital property, including the followers, belongs. Except in cases where an individual is a strong cyberpersonality in his/her own right and blogging/tweeting under an individual brand, I would argue the blog/twitter account is the "property" of the employer.

I'm a strong supporter of employers developing sound policies to manage risk and providing necessary guidelines to employees. I also think it's important to manage legal and business risks and develop viable policies that have a holistic, balanced perspective.

Courtney Hunt

2/7/2011 10:50:00 AM #

Good luck recruiting talent and telling them they can't use social media.  While this sounds like good advice to mitigate risk for a company, how practical is this really?  No Facebook Twitter or LinkedIn, which the entire planet is on?  Doesn't seem realistic to me.

Rob Dromgoole

2/7/2011 1:19:08 PM #

Rob, thanks for your comment.  There's merit to what you say, but keep in mind, the right mix of restrictions will vary business by business.   Recall that the article says that potential "steps MAY include ANY or all of the following...."  The article also contemplates that employers may choose to allow employees to use various social media, but suggests that employers should weigh in with specificity concerning acceptable conduct online (e.g., by suggesting that if employees are permitted to connect with clients via LinkedIn, perhaps employees could be required to set their settings so that other users cannot see their contacts).  Bottom line, I think you are right that employers would have difficulty recruiting if they completely prohibit use of social media for professional purposes, but employers have other options that are less restrictive and more practical.  

Mike Greco

2/7/2011 3:16:30 PM #

This won't fly.  It's like telling your employees they can't to go a networking event after work, and if they do, they must follow a script provided by the employer of what to say and what not to say.  Most top talent will look at this and reject employment.  Are we still living in the USA?

Lisa Zee

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