Archive for the ‘Trade Secrets Law – Current Issues’ Category

Nov
28

An Employer’s Referral Sources May Be a Protected Legitimate Business Interest Under Fla. Stat. 542.335 According to Florida’s Supreme Court

Background

This blog discusses the September 14, 2017 Florida Supreme Court’s holding in the consolidated cases of White v. Mederi Caretenders Visiting Services of SE Florida, LLC, et al. and Americare Home Therapy, Inc. v. Hiles.

A previous blog discussed Florida’s restrictive covenant statute which, when compared to similar statutes in other states, is generally quite favorable to businesses when it comes to the enforcement of non-compete agreements.  Many lawsuits involving Fla. Stat. 542.335 involve a former employee who has left the employment of the business and either started a competing business or has gone to work for a competitor.  Generally, the employee has signed a non-compete agreement as a condition for employment with his former employer.  The former employer may commence a lawsuit to prevent the former employee and his new employer from using information associated with the former employer’s  legitimate business interests.  Where the former employee goes to work for a competitor of the former employer, both the former employee and new employer are often named as co-defendants.

Under the Florida statute, a contract providing restrictions on competition must involve a legitimate business interest as defined by statute to be enforceable.  Fla. Stat. 542.335(1)(b).  Both of the above referenced cases involved employees who had worked for businesses that relied on home health referral sources cultivated through extensive personal marketing and relationship building with potential referral sources, primarily physician’s offices.  Section 542.335 does not specify home health referral sources as a legitimate business interest but does provide a non-exhaustive list preceded by the words “legitimate business interest includes but is not limited to:

  1. Trade secretes as defined in s. 688.002(4);
  2. Valuable, confidential business or professional information that does not otherwise qualify as trade secrets;
  3. Substantial relationships with specific, prospective, or existing customers, patients, or clients;
  4. Customer, patient, or client goodwill associated with:  a) An on-going business or professional practice, by way of trade name, trademark, service mark, or trade dress; b) A specific geographic location; or c) Specific marketing or trade area;
  5. Extraordinary or specialized training.”

The Florida Supreme Court’s Analysis

In White/Americare the Florida Supreme Court engaged in statutory interpretation to conclude home health referral sources were indeed legitimate business interests for several reasons.  First, the legislature’s stated examples were meant to be just that – examples.  The list was never intended to be exhaustive as clearly indicated by the words “includes but is not limited too.”

Second, the Court refused to interpret the statute in such a way so as to exclude a claimed legitimate business interest in non-identifiable prospective patients.  The Court tellingly stated “[g]enerally, it is improper to apply espressio unius to a statute in which the Legislature used the word include.  This follows the conventional rule in Florida that the Legislature uses the word “including” in a statute as a word of expansion, not one of limitation.” Slip opinion at 13.

Third, the Court noted that for home health care companies (HHCs), there is an “indispensable relationship between referral sources and their undisputed legitimate business interests in relationships with patients protected by the statute”  Furthermore, the Court noted that referral sources are somewhat analogous to customer goodwill which is expressly protected by the statute.  Slip opinion at 20.  It is important to understand the home health referral sources generally do not involve identifiable patients although the home health referral sources will hopefully result in referred patients who then of course become identifiable.

In reaching its conclusion, the Court was careful to point out that the statute does not protect covenants whose “sole purpose is to prevent competition per se because such contracts are void against public policy.  Even under Florida law with its pro-business stance, the courts have held that “[f]or an employer to be entitled to protection,   ‘there must be special facts present over and above ordinary competition such that, absent a non-competition agreement, the employee would gain an unfair advantage in future competition with the employer.’ ”  White/Americare citing Passal v. Naviant, Inc., 844 So. 2d 792, 795 (Fla. 4th DCA 2003).   Slip opinion at 21.

The statute also allows the courts to ameliorate any concern regarding overly restrictive covenants by commanding the courts to modify any non-competition agreement that is not reasonably necessary to protect the legitimate business interest and to grant only the relief necessary to protect such interests.  Fla. Stat. s. 542.115.  Here both non-competition agreements were limited to certain geographical areas – to the counties where the HHCs actually operated for a period of one year.

Conclusively, by finding for the HHCs, the Court was not expanding the reach of restrictive covenants to limit competition.  It was merely finding that the nature of an HHC-based business necessitates the classification of its referral sources as legitimate business interests.

Take-Home Points

After White/Americare, businesses may be able to more easily establish legitimate business interests to protect their interests in non-compete agreements where the alleged business interest is not specifically articulated by the statute.   The decision shows, however, that the analysis will be fact-specific, and that the agreement must still be reasonably tailored to cover a reasonable geographic area and time-frame.  The plaintiff will also need to be able to adequately explain why the subject matter is a legitimate business interest based on the nature of the business.

This commentator notes that the conduct of the employee in Hiles was particularly egregious with respect to her transferring of Americare’s confidential information, including patient information, to her personal e-mail account both before she even gave notice of her resignation and after she was let go a few days after giving notice to Americare prior to her notice’s specified “last day.”

Clearly the technology age has made the wrongful usage/theft of a business’s intellectual property and/or confidential information (intangible assets) easy.  It is up to businesses, no matter how small, to be proactive in protecting their intellectual property and confidential information from this wrongful usage.  As the White/Americare holding demonstrates for cases involving employees, a non-compete agreement does not always prevent problems after an employee resigns or is terminated.   Contact us to obtain a complimentary checklist of suggested steps to take to help protect your business’s intangible assets and thereby try to eliminate the need of future costly litigation to protect your business’s interests.

 

© 2017 by Troy & Schwartz, LLC

WE THANK YOU FOR READING THIS BLOG.  HOWEVER, THE FOREGOING IS NOT LEGAL ADVICE AND IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY.  IF YOU ARE CONTEMPLATING ANY ACTION THAT MAY HAVE LEGAL CONSEQUENCES, YOU SHOULD CONSIDER CONSULTING WITH AN ATTORNEY.

 

 

 

May
20

ACTUAL USAGE OF TRADE SECRETS NOT REQUIRED FOR A TEMPORARY INJUNCTION!

Background

Trade secrets can be extremely valuable business assets and all states have statutes governing the protection of trade secrets.  Even the federal government recognizes the importance of trade secrets to U.S. companies by enacting the Defend Trade Secrets Act in 2016 which allows a federal civil cause of action against a party accused of trade secret theft.

Lawsuits involving allegations of trade secret theft can arise in the context of employment law.  The typical situation is where an employee has left the employ of a company and the former employer commences a lawsuit for trade secret misappropriation against the employee and possibly the employee’s new employer.   The former employer will generally seek a temporary injunction to prevent the employee and new employer from using the trade secrets and associated confidential information.

What if the employee/new employer has not actually used the confidential information?  In the case of Hughes v. AGE Industries, LTD (No. 04-16-00693-CV) decided March 8, 2017, the Texas Fourth Court of Appeals held that a temporary injunction does not require a party alleging trade secret misappropriation to show actual usage by the defendant(s).   Mere possession of the trade secrets/confidential information may well be sufficient for obtaining a temporary injunction.  Even though the case discussed in this blog is a Texas case, the commentator believes that a Florida state court would have come to the same conclusion based on the facts of the case and the Florida statute governing trade secrets.

Court’s Opinion

The case is an interesting one because of Hughes’ arguments presented in his appeal, all of which the Court found to be specious.   Hughes had been a twenty-year employee of Age Industries, LTD (“AI”) prior to resigning from the board of directors as AI’s general partner in May, 2016 and then from his employment by AI in June, 2016.  He went to work for Diamondback Industries, a newly formed company set up to compete with AI in June, 2016, as its operations manager.

AI sought a temporary restraining order from the trial court which was granted and sometime later the temporary injunction hearing was held.  At the hearing, AI presented a third-party contractor’s report which showed that Hughes had downloaded a large quantity of data from his AI computer to a USB drive.  On granting the temporary injunction, the trial court required Hughes to deliver a list describing all documents belonging to AI or containing proprietary information belonging to AI in Hughes’ possession “including but not limited to [AI’s] customer and prospective customer’s lists and contact information, pricing lists, sales journals, financial reports, vendor lists, engineering diagrams, customer presentation materials, specialized pricing programs, business strategies, and specially developed programs for specific customers.”  The order further enjoined Hughes from directly or indirectly disclosing AI’s proprietary or trade secret information.

Hughes attempted to reverse the temporary injunction order on procedural grounds by first arguing that AI’s petition had not been properly verified with an affidavit from AI’s president.  The appellate court disagreed and stated that “[a] verified petition for injunctive relief is not required to grant a temporary injunction, however, when a full evidentiary hearing on evidence independent of the petition has been held.”

Second, Hughes, argued that the trial court erred in granting the temporary injunction because it did not maintain the status quo as per his relationship with AI as a limited partner. He claimed that as a limited partner, he was entitled to receive information about AI under the terms of the partnership agreement.  Yet, at the temporary injunction hearing, Hughes stated that the only information he received as a limited partner was audited financial reports.

Hughes was also an employee of AI and because of AI’s Employee Handbook, his status quo argument failed. The handbook was very clear that all information regarding AI was confidential and should be treated as such and carefully defined what AI considered as confidential information. The appellate court opined that, because of the limited information Hughes received as a limited partner and the extensive information he received as an employee, the trial court had not erred in granting the temporary injunction. In reaching this conclusion, the court cited several Texas cases including two that stated that a fiduciary relationship arises from an employment relationship forbidding an employee from taking trade secrets and confidential or proprietary information in a manner adverse to the employer.  See, e.g., Mabrey v. Sandstream, Inc., 124 S.W. 3d 302, 316 (Tex. App. – Fort Worth 2003).

Hughes made several more arguments to no avail including one that AI did not produce any evidence of a probable, imminent, and irreparable injury.  Here Hughes’ own conduct thwarted his argument.  The court noted that evidence was admitted at the trial court hearing showing that Hughs had downloaded a large amount of data from his computer the month before he resigned.  This was proven by AI’s third-party contractor who had apparently been hired to “scour” Hughes’ company computer.

Further evidence showed that the financial information he maintained for 2015 and 2016 on behalf of AI could not be located after he left AI.  Hughes even admitted to having confidential information belonging to AI on his home computer and may have also had e-mails that contained confidential information on his home computer.  He could not testify under oath that had had never sent e-mails containing this proprietary information to one of the principals at his new company.  Because the evidence showed that Hughes was in a position to use AI’s trade secrets to obtain a market advantage, the trial court did not abuse its discretion in concluding AI established a probable, imminent, irreparable injury.  AI was not required to show actual use of trade secrets/confidential information.  Based on the evidence showing Hughes’ conduct and his possession of confidential information, he was properly enjoined from using or disclosing AI’s information.

The Hughes case is an example of what could become an employer’s worst nightmare.  The facts showed that the former employee had apparently planned out his resignation from AI including deleting all his e-mail in the deleted folder from his company computer and downloading valuable information onto a USB for ready portability.  Technology has certainly made trade secret theft much easier.  From the appellate court’s written opinion, one can conclude that the judges were not particularly enthralled with Hughes’ conduct.

Useful Take-Home Points for Employers

  1. Even small companies should consider having employee handbooks. AI’s employee handbook helped save the day because AI was able to establish that it had taken precautions in protecting its confidential information and alerting employees as to their responsibilities in protecting that information.
  2. Employees should also be required to sign appropriate agreements emphasizing their obligations as related to protecting confidential information. Exit interviews should be conducted in a cordial manner, non-hostile manner.  At that time, the employee can also be reminded of his on-going obligations under the terms of his previously signed employee confidentiality agreement.
  3. When an employee leaves a job, it may be advisable to have the employee’s company computer(s) checked by a third-party expert to determine if the employee downloaded confidential information onto an external device such as a USB, flash drive, smartphone, or external hard drive especially if there are any red flags concerning this employee. During the temporary injunction hearing, AI presented a third-party contractor’s report which showed that Hughes downloaded a large quantity of data from his company computer onto a USB.
  4. After an employee’s departure, an examination of the person’s e-mail account may be worth-while in particular to determine if the person has been forwarding anything of consequence to his own personal e-mail account. E-mail issues were raised in the Hughes case.
  5. Finally, most employees who are departing on good terms will let their employer know about their new place of employment. If the employee is mum as to where he is going, the employer may want to take some proactive steps to ensure that its confidential information has not been compromised by a departing employee.

Contact Troy & Schwartz, LLC to receive a free checklist of steps to take to protect your valuable confidential information and trade secrets. 

 

© 2017 by Troy & Schwartz, LLC

WE THANK YOU FOR READING THIS BLOG.  HOWEVER, THE FOREGOING IS NOT LEGAL ADVICE AND IS PRESENTED FOR INFORMATIONAL PURPOSES ONLY.  IF YOU ARE CONTEMPLATING ANY ACTION THAT MAY HAVE LEGAL CONSEQUENCES, YOU SHOULD CONSIDER CONSULTING WITH AN ATTORNEY OF YOUR CHOOSING.

 

 

 

Apr
11

A Federal Trade Secret Law Inches Closer to Enactment

To date, the only federal law specific for trade secrets is the Economic Espionage Act (EEA), a criminal statute wherein charges under the EEA must be brought by the U.S. government.  The EEA does not provide for civil jurisdiction in federal court.

Trade secret law involving civil causes of action has historically been a creature of only state law wherein almost all states, including Florida, have adopted some form of the Uniform Trade Secrets Act (UTSA).   Florida’s trade secret law is codified in Fla. Stat. ch. 688.  The definition of subject matter that may qualify as a trade secret as stated in the USTA and the underlying state statues is very broad but can be summed up as information that has independent economic value, actual or potential, because it is not generally known and whose owner reasonably tries to maintain the secrecy.  The statutes protect against misappropriation of trade secrets through procurement by improper means or through disclosure.   Disclosure occurs when someone with access to the trade secret discloses it or uses it without the consent of the owner.

In the event of misappropriation, the general sought remedy is an injunction.  Plaintiffs, however, may also seek damages.   The alleged misappropriation may be threatened or actual.  See, e.g., Fla. Stat.  ch. 688, s. 003(1).

Now trade secrets are well on their way to becoming protectable via actions in either federal or state courts.   On April 4, 2016, the Senate unanimously passed Senate Bill 1890 entitled the Defend Trade Secrets Act of 2016 that would allow businesses to sue in federal court for trade secret theft and potentially seize property used to facilitate the theft.  The bill is now awaiting approval by the House of Representatives.  Upon passage of the bill by the Senate, the White House expressed strong support for the bill.

It is not surprising that many have pushed for a federal cause of action for trade secret theft for several reasons.  First, although the differences between the UTSA and the enacted state trade secret statutes are generally relatively minor, these differences may impact the outcome of a case, i.e., prove case-dispositive, because states have not applied their respective versions of the Act in a uniform manner.   This is particularly true with the doctrine of inevitable disclosure as discussed below.   Application of the inevitable disclosure doctrine by state courts has been intertwined with the states’ underlying public policies governing employer-employee relations.

Second, state laws are generally focused on local activities involving trade secret matters and do not really address the realities of the movement of trade secrets in today’s electronic-based work environment in interstate commerce and across international borders.  The proposed Senate Bill is designed to assist in the swift preservation of evidence and to protect trade secrets from being further divulged, features that the Intellectual Property Owners Association pushed for.  The federal cause of action would not preempt state laws meaning that plaintiffs will have the option of seeking remedies for trade secret theft in federal or state court.

Senate Bill 1890 originally had two controversial aspects that were amended prior to the Senate’s vote.   The most controversial aspect would have allowed a trade secret owner to request government seizure of any property that was used to help facilitate the suspected trade secret theft.   Several Senators expressed concern that this feature could be misused and had potential for abuse.  The bill was changed to add specific limits to the seizure provisions, paving the way for unanimous passage for the bill.  Should the Bill evolve into an actual law, future federal jurisprudence may well determine what facts constitute sufficient grounds for seizure of “any property” and the definition of “any property.”

The original Senate Bill was also criticized for language that could be interpreted as meaning that an employer could prevent an employee who has been privy to an employer’s trade secrets from taking a new job with the employer’s competitor.  This original wording was apparently derived from a doctrine that covers an employer’s right to seek an injunction preventing the hiring of one of its key “trade secret-knowing” employees and is known as the inevitable disclosure doctrine.   The doctrine is grounded in the “threatened misappropriation” wording of the USTA and various state statues as well as the common law that existed before codification of state trade secret law.   It substantially enlarges the reach of trade secret law because the plaintiff only needs to show that that the former employee would be employed in such a capacity that they would “inevitably” close trade secrets.

Due to push back, the amended Senate Bill now requires the employer-plaintiff to provide evidence of threatened misappropriation and not merely seek an injunction barring the employee’s employment with a competitor on the information the employee knows.   Presuming the Defense of Trade Secrets Act of 2016 is signed into law, just how federal jurisprudence evolves for the inevitable disclosure doctrine remains to be seen.  The following provides a brief background on state case law involving this doctrine.

This doctrine has only been adopted by a few states and is often discounted because it is often viewed as hampering many states’ public policies favoring employee mobility.   California and New York are two states where the courts have consistently articulated the public policy of “employee mobility” and have refused to enjoin a former employee from working for a competitor, either temporarily or permanently.  See, e.g., Bayer Corp. v. Roche Molecular Sys., Inc., 82 F. Sup. 2d 1111, 1120 (N.D. Cal 1999).   Such states also generally frown on any employment agreement that has a non-compete provision, because, similar to the inevitable disclosure doctrine, non-compete provisions are viewed as inhibiting an employee’s right to move from one job to another.  Furthermore, such provisions are often deemed as restrictive covenants to be carefully construed by the courts.   See our recent blog on Florida’s highly employer-favorable restrictive covenant statute.

At the same time, such states may enforce a confidentiality agreement signed by an employee as a condition for employment.  Where such an agreement is in place, a court may enjoin the employee from disclosure of the trade secrets pursuant to the employee’s obligations under the employment agreement.   This type of injunction does not necessarily prevent the employee from actually working for a competitor.

Florida’s jurisprudence in the area of the inevitable disclosure doctrine is limited and mixed.  In Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 146 F. Supp. 29 1326, 1335 (S.D. Fla. 2001), the court stated that Florida’s trade secret law does not “prohibit a former employee with knowledge of trade secrets from going to work for a competitor.”    The court opined that Fla. Statute ch. 688 prohibits only misappropriation of trade secrets which means the acquisition, disclosure, and/or use of the information to the disadvantage of the owner of the trade secret.   It does not prevent an employee from working for a competitor.

In a much earlier Florida state court long before the enactment of Fla. Stat. ch. 688, the court upheld an injunction against an employee because “it would seem logical to assume that his employment by a competitor . . . would eventually result in a disclosure of [his former employer’s trade secrets].”  Here, the court determined that the employee’s new job involved activities “were so entwined with his former activities that an injunction simply against disclosure of the trade secrets was not enough.”  Fountain v. Hudson Cush-N-Foam Corp., 122 So. 2d 232, 234 (Fla. Dist. Ct. App. 1960).

The factual scenario in the Fountain case is similar to a seminal post USTA-adoption (by the State of Illinois) case decided by the Seventh Circuit in PepsiCo. Inc. v. Redmond, 54 F. 3d 1262, 1269 (7th Cir. 1995) in that the court found that the employee’s new job activities were “too close” to his activities at PepsiCo.    The court specifically found that the employee “(1) possessed intimate knowledge of PepsiCo’s strategic goals, which were trade secrets; (2) that the respective positions at Pepsico [and new employer Quaker] were similar and therefore the knowledge the employee obtained at Pepsico would influence his position at Quaker; and (3) the employee’s actions “demonstrated lack of candor . . . and proof of [his] willingness to misuse PepsiCo’s trade secrets,” i.e., exhibited bad faith.”   Bad faith was found on the basis of the employee’s lack of candor regarding accepting the position at Quaker.

The Seventh Circuit enjoined the employee from working at Quaker for five months to protect Pepsico’s business strategies for the upcoming year.  Thus, even with bad faith conduct, the employee was not permanently enjoined from working at Quaker.  The imposed injunction is consistent with the USTA and various state statutes concerning the applied time-frame for any imposed injunction.    See, e.g., Fla. Stat. ch. 688, s. 003 (1). The court was silent as to whether it would have reached the same conclusion had it not ascertained that the employee had acted in bad faith.  Certainly the employee’s conduct in Pepsico did not militate in his favor.

The foregoing illustrates that there is still considerable disagreement across states lines as to when the inevitable disclosure document will result in an injunction.  Clearly, the inquiry involves a highly factual inquiry and, depending upon the state, public policy considerations.   Whether or not a future federal law will result in more consistent “inevitable disclosure” decisions remains to be seen.   Public policy considerations may be less influential since federal courts will presumably be under no obligation to consider a state’s public policy concerning employee mobility.   Nevertheless, it is clear that employees should not be enjoined from accepting a new position simply because the employer asserts that the employee is going to disclose valuable trade secrets without more.  Also, the length of time of any imposed injunction related to employment under federal law will presumably be consistent with the specified reasons for the injunction and the imposed time-frame for unemployment and not go on indefinitely.

If the federal trade secret law is enacted, employers may well choose to bring trade secret actions in federal court. To help ensure that they could meet the evidentiary requirements of establishing threatened disclosure in a federal court of law, this commentator recommends that employers: 1) review their current trade secret [and other IP] protection procedures and policies; 2) review non-disclosure agreements and other employee-employer agreement documents and amend as necessary; and 3) review their procedures for maintaining trade secret integrity when an employee resigns.  The steps taken to update existing trade secret protection policies and procedures may be dependent upon the trade secrets involved.

In conclusion clearly Congress considers a federal trade secret law to be an important addition to the legal options available to American companies for addressing trade secret theft.  The push for the new federal trade secrets law recognizes that trade secrets are just as valuable as the other forms of intellectual property and as such warrant the same federal legal protections enjoyed by the other types of intellectual property.  Let’s hope that the current political climate will not delay the passage of the corresponding House bill and timely sign-off of the law by President Obama!

 

THE FOREGOING IS NOT LEGAL ADVICE.  IT IS PROVIDED FOR INFORMATION ONLY.  YOUR READING OF THIS BLOG DOES NOT CONSTITUTE AN ATTORNEY-CLIENT RELATIONSHIP.

 

© by Troy & Schwartz, LLC

Sep
11

Florida’s Statute on Restrictive Covenants: How Is It Viewed By Other States?

Employment agreements often contain a non-compete/non-solicitation provision known as a restrictive covenant.   Legal disputes involving this type of provision may occur when a former employee sets up a new business or starts a new job with a new employer and the former employer commences a breach of contract lawsuit invoking the restrictive covenant.

The enforcement of restrictive covenants in Florida is governed by Florida Statute 542.335 entitled “Valid Restraints of Trade or Commerce.”    The employee-defendant in a lawsuit involving restrictive covenants will generally argue that the covenant is unenforceable.  Florida law concerning restrictive covenants, however, is generally viewed as being very employer friendly.   For example, the statute specifically states that [i]n determining the enforceability of a restrictive covenant, a court “[s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.”  Our emphasis.  Fla. Stat. 542.335(1)(g)(1).

What does this wording mean for a former employee who is accused of violation of a restrictive covenant in Florida?  That Florida courts will generally construe restrictive covenants in favor of protecting the employer’s interests.  Pursuant to the statute, they will not engage in a balancing test.    For example, on July 15, 2015, Florida’s Second District Court of Appeals invoked the wording of the statute to find that the restrictive convent at issue was enforceable  in the case of Florida Digestive Health Specialists, LLP [FDHS], et al. v. Colina and Intercoastal Medical Group, Inc.  [IMG].

Defendant Colina, a physician, had been a solo practitioner prior to joining FDHS.  Upon joining FDHS, Dr. Colina executed a Partner Professional Services Agreement (“PPS Agreement”) which included a provision stating that “Dr. Colina would not without prior consent of FDHS, directly or indirectly  “ ‘divulge, furnish or make accessible to any person, or copy, take or use in an manner any of the Confidential Information.’ ”  Slip opinion @ 2.   Confidential Information was defined and ranged from internal organization documents and business methods to patient names and patient lists.

The PPS Agreement also included a provision stating that “[F]or a period of two years following the termination of this Agreement, for any reason . . .Physician will not without the approval of [FDHS’s] Board, practice medicine in the field of gastroenterology in Sarasota, Charlotte, or Manatee Counties, Florida or any other county in Florida where [FDHS] at the time of termination conducts or owns a medical practice, other than individually through an entity owned solely by the Physician or otherwise consistently with his or her “Prior Pattern of Practice.”     Slip opinion @ 3.

Upon resigning from FDHS, Dr. Colina joined IMG, a large medical group practice with locations in Sarasota and Manatee Counties.  FDHS filed an action for a temporary injunction to enjoin Dr. Colina from employment by IMG or any other employment inconsistent with the terms of the Agreement and from “using in any sense or disclosing in any way, any aspect of its Confidential Information, trade secrets or proprietary information.”   Slip opinion @ 4.

The trial court found that Dr. Colina breached the PPS Agreement by joining IMG but that he had only limited knowledge of FDHS’s trade secrets and had not divulged any of FDHS’s trade secrets .

Under provision (1)(c) of Florida’s restrictive covenant statute, FDHS had to “plead and prove that restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction.”    Although FDHS had not proffered evidence that it had lost patients, the trial court found that FDHS did have a legitimate business interest in “keeping a group of physicians together in a medical group as contemplated in a business agreement signed by those same physicians and that there is a legitimate business interest in ‘ “preventing a mass exodus of some of those physicians who may feel that there are no ramifications in ignoring the terms of a signed written agreement binding those physicians in said medical group. ‘ “  Slip opinion @  4.

Once FDHS established reasonable necessity, Dr. Colina and IMG then had the burden of establishing that the “contractually specified restraint [was] overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.” Fla. Stat. 542.335(5)(c).    It is noted that Florida’s restrictive covenant statute requires the court to presume “unreasonable in time any restraint more than 2 years in duration” when the restrictive covenant sought to be enforced is against a former employee as was the case here.  542.335(5)(d)(1).   Therefore the “2 year” reference within FDHS’s PPS Agreement was within the confines of Florida’s restrictive covenant statute.

The trial court then found that  “ ‘threatened injury to [Dr. Colina] outweighs the possible harm to [FDHS].’ ”   As such, Dr. Colina could remain with IMG, but “ ‘shall not divulge any business practice methods or trade secrets.’ ’’  However, the temporary injunction was granted as it applied to the defendants’ obligation to refrain from using FDHS’s Confidential Information.

The Appeals Court held that the trial court had abused its discretion in denying the temporary injunction in full because its balancing of harm test was in conflict with Florida Statute 542.335(1)(g)(1).  It instructed the trial court to grant the temporary injunction prohibiting Dr. Colina from violating the “employment limitation” terms of the Agreement.   It is noted in this case that the employment agreement did not forbid Dr. Colina from practicing his specialty in specified Florida counties in his own right but forbade him from joining another practice.

It is not clear whether the trial court was refusing to enforce the otherwise enforceable restrictive covenant on the ground that FDHS’s employment agreement violated public policy.   If so, under the statute, the trial court had the obligation of articulating specifically any the court’s findings that the specified public policy requirements substantially outweighed the need to protect FDHS’s established legitimate business interest. Florida Statute 542.335(1)(i).  Instead the trial court focused its balancing test on the impact on Dr. Colina himself and not how this impact translated into a specific articulated public policy.

That Florida’s statute favors employers is not an overstatement.  The statute further forbids a court from “employing any rule of contract construction that requires the court to construe a restrictive covenant narrowly against the restraint, or against the drafter of the contract.”  In employment law cases, it is generally the employer who drafts contracts to be signed by employees.    Fla. Stat.  542.335(1)(h).

What does the statute mean for Florida employers who are expanding into less employer friendly states and have employee agreements with restrictive covenants in their employee agreements based on Florida law?

Most contracts, including employer-employee agreements, contain a choice of law provision stating that the law of the specified state shall apply in the event of a legal dispute.   It is axiomatic that most courts are generally favorable to enforcing choice of law clauses included in contracts and agreements.   However, there are exceptions to this approach particularly where a provision may be violative of the law of the state where court proceedings involving a breach of contract are actually taking place.

When expanding into another state, it is therefore important that Florida companies understand that Florida law may not be applied by an out-of-state court if it is asked to determine the enforceability of the at-issue agreement’s restrictive covenant.  This is so  even if the agreement includes a “Florida law applies” provision.  Indeed, Florida’s restrictive covenant statute has been found to be violative of the public policy of other states and therefore non-enforceable.   In such a situation, the courts will likely apply their own state’s more employee friendly “restrictive covenant” law.

By way of example, the New York Court of Appeals recently held in the case of Brown & Brown, Inc., et al. v. Johnson, et al. that applying “Florida law on restrictive covenants related to the non-solicitation of customers by a former employee would violate the public policy of [New York].”  The restrictive covenant at issue in Brown & Brown was part of an employment agreement containing a choice of law provision stating that Florida law was to apply in the event of a legal dispute.

Brown & Brown, Inc. (BB) is a Florida corporation with a subsidiary in New York (BBNY).   BBNY had recruited the defendant to leave her former job at Blue Cross/Blue Shield.  One her first day of employment, the defendant was asked to sign an employment agreement containing a Florida choice-of-law provision and a non-solicitation provision precluding her for two years following her termination of employment, from directly soliciting, accepting, or servicing any person or entity that is a customer or account of the New York offices during the term of the employment agreement as well as certain prospective customers.

The defendant ‘s position was terminated several years later, and she went to work for one of BBNY’s competitors.   Her work involved providing services to some of BBNY’s former customers.  B&B subsequently initiated a lawsuit against the former employee and her new employer for enforcement of the restrictive covenant.

The Brown & Brown court recognized that courts in all states generally recognize that contracting parties are free to reach agreements and will uphold choice of law provisions. New York courts will not, however, “enforce agreements . . .where the chosen law violates some fundamental principle of justice, some prevalent conception of good morals, or some deep-rooted tradition of the common weal.”  (citations omitted from this blog).  This public policy exception is reserved “for those foreign laws that are truly obnoxious.”  Slip opinion at 2 citing Welsbach Elec. Corp. v. Mastec N. Am., Inc., 7 NY3d 624, 629 (2006).

The Brown & Brown court then discussed Florida law on restrictive covenants, noting that it nearly exclusively favors the employer’s interests, prohibits against narrowly construing the restrictive covenant, and refuses to consider harm to the employee.  New York’s law governing restrictive covenants, on the other hand, requires courts to strictly construe restrictive covenants and balance the interests of the employer, employee, and the general public.  The defendants in Brown & Brown succeeded in meeting their heavy burden of proving that the application of Florida law to the contract’s restrictive covenant provision would “be offensive to the fundamental public policy of New York State.”  Therefore, the restrictive covenant had to be interpreted under New York law.   Slip opinion at 7.

It is noted that New York law, as it pertains to restrictive covenants, recognizes that employers often have the dominant bargaining power, which may be viewed as anti-competitive behavior.   Factors that may be important in making this determination are whether the employee understands the agreement, whether the employer actually explains or discusses the restrictive covenant, the extent of the discussion, and whether the employee has any opportunity to negotiate the terms of the covenant or seek legal counsel before signing.   Slip opinion at 9.

The plaintiffs argued that even if the restrictive covenant was overly broad, at least  partial enforcement was proper as that partial enforcement would relate to prohibiting “the defendant only from soliciting any of the plaintiffs’ customers with whom she interacted or whose files she had encountered while in the plaintiff’s employ. “  Slip opinion at 8.

The Brown & Brown court held that the restrictive covenant may be subject to partial enforcement if the part to be enforced represents good faith actions on the part of the employer in protecting a legitimate business interest, consistent with reasonable standards of fair dealing.   Slip opinion at 8.    It is noted that the restrictive covenant in Brown and Brown prohibited the defendant from working with any of the plaintiff’s New York customers even if the defendant had never met them or previously done any work for them.   This was apparently the reason the court found the restrictive covenant, as written, to be a restraint on trade.

Contracts drafted by legal counsel generally include a severability clause to handle the situation where a provision of the contract is found to be unenforceable.   These severability clauses may request that the court modify the unenforceable provision to the smallest extent possible to comply with the law.   In Brown and Brown, the plaintiffs requested that the court enforce the provision according to more limited circumstances, i.e., sever the unenforceable portion and then consider the remaining provision/agreement under breach of contract principles.

What can Florida employers learn from the above Florida and New York cases?  First, the factual scenario is very important.  Although Florida’s restrictive covenant statute clearly favors employers, it still requires that employers establish a legitimate business interest.   There is no question that protecting confidential information from usage and dissemination is a legitimate business interest.   In fact the trial court in FDHS had actually partially enforced the restrictive covenant at issue by directing the defendants to refrain from using the plaintiffs’ trade secrets and confidential information.

The bigger issue, as the FDHS and Brown & Brown decisions show, may be the impact of the restrictive covenant on a former employee’s employment opportunities.    For example, in the FDHS case, had the restrictive covenant at issue stated that Dr. Colida could not work in his profession in any capacity in any of the specified counties, it is likely that the employer would have had a hard time establishing a legitimate business interest in such a requirement.    Even without a court’s considering the employee’s own interest as the statute directs, an employee may be able to amount a public policy argument that basically preventing a former employee from working violates Florida’s public policy.   It is further noted that in the FDHS case, the employee had resigned from his position and joined a new practice.  In Brown & Brown, the employee’s position was terminated.

As for Florida companies expanding into other states, these companies need to understand the laws of these other states which relate to employment matters.   It is always a good idea whether in an employer or employee friendly state to have a formal procedure in place for explaining any and all agreements/contracts to employees and documenting that the procedure was followed for the specific employee.   Such an approach may help overcome any later allegations that the employee did not know what he/she was signing.    For example, in Brown & Brown, there were factual disputes over just what transpired when the defendant was presented with the employment agreement on her first day of employment.

It may also advisable to let prospective employees know of the business’s requirements for employment before the employee shows up on his first day of work, e.g., during the interview process or in a formal employment offer letter.   Employment is often contingent upon the employee’s signing of an employment agreement presented on the first day of work.  Under such circumstances, employee friendly states such as New York and California may well find that the employer ‘s conduct was coercive because of its dominant bargaining power and because the employee may have no other immediate viable options.   That is, the employee was presented with a “take it or leave it” agreement with no opportunity for negotiation.

In conclusion, employers clearly have a legitimate business interest in preventing a former employee and his/her new employer from gaining an unfair competitive advantage because of the Confidential Information the former employee may have been privy to.   Florida employers having employees in other states should, however, have an understanding of the restrictive covenant laws of these other states so that that their interests will be protected contractually to the fullest extent of the applicable law.

THE FOREGOING IS FOR INFORMATIONAL PURPOSES ONLY AND NOT LEGAL ADVICE.  YOUR READING OF THIS BLOG DOES NOT CONSTITUTE ANY ATTORNEY-CLIENT RELATIONSHIP WHATSOEVER.  IF YOU ARE CONTEMPLATING AN ACTION THAT MAY HAVE LEGAL CONSEQUENCES, YOU SHOULD CONSULT WITH AN ATTORNEY OF YOUR CHOOSING.

 

© 2015 by Troy and Schwartz, LLC

 

 

Jun
10

SOCIAL MEDIA CONTACTS: TRADE SECRETS OR NOT?

               Patent, registered trademark, and copyright owners generally enjoy the presumption that their invention, registered mark, or work is automatically protected under federal law and that they will have a cause-of-action against an alleged unauthorized user (i.e. infringer) in federal court.    Three recent cases drive home the point that trade secret misappropriation plaintiffs, on the other hand, do not enjoy the automatic presumption that the alleged misappropriated information is protectable under the law.  That is, the plaintiff must first establish that the misappropriated information was actually a trade secret as our previous trade secret blogs have emphasized.  Key factors routinely used by the courts in determining whether the information constituted a trade secret include: 1) the degree of accessibility of the alleged misappropriated information to the defendant(s); 2) the steps take by the plaintiff to limit access; and/or 3) the accessibility of the alleged misappropriated information to the public (i.e., was the information publically available?).

             Prevention of trade secret theft has become increasingly difficult during the computer age where employees more often than not have access to company computers, networks, and important proprietary and confidential business information, including trade secret information, on computers.   By a simple push of a button, a disgruntled or departing employee may be able to copy valuable business information from the company’s computer systems by using, for example, a portable USB device, e-mailing the valuable information to a personal e-mail, or logging into a password protected computer system.   In the old days, employees who were intent on absconding with confidential information would generally have to do so on-site.  Now laptops and mobile phones have made it easier than ever to access company information from virtually anywhere.  Moreover, the employee who is intent on absconding with confidential information  may even use computer wiping software to try and cover his/her tracks.   

             One type of potentially valuable business information that did not exist even as recently as a few years ago involves social media accounts through which employees may be promoting their company’s services and/or products.  A current hot legal topic is whether social media accounts may constitute trade secrets. Three recent cases leave open the possibility that such accounts may qualify for trade secret protection depending upon the surrounding circumstances.

            For example, in Christou v. Beatport, LLC, 849 F. Supp., 2d 1055 (D. Colo. 2012), the defendant had been hired by the plaintiff to promote its multiple nightclubs, through among other means, social media, including Myspace.  The defendant eventually left his job to open competing nightclubs.   The plaintiff alleged that defendant had misappropriated its Myspace list of “friends” as well as login information for profiles on Myspace, both of which were trade secrets. 

             Defendants in a trade secret misappropriate case will often file a motion to dismiss on the grounds that the information does not constitute a trade secret, or in other words, that the plaintiff will not be able to meet the threshold issue for maintaining the lawsuit.  Indeed, the defendant in Christou filed a motion to dismiss, contending that the plaintiff’s Myspace “friends” list was public information because the “friends” information was available for all to see on a worldwide basis. 

             In finding for the plaintiff at this early stage of the case, the U.S. District Court for the District of Colorada relied on the following factors set out by the Tenth Circuit in determining whether or not the plaintiff’s “friends” list could indeed merit protection as a trade secret:

  1. Whether reasonable steps were taken to protect the secrecy of information;
  2. Whether access to information was restricted;
  3. Whether employees knew customers’ names from experience;
  4. Whether customers commonly dealt with more than one supplier;
  5. Whether customer information could be readily obtained;
  6. Whether customer information is readily ascertainable from outside sources;
  7. Whether the owner of the customer list expended great cost over a considerable amount of time to develop the files; and
  8. Whether it would be difficult for a competitor to duplicate the information.

             In particular, the court noted that “friends” lists or contacts on social networking sites are actual customers who are actual and not potential customers.   Also, a business that acquires friends or contacts via a social media site is acquiring personal information as well as contact information for these friends/contacts.  Under Factor no. 6, such information is not readily ascertainable from outside sources and is therefore not readily available information.

             Moreover, the plaintiff had itself secured the Myspace profiles for its “friends,” and also taken reasonable steps to limit employee access to the profiles through passwords that were only given to those employees who required access to promote the nightclubs as part of the job.  The plaintiff thus had taken steps to protect the secrecy of the information and restrict access to the information as required under Factors no. 1 and 2.      

            Finally, applying Factors 7 and 8, the court noted that the plaintiff had incurred some costs and expended some effort in developing its social network accounts, the defendant had been hired in part to maintain the Plaintiff’s lists and profiles, and that the defendant would not have been able to duplicate the Myspace lists with ease or within a short time frame on his own. 

             By denying the defendant’s motion to dismiss, the Christou court left open the possibility that the Plaintiff’s “Myspace” friends list could be a trade secret.  The order denying dismissal of the case may well mean that courts recognize that the law needs to consider the technological reality of today’s business world.  No longer are we dealing with the situation where trade secret misappropriation involves absconding with hard copies of documents, records, data bases, etc. stored in a locked file cabinet. 

             Now, what about other types of social media accounts involving employees?   In PhoneDog v. Kravitz, No. C11-23474 MEJ (N.D. Cal.), a Twitter account was involved.  Here the defendant, as the plaintiff’s employee, had maintained the Twitter account “@PhoneDog_Noah,” as part of his job-related duties.  After his employment ended, the defendant kept both the account and the password to the account, changed the display on the account to his name, and removed any reference to PhoneDog.  At the time of the defendant’s actions, about 17,000 Twitter followers were at stake. 

             In his motion to dismiss, the defendant argued that the followers on the plaintiff’s Twitter accounts were available to the public at all times and thus could not be a trade secret.  The court held that the defendant’s argument was premature and denied the motion to dismiss. 

             Although the defendant’s motion to dismiss was denied in both Christou and PhoneDog, whether or not social media account information will be found to constitute a valuable trade secret remains unclear.  In deciding this issue, courts will be using factors previously established long before social media became an important marketing tool and perhaps one of the most “looked-to” factors will be whether the information is easily derived from public information.  

              Linkedin is another popular social media website that is used by millions of professionals across the globe.   With LinkedIn, the posted information generally involves “resume” types of information.  The LinkedIn member’s profile does not generally promote a particular company, but instead generally list’s the member’s current and past places of employment, education, etc.   In contrast to the Christou and PhoneDog cases, the court in the recent Eagle v. Morgan, et al., 2011 WL 6739448 (E.D. Pa. Dec. 22, 2011) case found that the alleged trade secret information available on the social media site Linkedin did not constitute trade secret information because the information was generally known in the wider business community or capable of being easily derived from public information.  But here’s the interesting difference between the Eagle case and the Christou and PhoneDog cases: In Eagle, it was the corporate defendant (Edcomm) who alleged  misappropriation of trade secrets by the plaintiff in a counterclaim.  

             The Eagle case involved Linkedin account ownership issues.  The plaintiff, Dr. Linda Eagle, was the founder of Edcomm, Inc. and during her tenure created a LinkedIn page that she used to promote herself and Edcomm.   Edcomm was eventually sold, and Dr. Eagle was terminated.  The new owners changed Dr. Eagle’s Linkedin password, removed her name and picture from the Linkedin profile page, and represented that Dr. Eagle had actually resigned from the company.  Inexplicably, the new owners then edited her profile page by replacing most of it with its interim CEO’s information while retaining Dr. Eagle’s “honors and awards” section and custom Linkedin URL.  This means that anybody searching for “Linda Eagle” on Linkedin would have been directed to her now altered profile that contained information on Edcomm’s new CEO.  Edcomm also changed her password which had been made available to the new owners through Dr. Eagle’s former co-worker who had assisted Dr. Eagle in maintaining her Linkedin Account. 

            Dr. Eagle subsequently brought a lawsuit against Edcomm with counts ranging from misappropriation of publicity to tortious interference with contract.  Edcomm countered with, inter alia, allegations of trade secret misappropriation, misappropriation of an idea and unfair competition. The court found in favor of Dr. Eagle on several counts at trial, but in the long run she hardly won because the court declined to award damages. 

             As discussed above, Edcomm’s trade secret misappropriation counterclaim was dismissed early on.  Although the court denied Dr. Eagle’s motion to dismiss Edcomm’s remaining two counterclaims, the court eventually sided with Dr. Eagle on both remaining counterclaims.

              The court’s denial rationale for the two remaining counterclaims is instructive beause of its comments concerning the lack of Edcomm’s documentation to prove its own allegations.  Edcomm’s new owners had argued that it decided to use LinkedIn as an indispensable sales and marketing tool and initiated a process by which its management would approve of the content of Edcomm employees’ LinkedIn accounts, and thus invested substantial time and effort into its employees’ LinkedIn account and their development of contacts on those accounts.  Thus, Dr. Eagle’s act of taking back her account constituted misappropriation of an idea owned by the company.  

             The court found that Edcomm never had a policy requiring its employees to use LinkedIn, never paid for its employee’s LinkedIn accounts, and did not dictate or review the content of any of its employees’ accounts.  Moreover, Edcomm failed to prove that Dr. Eagle’s contacts list was developed and built through the investment of the company’s own time and money as opposed to Dr. Eagle’s own time, money, and extensive past experience.

             The court also denied Edcomm’s unfair competition claim that Dr. Eagle improperly misappropriated the content and connections of the LinkedIn account and improperly used the content to compete with Edcomm.  Because Edcomm rested its unfair competition claim on its failed misappropriation claim, the court found in favor of Dr. Eagle for both remaining counterclaims.

             So what exactly do these three cases tell us?  First, whether or not social media contacts constitute a valuable trade secret is still up-in-the air.  It is true that the Eagle court found that LinkedIn connections do not constitute trade secrets.  However, in the Eagle case, the individual accused of trade secret misappropriation had not been hired to provide social media marketing services as in the Christou and PhoneDog cases.  Also, the court may well have been swayed by some of defendant Edcomm’s (the trade secret misappropriation claimant) own questionable tactics that in a sense constituted a social-media “bait and switch” maneuver to attract new LinkedIn connections through a well-respected former owner who was no longer with Edcomm.  The edited profile was misleading and  seemed calculated to attract Dr. Eagle’s existing connections, developed solely by her, as potential customers/clients by keeping Dr. Eagle in the loop so to speak.    

             Therefore courts may well still go through a detailed factual inquiry using the type of factors, relied on, for example by the Christou court rather than simply conclude that any and all social media contacts do not constitute trade secrets.  As with non-social media trade secret jurisprudence, courts will likely continue to look at whether the employer took steps to protect access to the social media accounts set-up on the employer’s behalf.   As for the factor related to the time and money spent on developing the social media-related trade secret, it must be noted that social media marketing is a relatively quick and inexpensive way of promoting a business and developing followers/contacts.   Thus Factor 7 of the Tenth Circuit’s list of factors for establishing whether the alleged misappropriated information was indeed a trade secret may necessarily need to be focused on the average number of and cost of employee hours expended on maintaining, editing, and promoting the social media account to both establish new contacts and maintain existing contacts.  

           Even if social media contacts/friends, etc. should be found to constitute a trade secret, thereby meeting the threshold issue of whether or not the trademark misappropriation case has any teeth, these types of lawsuits are expensive and time-consuming, and damages can be difficult to prove.  To try and avoid costly litigation, an employer is well-advised to take proactive steps to address the ownership of social media accounts. These steps begin with written agreements, employee handbooks, and a written policies governing social media usage by the company’s employees.  These documents will alert the employee as to the employer’s expectations concerning the usage of social media by the employee and may prove useful should the employer learn that the employee, either during his/her period of employment, or afterwards, has accessed the employer’s social accounts in a manner violating the terms of the signed documents.  The employee who has signed such documents will have a hard time pleading ignorance as to social media contacts ownership.

         In addition, such documents may well allow the employer to establish that steps had been taken to limit access to the valuable information the employer is claiming as a trade secret. Indeed, one of the factors courts typically look at to determine if the subject matter in a trademark misappropriation case actually constitutes a trade secret is whether the plaintiff in such a case actually took steps to limit access to the subject matter at issue.  As the Christou and Edcomm cases demonstrate, this factor will continue to be an important consideration in the age of the Internet and social media marketing.    

        The following list of suggested document provisions is not intended to be exhaustive, but merely suggestive of the types of proactive approaches employers should consider and implement to protect their social media accounts from potentially detrimental usage by former employees.  Employees should be required to sign the agreements/documents as a condition for employment and presented with a copy of any signed agreement should they become voluntarily or involuntarily separated from the employer.  The employer should retain the original signed document in the employee’s file.  Employers may even consider providing training to new employees and refresher sessions to all employees on an annual basis.

         Indeed companies that hire employees to engage in R&D (e.g., the development of software, a medical device, etc.) have typically required that such employees sign an agreement as a condition for employment that any and all potentially valuable intellectual property (patentable, copyrightable, and/or trade secrets) developed during their employment belongs to their employer.  Now, given the explosion of social media as a marketing tool today used by virtually every business, whether a multi-national company or a small business, every business should have in place documents that govern the ownership and handling of their social media accounts for all employees from the day the employee commences employment.

 A.  Social Media Account Ownership in General

           This agreement, applicable to any and all employees, should state that the employer owns its social media accounts and on-line personas created and/or associated with the accounts, including all existing, specified accounts and any accounts it may choose to establish in the future.  Moreover, employees are prohibited from accessing the employer’s social media accounts and making or posting comments and any type of information on behalf of the employer, whether disparaging or favorable. This agreement is intended to put the employee on alert that the employer is “in charge” of the management of any and all information that appears in social media accounts involving the employer.

         This general agreement should also contain non-competition and non-disclosure and/or confidentiality provisions stating in effect that the employees shall not disclose social media accounts to a third party nor use said social media accounts to compete with the employer.  Although courts may find that social media accounts do not quality for trade secret protection, a non-competition and confidentiality agreement signed by the employee may offer a way for the employer to pursue legal action on breach of contract grounds.   The agreement should also provide for injunctive relief. 

 B.  Social Media Account Issues for Employees Who Will Have Access to the Employer’s Social Media Accounts in the Course of Their Employment

        In both the Christou and Phonedog cases, the employee-defendants had been charged with job responsibilities requiring access to their respective employer’s media accounts.  Neither employer apparently had an agreement governing the employer’s social media account practices in place.  In addition to containing the provisions discussed in Part A, the social media agreements with this type of employee should state that the employer will assign the password and username for the account and that the employee shall only access the social accounts using the assigned password and username.   Other suggested provisions are the following:

          Any online persona to be created by the employee must be authorized by the employer.

  1. Employer is the owner of the social media account and any online personas created or associated with those accounts. 
  2. Any username and password and any online personas (e.g., PhoneDog_Noah) etc. created during the course of employment must be relinquished at the end of employment. 
  3. The employer may at any time change the username and password, and any other privacy setting without prior notice.
  4. The employer has the right to terminate access to the social media accounts at any time without notice.
  5. The employer retains the right to access, control, and monitor the employee’s use of the employer’s social media via smartphones, desk-top computers, laptops, etc.
  6. Violation of the agreement (e.g., not obtaining authorization in changing information appearing on employer’s social media accounts) may result in immediate termination.  
  7. Employees are not to provide their user name and password to any other employee, including secretaries and assistants.  The username and password are employee specific and the property of the employer.

             It is also suggested that employee-specific agreements specify the reason why the employee is being granted to social media accounts under the terms of the agreement.  That is, how does this access relate to his/her specified job function?

 C.        Some Additional Tips

             Employers who have a made a decision to lay off or fire and employee should have a plan in place to immediately stop the employee from accessing any company information, including social media accounts, via an electronic device.  For larger companies, this means that the HR and IT departments need to coordinate their activities so that the fired employee’s password and user name are “wiped” from the system.  For smaller companies, this may mean hiring an IT professional to accomplish this objective.

             For those employees who tender their resignation, typically with a two week notice, each business will have to determine if that particular employee should be allowed to stay around for those two weeks and/or continue to have access to company information stored on computers.  The employer, upon receiving the resignation, may, at that point, delete the employee’s password and user name from the system as a precaution particularly if the resigning employee had access to confidential information.  In addition, the employer may cause to have reviewed the employee’s most recent computer activity prior to the resignation. 

             The foregoing focuses on “civil action” trade secret misappropriation.  Although trade secret protection has generally been a creature of state law, the federal Computer Fraud and Abuse Act (18 § U.S.C. 1030) is being increasingly used plaintiffs to get a civil trade secret misappropriation case (including both the federal and additional state law claims) heard in federal court.  As will be discussed in a future blog, however, there is disagreement among the circuits concerning the requirements for establishing violation of this act by the plaintiff.  Therefore the usefulness of this act from the trade secret misappropriation plaintiff’s perspective may well depend upon the jurisdiction where the lawsuit is commenced.   

          Despite the availability of a potential federal cause of action for trade secret misappropriation, employers are nevertheless advised to be proactive in protecting their valuable confidential information.   As the addage goes, an ounce of prevention is worth a pound of cure.       

Disclaimer.  The foregoing information is not legal advice, nor should you consider it as such.    It is for informational purposes only and your reading of this blog does not constitute an attorney-client relationship between you and Troy and Schwartz, LLC and/or any of the attorneys at Troy & Schwartz, LLC.  Should you be considering legal action, you should consider consulting with an attorney of your choosing.