A Perk of BYOD Policies at Work

Employers face a serious challenge when trying to prevent employees from taking confidential and proprietary information with them when they leave to join a new employer-particularly when the new employer is a competitor.   When an employer becomes suspicious about an ex-employee’s activities prior to his or her last day of work, there are a limited number of safe avenues for the employer to pursue. privacy policy with green folder_thumb

Generally, an employer should not review the employee’s personal emails or text messages if they were sent or received outside the employer’s network.  But what if the employee turns over his personal emails or text messages without realizing it?  The answer is, as always, “it depends.”  A recent case from a federal court in California addresses the issue in a limited context.

After the employee resigned, the employer sued him for misappropriating trade secrets.  He filed counterclaims, accusing the employer of violating the federal Wiretap Act, the Stored Communications Act (SCA), and state privacy laws.  The employee alleged that the employer had reviewed his text personal text messages on the iPhone issued to him by the former employer after he’d returned it but before he unlinked his Apple account from the phone.

All of the employee’s counter-claims were dismissed by the court.  The court found that the Wiretap Act claim failed because there was no allegation that the employer had intentionally intercepted any messages.  The SCA claims failed because there was no allegation that the employer had accessed any messages.  And, perhaps most obviously, the privacy claims failed because the employee could not have had a reasonable expectation of privacy.

The court specifically found that the employee had “failed to comport himself in a manner consistent with objectively reasonable expectation of privacy” by failing to unlink his old phone from his Apple account, which is what caused the transmission of his text messages to his former employer.

Sunbelt Rentals, Inc. v. Victor, No. C 13-4240-SBA (N.D. Cal. Aug. 28, 2014).

See also

Too Creepy to Win: Employer Access to Employee Emails

Traveling for Work and Late-Night Emails

Lawful Employer Investigations of Facebook . . . Sort Of

Employers, Facebook, and the SCA Do Not a Love Triangle Make

Advertisements

Violation of Non-Solicitation Agreement Via LinkedIn

Whether a former employee breaches her non-compete and/or non-solicit agreement by publishing her new job with a competitor to her LinkedIn contacts, many of which include “prohibited customers” is an unsettled question.  As you may imagine, the cases that address this question are few.  A recent opinion issued by a Massachusetts Superior Court may have addressed it more than it realized, though.

In KNF&T Staffing, Inc. v. Muller, the defendant-employee was employed by the plaintiff staffing firm for several years.  When she resigned, she was subject to a non-solicitation agreement, which prohibited her from recruiting or referring potential employees for placement in certain fields and industries.  The prohibition was in place for 1 year and applied only to placement with clients within a 50-mile radius of the plaintiff’s offices.  And, as I mentioned, it prohibited only her recruitment efforts for certain fields that she’d been responsible for at her former employer. 

At the time she resigned, she initially took a position in HR, in which she apparently was not charged with recruiting and referral duties, and, therefore, was not in violation of her agreement.  But, about five months after resigning, she went back to the recruiting industry, this time working for a competitor of her former employer.  The former employer sued, seeking to have her enjoined from what the employer asserted was activity in breach of the agreement.

Specifically, the employer alleged that she had attempted to solicit an employee from one of the employer’s customers.  The court found that, even if the solicitation had occurred, it would not have violated the agreement because the individual was not in one of the covered fields.  Thus, she was free to solicit as she liked.

Now, here’s where the LinkedIn twist comes in.  In a footnote, the court wrote that the same rule would apply “to the evidence that [the employee] currently has a LinkedIn profile disclosing her current employer, title, and contact information, and counting among her ‘Skills and Expertise’ such things as ‘Internet Recruiting,’ ‘Temporary Staffing,’ ‘Staffing Services,’ and ‘Recruiting.'”

The employee was free to recruit (i.e., solicit) in all fields and industries except those specifically identified in the non-solicitation agreement.  Thus, by posting on her LinkedIn profile that she recruited, as a general matter, did not violate the agreement.  What the footnote does not say directly but does seem to imply is that the answer may have been different if she’d included the prohibited fields and industries in her LinkedIn profile. 

Or at least that’s what a lot of my colleagues have written, anyway.

In reality, that’s not the case.  Even if she had included the prohibited fields in her LinkedIn profile, she would not have been in violation of the agreement unless she actually “solicited, recruited, or hired away” an employee in one of the prohibited fields and within the 50-mile radius.  Posting that this was a “skill or expertise” doesn’t mean that she’d actually engaged in it.  Considering it or advertising those skills would not violate the contract.  Only if she successfully put those skills to work to hire away an off-limits person would there be a potential breach of the contract.

Lesson Learned?  Non-solicitation and non-competition agreements are generally disfavored by courts.  Even in a state like Delaware, which is one of the most employer-friendly courts in this area of the law, will enforce contracts only to the extent that the contract requires it.  In other words, the words matter-a lot.  Have your contracts reviewed by trusted employment counsel.

KNF&T Staffing, Inc. v. Muller, No. 13-3676-BLS1 (Mass. Super. Ct. Oct. 24, 2013).

Enforceability of Non-Compete Agreements in Delaware

Delaware’s Court of Chancery is the court of choice for employers seeking to enforce non-compete agreements. As Delaware practitioners know, the Court has a long-standing practice of ruling from the bench, particularly in cases in which injunctive relief is being sought and where time is of the essence. See this post on the Delaware Corporate and Commercial Litigation Blog (“Regular readers will know that transcript rulings are often cited in this court as valid authority.”) And this practice means that transcripts are an important, if not critical, source of information about how the court is likely to rule.

Vice Chancellor Glasscock served as a Master in the Court of Chancery for 12 years before being appointed to Vice Chancellor in 2011. Having been on the bench as Vice Chancellor for just a year, his non-compete opinions are limited. Which is why the transcript from a recent preliminary-injunction hearing offers Delaware counsel important insight.

Bridgeport Tank Trucks, LLC v. Smith, involved a non-compete agreement that resulted from the buyout of a business. As a result of the sale, the defendant, Mr. Smith, was subject to a restrictive covenant for a five-year period. The agreement did not contain a geographic restriction.

At the end of the five years, the plaintiff, Bridgeport Tank Trucks learned that Smith was in violation of the agreement and filed suit in the Court of Chancery seeking a preliminary injunction. At the preliminary injunction hearing, the Court addressed several important questions facing litigants in non-compete cases. Here are some of the highlights:

Temporal Restriction
In the employment context, a non-compete agreement is not usually enforceable for a period longer than two years. But when the agreement is tied to the sale of a business, the court general permits a longer period of restriction. That certainly was the case here, as the Court explained that it saw nothing “shocking” about the five-year limit.

Geographic Restriction
The Court did not make much of the absence of a geographic restriction in the agreement. In fact, the Court concluded that it would be able to “readily determine what area [the agreement] was meant to cover” from the “words of the agreement and extrinsic evidence.” But perhaps more important to the Court’s decision on this issue was the undisputed fact that Mr. Smith was competing in the area that the agreement would most certainly cover, even if construed narrowly.

Enforceability Provision
The Court found that the agreement was enforceable on its terms but noted that the parties had included a provision that they would not challenge enforceability. Although the Court did not expressly rely on this provision, it did seem to find the provision to be legitimate.

Extension of the Restricted Period
Parties seeking to enforce a non-compete agreement often request that the Court use its equitable powers to toll the restricted period. The Court does not commonly grant this request but, in Delaware, it is a potential component of the equitable relief. Here, the Court indicated that it would not toll the restricted period but acknowledged that it does have the discretion to do so.

The Court’s indication that it would not toll the restricted period was really what decided the case. At the time of the hearing, there were just four months left before the covenant expired. The Court expressed concern that it was not likely to issue a decision before the end of the four months. Additionally, the Court explained that the injunctive relief sought by the plaintiff–that Mr. Smith either take his company out of business or sell his business–was not something that Court was inclined to order before a full trial on the merits.

Based on that Catch 22, the Court “suggested” to the parties that they consider reaching a settlement that would not be as drastic as the forced closure of Mr. Smith’s business, while still protecting Bridgeport’s rights. The Court stated that it would reconvene in one week’s time. In the meantime, the Court explained, the parties should attempt to come up with some creative resolutions for their dispute, thereby avoiding the risks inherent in litigation.

The parties took the Court’s advice and settled before the week had concluded. So, although we don’t get a final ruling on the merits in this case, we do get some useful insight and commentary from Vice Chancellor Glasscock.

[H/T to Larry Cronin, who represented the Plaintiff in this case and who was kind enough to alert me to the case.]

So Sue Me! (For Threatening to Sue You)

Employee sues employer. Employer calls employer’s lawyer. Employer and lawyer discuss the case. They review the cast of characters. They talk about the chronology of events. They assess the potential exposure to employer.

And, as sure as eggs, employer asks lawyer the following question: “Can’t we sue him?”

And what, do you presume, employer proposes to sue employee for exactly? Oh, there are many options, of course. But the classic is a claim for defamation. Employer wants to sue employee for alleging that employer engaged in unlawful discrimination or harassment or retaliation, etc., etc. Ok, truthfully, employer doesn’t care much about what exactly the suit would be for–just whether employer can sue the bejesus out of employee.

99 times out of 100, the answer to that question is a resounding “no”. See Jon Hyman’s post yesterday on this very topic. And, worse yet, lawyer may even tell employer that, just the threat of suit would be grounds for employee to add another claim to employee’s original suit.

Which, at last, brings me to the case I’d intended to post about today.

In Soterion Corp. v. Soteria Mezzanine Corp., the parties had negotiated the sale of a business but the sale was not consummated. The plaintiff sent the prospective buyers a letter threatening litigation and enclosing a copy of a draft complaint. The complaint was not filed until three months later.

The parties litigated the case all the way up to the courthouse stairs, as the saying goes. But, several days before trial was set to begin, the plaintiff stipulated to dismiss its claim.

The defendant counterclaimed, alleging that the plaintiff’s threat of litigation constituted a tortious interference with prospective business relations. The Court of Chancery addressed, as a matter of first impression, the question of whether such a claim could stand. Put differently, when does a threat of litigation constitute tortious interference? ,

The court held that a claim for tortious interference cannot stand where the threat of litigation is made in good faith and the bases for the threatened litigation are truthful. So, what is the lesson to be learned for employers from this case? In short, where a real claim exists, employers (and their lawyers) need not be afraid to say so.

Soterion Corp. v. Soteria Mezzanine Corp., No. 6158-VCN (Oct. 31, 2012).

Call Me, Maybe. Discovery of Employee Identities

Delaware’s Court of Chancery is the North Star of the noncompete-litigation universe in the State and, in many respects, in jursidctions around the country. It can also be a tricky galaxy to traverse due to the speed of litigation, the equitable principles that control procedural rules and, on an even more basic level, the fact that many of the court’s opinions are not reported. As a result, transcripts of rulings from the bench are commonly cited as binding authority.

But today’s post is not about a transcript ruling but about a letter decision, issued by Vice Chancellor Glasscock on October 12, 2012, in NuVasive v. Lanx, Inc., No. 7266-VCG (PDF). In this case, the plaintiff alleged that the defendant had “lured away a number of [its] employees to work for [the defendant], in breach of various duties owed to NuVasive by these employees.”

The opinion was issued on the plaintiff’s motion to compel the defendant to provide the identities of all of the plaintiff’s employees, past and current, with whom the defendant had communicated in the past year about possible employment.

The defendant opposed the motion, arguing first that the information was not relevant. The court quickly dismissed that argument, finding that “it is clear . . . that, in this case, where NuVasive seeks injunctive relief from Lanx’s allegedly toritious efforts to hire NuVasive employees,” the information and documents sought were reasonably calculated to lead to the discovery of admissible evidence.

Next, the defendant argued that the plaintiff’s real purpose in requesting the names of the solicited employees was so that it could “coerce them into staying with NuVasive.” Again the court was unpersuaded. It reiterated that the plaintiff sought to enjoin the defendant from its allegedly unlawful dealings with the plaintiff’s employees. As a result, the court found, the plaintiff was entitled to discovery of the details of the defendant’s contacts with those employees.

It is interesting to note that, based on this opinion, there does not appear to be an agreement not to solicit or other restrictive that would prevent Lanx from hiring NuVasive’s employees. Parties and their lawyers tend to forget that contractual duties are not the only ones by which employees are bound. So, if you attempt to compete unfairly by unlawfully soliciting employees from your competitor, that competitor will have the right to discover who you called and who turned down your offer. Presumably, these individuals, having declined your offer of employment and electing, instead, to stay with their current employer, will make good witnesses for that employer, which you would want to avoid.

Denial. It may, as they say, be a river in Egypt, but that river doesn’t run through the Delaware Court of Chancery.

Social-Media Round Up (and other miscellany)

Discovery of Social-Media Evidence is the topic that I’ll be presenting today at the annual Office & Trial Practice seminar. Despite my far-reaching popularity (kidding, just kidding), the real celebrity at today’s event will be U.S. Supreme Court Justice Scalia. Because I probably should be practicing my presentation instead of writing a blog post today, I’ll try to keep this brief, adopting the weekly-round-up approach used by Jon Hyman.

In Jon’s honor, we’ll start the list with one of his posts from this week. Yesterday, Jon wrote about a case from the Central District of Illinois, in which the plaintiff claimed he had not been hired due to his age. The twist, though, was that the plaintiff claimed that his employer must have learned the plaintiff’s age by looking at his LinkedIn profile, which included the year he’d graduated from college. Before you run for the hills, bear in mind that the plaintiff was proceeding pro se, meaning without a lawyer. The allegations are weak, at best, but they were sufficient to survive a motion to dismiss. However, pro se plaintiffs are given a lot of leeway in their pleadings, so the ruling doesn’t surprise me too terribly much. The case is Nieman v. Grange Mut. Casualty Co., No. 11-3404 (C.D. Ill. Apr. 26, 2012).

Next up on the list is an update to a case I wrote about earlier this week, Acordia of Ohio, LLC v. Fishel. In that case, decided in May, the Ohio Supreme Court held that the surviving employer in a merger or sale could not enforce its predecessor’s employees’ noncompete agreements as if it had stepped into the predecessor’s shoes–unless the agreement expressly provided otherwise.

Kevin Griffith of Porter Wright’s Employer Law Report reported that, yesterday, the court reversed that part of its decision, finding that the successor entity may enforce such noncompete agreements, even though it was not the original contracting party. The court limited this holding, though, explaining that employees could challenge the validity of the agreement based on whether the merger(s) “created additional obligations or duties so that the agreements should not be enforced on their original terms.”

And, finally, Venkat Balasubramani writes about a new case from Texas, which seems to confirm what should be obvious–viewing comments posted to social-media sites cannot give rise to a claim for invasion of privacy. Why? Because, in short, sharing with one is, under traditional privacy concepts, sharing with all. Once you share information with anyone, you lose any reasonable expectation you may have had that the information will be kept private from others. Of course, there are a few, very limited exceptions, or “privileges,” such as attorney-client and doctor-patient situations, but none that would apply to Facebook posts.

And that, actually, brings me back to where I started. In the limited number of cases that have been decided on the question of discovery of social-networking information, comments, and other content, the courts have unanimously declined to find any type of social-media privilege or special privacy right. Although that does not mean that Facebook contents are there for the taking, either.

But more on that after I wow the crowd at today’s seminar. (Again, just kidding, really). Have a great weekend!

Enforceability of Noncompete Agreements Post-Merger

The enforceability of a noncompete agreement can vary greatly by State. When drafting a noncompete agreement or restrictive covenant, a critical decision will be which State’s law should apply in an enforcement dispute. Delaware employers have very favorable law on their side, as noncompete agreements are enforced here to a much greater extent than many others. Here’s an example.

noncompete agreement

In May, the Ohio Supreme Court considered the enforceability of a non-compete agreement by a successor of the original contracting employer. In other words, can a non-compete agreement be enforced after the original employer is acquired in a sale or merger. In Acordia of Ohio v. Fishel, four employees signed non-compete agreements with their employer. The agreements provided that the employees would not compete with the employer for two years following termination. The agreements did not contain language that would extend the prohibitions to the employer’s successors or assigns.

In 2001, the employer merged with Acordia of Ohio, LLC. Following the merger, only Acordia survived. The four employees continued to work for the new entity until August 2005, when, you guessed it, they went to work for a competitor. Within six months of their resignations, they’d managed to recruit 19 customers worth about $1 million to the competitor.

Acordia sued the former employees and their new employer, seeking to enforce the terms of the noncompete. The court denied the motion and dismissed the case. Acordia appeal but the decision was affirmed. Relying on the State’s merger statute, the Ohio Supreme Court found that, following the 2001 merger, the new employer could enforce the terms of the agreements–but only under the agreement’s original terms.
Technically, the merger had terminated the employees’ employment with the original employer because the employer ceased to exist. Thus, their obligations under the noncompete agreement had ended in 2003–two years after the merger. By the time they went to work for the competitor in late 2005, their noncompete period had expired and they were free to compete.

There is an important lesson to be learned from this case for any counsel charged with drafting a non-competition agreement or other restrictive covenant: non-compete agreements that will be construed under Ohio law must expressly provide for the possibility of a merger or acquisition in order to be enforced by a successor employer. That is not the case in every State, though. In Florida, for example, the issue remains unsettled, although a decision from an appellate court in August found that a covenant not to compete could be assigned in DePuy Orthopaedics, Inc. v. Waxman (Fla. 1st DCA Aug. 3, 2012). In Delaware, though, the issue has been decided.

In January 2010, the Delaware Court of Chancery determined that restrictive covenants contained in an employment agreement lacking an assignability clause are enforceable by a successor company that has purchased substantially all of the original employer’s assets. In Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC, No. 3718-VCP (Del. Ch. Jan. 29, 2010), Vice Chancellor Parsons explained that noncompete agreements and other restrictive covenants “exist for the benefit of the business and not the individual parties.

Thus, the business, whether as assignee or assignor, should enjoy that benefit by having the power to enforce such restrictive covenants.” The court went on to hold that absent specific language prohibiting assignment, noncompete covenants “remain enforceable by an assignee when transferred to the assignee as part of a sale or transfer of business assets regardless of whether the employment contract contains a clause expressly authorizing such assignability, so long as the assignee engages in the same business as the assignor.”

Thus, whereas in Ohio, a noncompete agreement does not transfer to a successor entity unless there is specific language that provides for such transfer, in Delaware, the successor entity gets all of the rights of the original employer unless there is specific language in the agreement that prohibits it. Yet another reason to consider drafting noncompete agreements and restrictive covenants to apply Delaware law.

See also Delaware Noncompete Law Blog