shutterstock_330853187It is well known that 18 U.S.C. § 1836, et seq. (the Defend Trade Secrets Act or “DTSA”) finally provides a mechanism for pursing trade secret claims in federal court. A recent decision, however, serves as an excellent reminder that failure to establish personal jurisdiction over a defendant will nevertheless result in dismissal of your DTSA claim—and potentially your entire case. So, before you rush off and file that DTSA claim in your local federal court, carefully consider if it’s really the right court after all.

In Gold Medal Products Co. v. Bell Flavors and Fragrances, Inc., 1:16-CV-00365, 2017 WL 1365798 (S.D. Ohio Apr. 14, 2017), the plaintiff filed suit in the U.S.D.C. for Southern District of Ohio against its former employee, William Sunderhaus, and his new employer, Bell Flavors, alleging misappropriation of trade secrets and confidential information. As part of its lawsuit, Plaintiff asserted a DTSA claim, which Defendants moved to dismiss for lack of personal jurisdiction. Continue Reading Don’t Forget to Establish Personal Jurisdiction in Defend Trade Secrets Act Cases

shutterstock_287601008A California federal district court has recently given employers a small victory against former employees who misappropriate trade secrets and assert whistleblower immunity or the litigation privilege as after-the-fact defenses. The federal district court for the Eastern District of California recently rejected, for a second time, a defendant’s anti-SLAPP motion to strike a trade secret lawsuit brought against him by his former employer. Notably, the court rejected the defendant former employee’s whistleblower and litigation privilege defenses as inapplicable, thereby allowing the beer company’s trade secret action to proceed.

On March 1, 2013, the beer company sued the former employee for, among other things, trade secret misappropriation and breach of nondisclosure agreements. The former employee subsequently filed a motion to dismiss and strike the Complaint under California’s anti-SLAPP statute. Specifically, the former employee argued that the Complaint was an attempt to punish him for purportedly exercising his constitutional rights of petition and free speech in connection with a consumer class action litigation that he filed against the company exactly one week before.

The federal district court denied the former employee’s anti-SLAPP motion and concluded that the company’s claims did not arise out of the former employees protected litigation activity. The former employee appealed.

The Court of Appeals for the Ninth Circuit reversed the district court and remanded back so the district court could consider the next prong of the anti-SLAPP analysis, the plaintiff’s probability of prevailing on its claims.

Upon its second review of the former employee’s anti-SLAPP motion, the federal district court concluded that the company had demonstrated a likelihood of prevailing on its trade secret misappropriation and breach of contract claims. The court then turned to and rejected the former employee’s substantive legal defenses of public policy, whistleblower immunity, and the litigation privilege.

First, the court rejected the former employee’s argument that confidentiality agreements are unenforceable as a matter of public policy. The court refused to adopt such a sweeping rule that would render confidentiality agreements unenforceable that would allow former employees to disclose trade secret or confidential information.

Second, the court acknowledged that California provides protection to whistleblowers but only when the employee discloses reasonably based suspicious of illegal activity to a governmental agency. The court concluded that such protections did not apply to employees who disclose information to their attorneys in order to further a class action against an employer.

Lastly, the court rejected the former employee’s argument that the misappropriation of documents in furtherance of anticipated litigation was protected under the litigation privilege. The court reasoned that the litigation privilege does not protect against illegal activity that causes damage and to protect such threats is inconsistent with the purposes of the anti-SLAPP statute.

It would be interesting to see the court’s analysis and decision, however, had the alleged misappropriation occurred after the enactment of the new Defendant Trade Secrets Act (“DTSA”), which appears to provide broader whistleblower protections. The court in this case highlighted that California’s whistleblower statute protected only disclosures to government agencies and not a defendant’s attorneys. The DTSA, however, protects individuals from criminal and civil liability under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. (For additional information on the DTSA and its implications regarding whistleblowers, please see our DTSA Guide.)

Nonetheless, this case confirms that employees do not have an unfettered right to surreptitiously take documents from the workplace for their own use in litigation or otherwise. Indeed, the Ninth Circuit has rejected the concept of “blanket” protection for whistleblowers for violation of confidentiality agreements and misappropriation of confidential documents. See Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047 (9th Cir. 2011).

With the likely broader whistleblower protections under the recently enacted DTSA, however, employers that utilize agreements and policies to protect trade secrets and other confidential information should ensure such documents have been updated to comply with the DTSA and its important employee and whistleblower notification provisions

 

shutterstock_394290406As a thank you to our valued readers, we are pleased to announce the webinar “Enforcing Non-Compete Provisions in Franchise Agreements” is now available as a podcast and webinar recording.

In Seyfarth’s seventh installment in its series of Trade Secrets Webinars,  Seyfarth attorneys John Skelton, James Yu and Dawn Mertineit focused on the importance of State specific non-compete laws and legislation and recent Federal and State efforts to regulate the use of non-compete agreements; enforcement considerations for the Franchisee when on-boarding and terminating employees; and lessons learned from recent decision regarding enforcing non-compete provisions upon termination and non-renewal.

As a conclusion to this well-received webinar, here are three key takeaway points:

  • As reflected by the May 5, 2016 White House report (Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses), state and federal non-compete legislative proposals and recent enforcement action by the Illinois Attorney General challenging the use of non-compete agreements for lower level employees, Franchisors and Franchisees need to anticipate more regulation and scrutiny.
  • With respect to their own employees, Franchisors and Franchisees need to develop and implement on-Boarding, termination and other procedures designed to ensure that both departing and prospective employees understand their ongoing obligations with respect to the company’s confidential and proprietary information and trade secrets and that such information is protected throughout the employment relationship.
  • The enforceability of non-compete provisions are most often litigated in the context of a request for a preliminary injunction and several recent decisions confirm that to enforce a non-compete against a departing franchisee the franchisor (1) should be able to show harm to actual competition; (2) needs to act promptly and that enforcement delays likely means that any alleged harm is not irreparable; and (3) should develop and implement a post-termination plan beyond simply sending a notice of termination as the franchisor will need to present evidence of actual harm.

shutterstock_180803939In a clash between two major oil companies, the Texas Supreme Court ruled May 20, 2016 that the recently enacted Texas Uniform Trade Secrets Act (“TUTSA”) allows the trial court discretion to exclude a company representative from portions of a temporary injunction hearing involving trade secret information.  The Court further held a party has no absolute constitutional due-process right to have a designated representative present at the hearing.

A former employee of M-I L.L.C. (“M-I”), a Schlumberger subsidiary, left to work for National Oilfield Varco (NOV) in early 2014.  The employee then filed suit against NOV in April 2014, seeking a declaratory judgment on his non-compete agreement.  M-I counterclaimed for breach of contract and misappropriation of trade secrets and further sued NOV as a defendant.

At a temporary injunction where M-I sought to present evidence through oral testimony of its purported trade secrets, M-I asked the trial court to exclude from the courtroom NOV’s designated representative.  The trial court categorically denied this request, concluding that it would be a denial of due process to prohibit the representative from attending.  The Court of Appeals then denied M-I’s writ of mandamus.

The Texas Supreme Court held, however, that the trial court failed to conduct the necessary due-process analysis balancing NOV’s right to have its representative attend the hearing and  M-I’s right to protect its trade secrets from someone who could have been a competitive decision-maker at NOV.  Specifically, the Court held that the balancing test required the trial court to determine, e.g.,

  • the degree of competitive harm M-I would have suffered from the dissemination of its alleged trade secrets to NOV’s representative; and
  • the degree to which NOV’s defense of M-I’s claims would be impaired by the representative’s exclusion.

This analysis may ultimately result in permitting NOV’s representative to attend the hearing, the Court stated, but the failure of the trial court to conduct any such analysis constituted an abuse of discretion.

The Court further concluded that TUTSA allows a trial court to exclude a company representative from portions of the hearing where trade secrets are being discussed.  Specifically, the Court held the provision of the statute allowing for “in camera hearings” should be interpreted as proceedings where a party or its representatives may be excluded, such as the injunction hearing at issue. Tex. Civ. Prac. & Rem. Code §134A.006.  This interpretation, the Court concluded, was appropriate because “it best gives effect to [TUTSA’s] directive to take reasonable measures to protect trade secrets, and its express authorization for protective orders with provisions ‘limiting access to confidential information to only the attorneys and their experts.’”

Interestingly, the Court also noted that when conducting the balancing due-process test regarding NOV’s corporate representative, the trial court must consider that “even when acting in good faith, [the representative] could not resist acting on what he may learn.”  In support of this position, the Court cited to a federal case from the Court of Appeals for the D.C. Circuit which held that “it is very hard for the human mind to compartmentalize and selectively suppress information once learned, no matter how well-intentioned the effort may be to do so.”  FTC v. Exxon Corp., 636 F.2d 1336, 1350 (D.C. Cir. 1980).  This analysis appears to lend support to interpreting TUTSA to adopting in some form the “inevitable disclosure” doctrine, which has not been otherwise officially recognized in Texas.  This doctrine generally holds that a former employer is entitled to enjoin a former employee if the new employment would result in “inevitable disclosure” of confidential information.[1]

TUTSA became effective in Texas on September 1, 2013.

[1] See, e.g., Harell, Alex, Is Anything Inevitable?  The Impending Clash between the Inevitable Disclosure Doctrine and the Covenants Not to Compete Act, 76 Tex. B.J. 757 (2013).

WebinarOn Tuesday, June 21, 2016 at 12:00 p.m. Central, Seyfarth attorneys, John Skelton, James Yu and Dawn Mertineit will present the seventh installment of the 2016 Trade Secrets Webinar series. This program will focus on protecting a franchisor’s trade secrets, confidential information, and goodwill through the use of covenants against competition.

The Seyfarth panel will specifically address the following topics:

  • The scope of protectable interests (for both the Franchisor and the Franchisee) in the franchise relationship and with respect to the franchise operating system.
  • Enforcement considerations for the franchisee when onboarding and terminating employees and for the franchisor with respect to terminated or withdrawing franchisees.
  • State non-compete laws and legislation and other state specific nuances.
  • Enforcing in-term and post-term non-compete provisions in the franchise context.
  • Lessons to be learned from recent non-compete decisions.

Our panel of attorneys have significant experience advising franchise, dealer, and distributor clients on protecting their brands, trade secrets, and other intellectual property, including litigating trade secret cases, drafting protection agreements, and conducting trade secret audits.

*CLE Credit for this webinar has been awarded in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

register

If you have any questions, please contact events@seyfarth.com.

shutterstock_345216839Touzot was an employee of ROM, a seller of products used in making balsa wood model planes and boats.  His employment agreement included a post-termination customer non-solicitation covenant.  After he left ROM, he became a competitor.  The company sued him and his Ecuadorian supplier of balsa wood, which previously had been ROM’s supplier, alleging that they were colluding to steal ROM’s customers.  Although ROM was found to have satisfied most of the other requirements for injunctive relief, the court held that a monetary award would provide adequate compensation for any damages. Touzot v. ROM Dev. Corp., Civ. Ac. No. 15-6289 (D.N.J., Apr. 26, 2016) (Linares, J.) (not for publication).

Status of the case.  Touzot initiated litigation in a New Jersey state court against ROM.  The company is based in Rhode Island.  ROM removed the case to federal court and moved to dismiss for lack of personal jurisdiction.  While the motion was pending, ROM filed its own lawsuit in Rhode Island federal court, charging breach of contract, misappropriation of trade secrets, tortious interference, etc.  ROM sought and obtained from the judge in Rhode Island a temporary restraining order, but it was stayed pending a determination of which court should adjudicate the dispute.

After ROM’s motion to dismiss the New Jersey case was denied, the Rhode Island suit was transferred to New Jersey for consolidation with the case there.  A few days ago, Judge Linares issued his opinion denying ROM’s application for a preliminary injunction and granting the motion filed by Touzot and his balsa wood supplier to dissolve the TRO.

Background.  By 2011, ROM had sustained a sharp decline in the volume of its quite profitable sales of balsa wood products, partly because of a shortage of balsa wood.  Hoping to improve its sales, ROM hired Touzot who introduced the company to a supplier in Ecuador which had abundant quantities of balsa wood and became ROM’s principal source.  Touzot was ROM’s contact person with the supplier as well as ROM’s sales representative for its model wood customers (according to ROM, the customers, unlike the supplier, previously were unknown to Touzot).

Once ROM had an adequate supply of balsa wood, its model products sales took off.  Nevertheless, after four years the company fired Touzot who then formed his own company to sell balsa wood model products.  ROM’s supplier announced dramatically increased prices for sales of balsa wood to ROM, which would have eliminated its profits for wood model products.  However, the supplier sold balsa wood to Touzot at the old, lower prices.  Other suppliers of balsa wood did not raise their prices but, as before, they did not have the capacity to satisfy ROM’s needs.  Consequently, the company could not compete effectively with Touzot, and many of its former customers became his customers.

The restrictive covenants.  Touzot’s employment agreement with ROM contained multiple restrictive provisions (non-compete, non-solicitation, trade secret confidentiality, etc.).  The only covenant ROM sought to enforce with an injunction was Touzot’s promise that for two years after termination he would not solicit anyone in “the Americas” who was a ROM customer during his employment for orders with respect to products similar to those sold by ROM.

Injunction standards.  In his opinion, Judge Linares stated that, whether New Jersey or Rhode Island law applied, ROM was required to show that (1) it was likely to succeed on the merits, (2) the balance of equities favored ROM, (3) an injunction was in the public interest, and (4) ROM would suffer irreparable harm if the injunction were not issued.  He wrote that ROM was likely to be able to prove that Touzot solicited its customers, and that he sold products substantially similar to those it sold.  The time and geographical restrictions were found to be reasonable.  Touzot was said to have admitted that he could obtain employment without violating the non-solicit restriction and simply chose not to do so.  However, regarding the fourth prong, the judge ruled that if ROM could prove lost sales as a result of Touzot’s covenant violations, a monetary award would provide adequate relief.

Takeaways.  The same evidence admitted at an injunction hearing frequently is offered at a subsequent trial on the merits, and the ruling on a motion for entry of a preliminary injunction often is a good predictor of the likely judgment at trial.  For these reasons, many cases settle after an injunction hearing and ruling.  Of course, Judge Linares stressed that his decision applied solely to the motion for preliminary injunctive relief and was not dispositive with respect to the merits of (a) the parties’ differing interpretations as to the meaning of the non-solicitation covenant, much less (b) ROM’S allegation that Touzot breached it.

The court did not really address the public interest prong of the injunction standards.  Yet, if Touzot is enjoined from selling to model wood customers for two years, they might be unable to locate an alternative source for the product during that period.  On the other hand, there is a public interest in holding contracting parties, especially relatively sophisticated parties, to the contractual commitments they make.

In his opinion, Judge Linares pointed out that monetary relief is rarely adequate for breach of a confidentiality covenant which puts another’s trade secrets into the public domain.  On the other hand, many courts recently have denied motions for injunctions with respect to violations of various covenants, holding that compensatory damages can be an adequate remedy when the injury consists of provable lost sales and profits.

shutterstock_328329848Over the last decade, communication via email and text has become a vital part of how many of us communicate in the workplace. In fact, most employees could not fathom the idea of performing their jobs without the use of email. For convenience, employees often use one device for both personal and work-related communications, whether that device is employee-owned or employer-provided. Some employees even combine their personal and work email accounts into one inbox (which sometimes results in work emails being accidentally sent from a personal account). This blurring of the lines between personal and work-related communications creates novel legal issues when it comes to determining whether an employer has the right to access and review all work-related communications made by its employees.

Employers have legitimate business reasons for monitoring employee communications. Take, for example, the scenario in which an employee leaves her employment, and the employer is concerned that she has taken proprietary information or solicited clients in violation of her duty of loyalty or a contractual agreement. Another common scenario that gives rise to the need for employers to review all of an employee’s work-related emails is when the employer is in litigation that requires production of employee communications.

Most employers are comfortable with the notion that, with a properly worded policy that provides notice to employees of the ability and intent to monitor email, an employer can access emails on an email server provided by the employer. However, what about cases in which the employer does not provide the email service? With employees using web-based emails, like Gmail and Hotmail, and texts to communicate in the workplace, the relevant communications may be elsewhere. In these situations, what are an employer’s rights to access and review such communications?

An employer’s ability to review electronic communications is governed by the Electronic Communication Privacy Act (ECPA) and the Stored Communications Act (SCA). The ECPA prohibits the interception of electronic communications, and the term “interception” as used in the ECPA has been interpreted so narrowly that this title of the ECPA rarely comes into play in cases involving an employer’s review of employee email or texts. The SCA makes it illegal to access without authorization a facility through which electronic communication service is provided and thereby obtain access to communications in electronic storage.

With regard to an employer’s review of employee emails sent through web-based email accounts like Gmail or Hotmail, the most frequent scenario confronted by courts is one in which a former employer accesses the web-based email of a former employee, looking for evidence of malfeasance. In these cases, the former employer is typically able to access the former employee’s web-based email account because the employee has saved her username and password on a device provided by the employer, which was returned at termination, or failed to delink an account from such a device. In these cases, courts have been reluctant to punish the former employee for failing to take appropriate steps to secure their own personal, and allegedly private, communications.

For example, a district court in New York considered an employee’s claim that his former employer’s review of emails in his Hotmail account after his termination violated the SCA because it was unauthorized. The defendant argued that its review of the emails did not violate the SCA because the employee had implicitly authorized its review of the emails on his Hotmail account because the employee had stored his username and password on the employer’s computer system or forgot to remove such an account from an employer-provided phone before returning it.

The court rejected this argument, holding that it was tantamount to arguing that, if the employee had left his house keys on the reception desk at the office, he would have been implicitly authorizing his employer to enter his home without his knowledge. The court also noted that the employer’s computer usage policy did not provide the necessary authorization because it only referred to communications sent over the employer’s systems.

Likewise, a district court in Ohio confronted with similar facts, refused to hold the plaintiff responsible for his own failure to safeguard his information. In this case, the employee had turned in a company-issued blackberry upon termination without first deleting the Gmail account he had added to the phone. The former employer reviewed the emails in the former employee’s Gmail account, and the former employee alleged that this violated the SCA. The former employer argued that the former employee had negligently or implicitly consented to their review of the emails in her Gmail account by returning the blackberry to the company without deleting the account. However, the court held that the employee’s “negligence” in leaving the Gmail account on her phone when she turned it in was not tantamount to her authorizing the defendant to review the emails on her Gmail account.

However, a federal district court in California reached a different result in a case involving text messages. In this case, a company had sued its former employee for misappropriating trade secrets when it discovered, upon his termination, a number of text messages on the former employee’s company-issued iPhone that documented his misappropriation. The former employee had forgotten to delink his Apple account from the company phone he returned, and thus, his text messages continued to go to the phone — and his former employer. The court granted the company’s motion to dismiss the former employee’s counter claim that the company’s review of his text messages violated the SCA. The court held that text messages stored on phones are not in “electronic storage” within the meaning of the SCA, citing a Fifth Circuit case that reached the same conclusion about text messages. Of course, a violation of the SCA is not the only issue in these cases.

For example, in this case, the employee also alleged that his employer had invaded his privacy. However, the court held that the employee had no reasonable expectation of privacy in a company-owned phone that was no longer in his possession. In contrast to the two cases above, the court found that the employee’s failure to undertake precautions to maintain the privacy of his text messages showed he had no right to exclude others from accessing them.

The main lesson from these cases is that, if an employer wants to have the ability to review all employee communications that take place in the workplace, the employer needs to have, at a minimum, a policy that specifically provides for the right to monitor and review, for legitimate business reasons, any work-related communications made by the employee on a device provided by the company or a personal device used for work purposes. (Although the SCA does not require any showing about the employer’s motives in accessing the emails, a traditional invasion of privacy analysis would take this into account.) As a practical matter, the employer may not have the ability to access such accounts, but where access is available, this policy language is critical.

shutterstock_369744050The U.S. Department of Treasury recently released a study on the effect of non-compete agreements, taking a hard line with respect to their social and economic benefits and purported harms.  Specifically, while the authors of the study acknowledge that in some cases non-compete agreements can promote innovation, they ultimately conclude that the potential harm of misuse by employers outweighs those benefits.

Recent Research 

According to the study’s authors, recent research suggests that about 18 percent of American employees, amounting to nearly 30 million people, are currently covered by non-compete agreements; and nearly 37 percent of workers report having worked under one at some point during their career.  Workers bound by non-compete agreements are not just limited to the highly educated or compensated.  In fact, 15 percent of workers without a four-year college degree and 14 percent of workers earning less than $40,000 per year are bound by them.

Purported Costs vs. Benefits of Non-Compete Agreements

Although the authors of the Treasury Department study acknowledge that non-compete agreements can have social benefits in some situations, such as  (1) protecting trade secrets, thereby promoting innovation; (2) reducing the probability of employees resigning, thereby increasing employers’ incentives to provide costly training; and (3) allowing employers with historically high turnover to use non-competes to match with workers who have a low desire to switch jobs in the future, they place greater emphasis on what they believe to be serious downsides to non-compete agreements as well.  Specifically, according to the authors, non-compete agreements can (1) result in lower wages after the agreement is signed; (2) discourage workers from re-entering their field in its entirety once they are terminated, thereby foregoing accumulated training and experience in certain fields; and (3) reduce job churn, which helps raise labor productivity by achieving a better matching of workers and employers.

The authors go on to express concern that a growing body of evidence suggests that employers are taking advantage of their employees’ incomplete understanding of such agreements, resulting in a purported lack of transparency and fairness.  For example, employers often require workers to sign non-compete agreements in states that refuse to enforce them, such as California.  Other employers fail to inform candidates about the existence of such agreements in their job offers.  Further, according to the authors of the study, only 10 percent of workers with non-compete agreements report bargaining over the terms of their non-compete agreements, with 38 percent of those not even realizing that they could have negotiated the agreement.

The authors of the Treasury Department study also suggest that while protection of trade secrets undoubtedly seems to be a legitimate justification for these agreements, about 18 percent of workers bound by non-compete agreements are in fields like personal services and installation and repair, in which such purportedly should not be a concern.  The authors of the study question the legitimate business purpose of imposing non-competes on employees such as fast food restaurant workers, as it is not likely that they will possess any trade secrets or proprietary training.  Along those lines, we recently reported on a case in which a trial court struck down a beauty salon’s non-compete agreement because it lacked a legitimate business purpose.

These characteristics, the authors of the study suggest, may have a negative impact on the national economy by reducing job mobility, and lowering wage growth and initial wages.  According to the authors, research has shown the stricter the non-compete enforcement to be in a particular state, the lower the wage growth and initial wages.  Given that job switching is generally associated with substantial wage increases, the resulting increased difficulty of switching jobs would purportedly reduce wage growth over time.

The Study’s Recommendations

Based on the foregoing, the authors of the Treasury Department study recommend that (1) policy makers should inject more transparency into the world of non-compete agreements; and (2) employers should only use enforceable non-competes, align them with legitimate social purposes like the protection of trade secrets, and require consideration for workers to be bound by such agreements, such as severance packages.  This would purportedly better protect the employer’s business interests, limit the harm to workers, but most important it would preserve the more socially valuable agreements and chip away the least valuable, as employers would be hesitant to incur costs on them.  Of course, other than the additional consideration piece (in many states continued employment is sufficient), these are all things that we recommend to our clients, and on which most non-compete agreements are generally based in any event (at least those that are enforceable in most states).

Takeaways

The study only addresses the effects of non-compete agreements, not other types of restrictive covenants, such as customer and employee non-solicitation or confidentiality agreements.   It is unclear what, if any, effect this Treasury Department study will have on policy makers, but we will certainly report on anything that comes of it.

shutterstock_275586623By Karla Grossenbacher

Over the past several years, technology has dramatically increased employee accountability in the workplace.  For example, in an office environment, employees are expected to respond to emails immediately because they are either sitting in front of their computers or carrying a mobile device on which they can access their email.  As for employees who work outside the office, the availability of employer-issued phones and, alternatively, the proliferation of BYOD policies, has resulted in off-site employees being generally just a phone call away.  In specific industries in which employees drive motor vehicles while conducting business for the employer, yet another method of accountability exists: Global Positioning Systems (GPS).

For businesses that provide transportation or delivery services, it is not surprising to find that such employers have installed GPS devices in the vehicles used by their employees.  The use of such devices can benefit both the employer and the employee in situations in which delivery status needs to be checked or a vehicle breaks down.  In all likelihood, the employee in these situations is aware that a GPS device has been installed on the company vehicle he or she is driving and that the employee’s movements are being tracked while on duty.  Privacy issues tend to arise, however, when employers use GPS data in connection with investigating  alleged misconduct in the workplace.

There cases in which courts have addressed the legal parameters of an employer’s use of GPS devices to track workers in order to investigate potential misconduct are few but nonetheless instructive.

In Elgin v. Coca-Cola Bottling Co. (E.D.Mo. 2005), the employer attached a GPS device to a company-owned vehicle used by the employee to service vending machines after a cash shortage was reported on a number of machines.  Although the employee was cleared of any wrongdoing in the investigation, when he found out that a GPS device had been installed on the company vehicle he drove during the investigation, he filed a claim for intrusion upon seclusion under state law.  The court rejected this claim, noting that the vehicle was owned by the employer and the only information potentially revealed by the alleged “intrusion” was the whereabouts of the company vehicle.  In another case, Tubbs v. Wynne Transport (S.D. Texas 2007), the court dismissed an invasion of privacy claim against an employer who had used information gathered by a GPS device that had been installed as a matter of course on a company-owned vehicle driven by the employee to perform his duties as a truck driver.  The court did not, however, provide any substantive analysis regarding its decision to dismiss the claim.

Elgin and Tubbs both involved employers attaching GPS devices to company-owned vehicles.  The balance between the employer’s interest in rooting out misconduct and the employee’s individual privacy rights shifts, however, when an employee’s personal vehicle is at issue — even if it is used for work purposes.  In Cunningham v. New York Department of Labor (NY Ct. App. 2013), a state employee was under investigation for falsifying time records and voucher information related to work travel and had used his personal vehicle during work hours in connection with some of the suspected misconduct.  As part of its investigation into the alleged misconduct, the employer had a GPS device installed on the employee’s personal vehicle to gather information about his movements during periods in which he was suspected of misconduct.  The employee was ultimately discharged and filed suit to exclude the GPS data from evidence at his disciplinary hearing based on federal and state constitutional grounds.

The New York Court of Appeals held that installation of the GPS device on the employee’s personal vehicle was an unreasonable search under constitutional law principles.  Although the Court held the search was reasonable at its inception because the employer had a reasonable suspicion that the employee was engaging in workplace misconduct, the search was unreasonable in its scope because it had not been designed to obtain only the information the employer needed to determine if workplace misconduct had occurred.  Rather, the employer had monitored the employee’s personal vehicle 24/7, as opposed to only during working hours, and made no attempt to remove the device prior to the employee’s scheduled vacation.  The Court concluded that “[w]here an employer conducts a GPS search without making a reasonable effort to avoid tracking an employee outside of business hours, the search as a whole must be considered unreasonable.”

However, the extent to which a personal vehicle is used for work purposes can alter the analysis.  In two cases involving the revocation of a New York City taxi cab driver’s license for over-charging passengers, two New York city state courts held that taxi drivers had no legitimate expectation of privacy in GPS data gathered from the Taxi Technology System (TTS) installed on the cabs.  The court also held that, even if the drivers had a legitimate expectation of privacy in the data, the city had a legitimate interest in determining whether or not the driver was overcharging passengers and had narrowly tailored its search to obtain information from the TTS only during the driver’s work hours.  In these two cases, even though the cabs were personally owned by the drivers, the court found that the cab drivers had limited privacy rights with respect to the vehicles because they were open to public use and subject to regulation by the state.  The regulatory authority required that all city cabs have the TTS equipment installed and drivers were required to use the system to transmit information regarding location, trip and fare information to the regulatory authority.

The takeaway from these cases is that, although an employer appears to be on solid ground attaching a GPS device to a company-owned vehicle and using data gathered by the device in an investigation of workplace misconduct, especially where the employee is aware the device is on the vehicle and the information is only being gathered while the employee is on duty, caution should be taken in attaching a GPS device to a personal vehicle used by the employee for work purposes.  Employers also need to be mindful of complying with state laws regarding electronic surveillance.  California, Connecticut, Delaware and Texas all have laws requiring either notice or consent prior to placing a GPS on another person’s motor vehicle.

As the foothold of technology sinks deeper into the terrain of the workplace, the privacy issues confronted by employers will only grow in complexity.  However, courts have been reticent about making broad pronouncements about the intersection of law and technology in the workplace.  As the Supreme Court stated in United States v. Kwon, a case involving a state employer’s review of an employee’s text messages on a state-issued pager, “[t]he judiciary risks error by elaborating too fully on the Fourth Amendment implications of emerging technology before its role society has become clear.”  This restraint, while understandable, can leave employers with unanswered questions about how to balance the competing interests of legitimate business needs and individual privacy concerns in the workplace, particularly where technology is involved.   Perhaps in 2016, the courts will offer more guidance in this area.  Stay tuned.

shutterstock_242263660As January quickly passed by and new projects increase by the day, there is still a golden opportunity to capitalize on some low-hanging fruit to immediately improve your company’s practices and add immediate value to your company.  The opportunity lies in improving your company’s restrictive covenant and confidentiality agreements and confidentiality policies.  Below are five tips that you can employ immediately to improve your company’s agreements/policies and practices.

First, make sure your company is using confidentiality agreements and confidentiality policies with your employees.  You may be surprised to learn how many companies do not ask their employees to sign such agreements.  When those companies later seek to explore their options against employees who have joined competitors, their options are significantly narrowed.  Also, your company should not rely solely on employee handbook policies or other similar policies.  While your company may not use non-compete or non-solicitation covenants with your workforce, at a minimum, companies should use non-disclosure agreements with their employees.  There is really no excuse not to ask employees to sign such agreements.

Additionally, companies should consider using the maximum legally permissible restrictive covenants in their jurisdictions, including non-competes and non-solicitation of customers and employees as applicable, with their workforces; otherwise, companies are leaving a competitive advantage at the table.  While some companies may elect not to use non-compete agreements because such covenants are viewed as not supportive of their company “culture,” companies should carefully survey what their competitors are doing and determine whether they are putting themselves at a disadvantage in the talent market.

Second, spend some time with the business leaders in departments that create your company’s confidential information to make sure that your company’s non-disclosure agreement provides sufficient descriptions of the information that each department considers high value confidential information.  Oftentimes, companies give little thought to the categories of information described in the non-disclosure agreement or have no description of the information whatsoever.  While your company should not provide the secret information in the agreement, your company should at least describe the category of information in which it belongs and some specifics so that the category is easily identifiable by employees.  The value in describing the information in more detail is that the employee then understands what the company deems confidential, and it also provides the company a better chance in the courtroom to hold a former employee accountable if he or she misappropriates such information.

Third, review your company’s restrictive covenant and confidentiality agreements to make sure that they do not unnecessarily limit the company’s rights.  In one recent case, an employer lost its trade secret suit because its non-disclosure agreement defined confidential information as only that information which had been marked confidential.  The court found that the trade secret claim failed because the information in dispute had not been marked confidential.  The trade secret claim may have proceeded if the contract had not unnecessarily restricted the term “confidential” information to only signify information labeled confidential.  While labeling information as confidential indicates that such information may be subject to reasonable secrecy measures to support a classification as a trade secret, it is typically not dispositive as to whether contract and trade secret claims can be pursued for the theft of company information.

Additionally, companies operating in states that permit non-compete and non-solicitation agreements should consider using such agreements with their employees in those states even if those companies’ corporate headquarters are in jurisdictions where non-competes are typically void in the employment context, such as California.  Simply put, just because your company is headquartered in California does not mean that you should not ask your employees in Florida to sign non-compete and non-solicitation agreements governed by Florida law.  Additionally, some companies have been successful in using forum selection and choice of law provisions to bind employees who work in jurisdictions where restrictive covenants are limited to non-competes and non-solicitation covenants in the company’s home forum, particularly where such employees are provided access to trade secrets and maintain well-established relationships with company clients.  A company should also consider whether to use a prevailing party provision for attorney’s fees and costs for actions brought on or related to the agreement.

Fourth, take into account some recent developments in state non-compete law to make sure that your company’s agreement is compliant.  For example, Oregon has limited the duration of employee non-competes to two years effective January 1, 2016.  Hawai’i has banned the use of non-compete and non-solicit agreements with technology works effective July 1, 2015.  Alabama has made it easier to enforce non-compete agreements with a revised statute that became effective January 1, 2016.  Also, in Alabama, non-competes of one year will now be presumed to be enforceable.  Additionally, Illinois and Pennsylvania have special requirements for the roll-out of non-compete agreements with existing employees, including providing consideration apart from continued employment alone, to enforce such agreements.  The Wisconsin Supreme Court recently has found that continued employment was adequate consideration for non-compete agreements entered into after the inception of employment. There are also active movements in Utah and Washington to restrict the use of non-compete agreements.

Fifth, critically examine which employees and third parties your company asks to sign restrictive covenant and confidentiality agreements and be mindful of third-party scrutiny.  Regulators, legislators, and employee groups are scrutinizing the use of restrictive covenant agreements.  While some employers may not be using such agreements enough, particularly with the right people (i.e., executives, engineers, R&D personnel, sales representatives, among others), other companies may be accused of overreaching in asking all employees to sign non-compete agreements.  While the janitor does not necessarily need to sign a non-compete, he or she probably should sign a non-disclosure agreement in certain instances.  Also, your company should perform an audit or ensure one has been performed to see if your company has signed agreements with key employees, particularly high level executives and employees who may be flight risks.

Companies should think critically about who they are asking to sign such agreements and who they should be asking to sign such agreements (e.g., appropriate restrictive covenants and non-disclosure agreements with vendors and contractors).  We have found that while some companies may have solid agreements with employees, the same high value information may be provided to contractors and vendors without similar protections, which erodes the confidentiality protections placed on the information.  Government agencies such as the NLRB, SEC, and EEOC are actively scrutinizing employer confidentiality restrictions, so companies should be mindful to provide examples of confidential information instead of broad undefined labels, to not prohibit disclosure of information protected by Section 7 of the National Labor Relations Act (such as concerted activity involving discussions of conditions of employment or wages), and to not prohibit participation in government investigations or including similar provisions which impede the ability of employees to act as whistleblowers.

As many have already broke their New Year’s resolutions as we move into February, there is still an opportunity for you to add value to your organization by addressing these critical issues and providing useful recommendations to your organization.  Don’t wait.  Act today and reach for this low-hanging fruit.