Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Langley Weinstein LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

Dave Walton is a labor and employment attorney with Cozen O'Connor and is based in West Conshohocken, Pennsylvania.

Last year Dave and Seattle lawyer Ed Taylor obtained a multi-million dollar jury trial verdict in a theft of trade secrets case.  The case is instructive on how to employ and use electronic discovery to trace trade-secret theft and then present that evidence to a jury.  I have changed the names of the parties and altered some of the facts to preserve some anonymity.

The Facts

Eagle Distributor is a Richmond based distributor of Liquid X.  Liquid X is used in all sorts of applications including tooth-paste, car lubricants, and even motor oil.  It is produced on the outskirts of Shanghai, China by a company called Paper Tiger.  Eagle has two divisions, sales and supply. Sales, as you might expect, handles customer accounts throughout the United States.  Supply handles negotiations with Paper Tiger and ensures delivery of product to the U.S. for distribution.

 Rick Jones and Susan Francis were at one time employees of Eagle.  Rick worked in sales and handled the Texas market.  Susan was in supply and primarily handled negotiations with Paper Tiger.  In June 2006 Rick announced he was moving to Nova Scotia to take care of his sick mother.  Around that same time, Susan announced she was leaving the company after 25 years so she could take time off and receive treatment for a health condition. She even accepted Eagle’s offer to remain on the payroll so she could secure health benefits and receive treatments for her condition.  Eagle did not know at that point that, within a few days of their resignations from Eagle, Rick and Susan traveled overseas to secretly help Paper Tiger set up a competing company.

In September 2006, Paper Tiger and Eagle began negotiations over pricing for Liquid X for the first quarter of 2007.  Generally the negotiations took place through phone calls and follow up emails.  For the first time, Paper Tiger requested information regarding Eagle’s customers and two new individuals names appeared on the cc line of the various emails, Sydney and James.  Rick and Susan were using these aliases at Paper Tiger so they could secretly review emails from Eagle and hide their involvement with Paper Tiger.  Later, during a meeting with Paper Tiger, Eagle was told that Paper Tiger would no longer supply Liquid X to Eagle and that Paper Tiger was going to compete directly against Eagle.  At the time, Paper Tiger denied that they had hired any former Eagle employee to help them with this new competing venture. 

Later, Eagle discovered that Paper Tiger had secretly hired Rick and Susan. Management then began a review of former employees access to documents over the past few months.  It turned out that Susan accessed and took company information several days before she left.  Similarly, Rick refused to return a flash drive containing an extensive amount of Eagle’s confidential information.  There was no need for them to have the information and of course the access took place at odd times during the day.  Management called their lawyers.

(Part II will appear next week.)

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A recent study by Deloitte concludes that 60 percent of executives believe they have a right to know how employees portray both themselves and their employers on online social networks. 

On the flip-side, 53 percent of employees say such postings are not their employer's concern and in the 18-34 demographic that number rises to 63 percent. 

Balancing an employee's right to self expression with the business concerns of her employer has been discussed previously here but surprisingly not by many executives according to the survey: 

Organizations grapple with the notion of reputational risk within the context of employees self-expression.  Meanwhile, news of major global bands being impacted by the online activities of their people suggests that discussions around the topic need to be elevated to the highest levels of leadership.  That said, surprisingly only 15% of executives surveyed are addressing these risks in the board room though 58% agree it is important enough to do so.

Moreover, a mere 17% have programs in place to monitor and mitigate the potential reputational risks related to the use of social networks.

The survey also concludes that "clearly defined company guidelines will not change how nearly half the respondents behave in cyberspace."  It concludes:

Therefore attempts to mitigate reputational risk in these online communities should include an emphasis on culture, values, and ethics within an organization.  By reinforcing these fundamental elements, business leaders will have the opportunity to encourage good decision-making in virtual social networking environments.

It's clear based on the survey results that an effort above and beyond the standard internet policy is necessary to deal with social networks and the employee.  Employers will have a difficult time attracting talent if they police their employees' online presence, but where is the balance?  These policies will have to be based on the specific needs to the company and include some flexibility.  This is and and will continue to be an ever evolving process.  There are no hard and fast rules.

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Tomorrow I will be speaking at the University of Houston Law Center Advanced Employment Law Seminar in Dallas regarding employment torts.  The paper prepared for the presentation covers the latest and greatest in torts ranging from false imprisonment to tortious interference.   

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In late April Hewlett Packard hired EMC storage division president David Donatelli.  Donatelli  worked  22 years for EMC and made $17 million over the last three.  The hire reportedly stunned the industry.  As part of his new employment Donatelli was going to relocate to California.

Donatelli was first to the Courthouse and filed a lawsuit in California challenging the 12 month non-compete in his employment agreement.  It reads:

For the twelve-month period following the effective date of your termination, for any reason, from the Company, you agree not to directly or indirectly compete with the Company ... including any services ... as an employee ... to any entity that is developing, producing, marketing, soliciting or selling products or services competitive with products or services being developed, produced, marketed or sold by the Company as of the effective day of your termination.

California is generally considered an unfavorable venue for the enforcement of non-competes as previously discussed.  In particular, California does not recognize the doctrine of inevitable disclosure.  (Basically, the doctrine assumes that when an employee moves from one company to another she will inevitably disclose trade secrets obtained from the prior company.) 

EMC filed its own lawsuit in Massachusetts and was initially successful in obtaining an injunction restricting Donatelli from taking the HP job.  In it's opinion, the Court rejected Donatelli's argument that California law applies and gave no defference to the fact that his lawsuit was filed first in California.  Donatelli's argument that California law applies is undermined by the fact that there is a Massachusetts forum selection clause and choice of law provision in his employment agreement. Additionally, he is a resident of Massachusetts.  A hearing is set for later in the month in the California case.  How the California court will reconcile the Massachusetts ruling and Massachusetts law remains to be seen. 

(H/T Brad Reese)

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