Twas the night before Christmas, when all through the company;
A disgruntled employee kept saying “please jump with me.”
She was trying to line up a grand, mass departure;
Of which she was certain no one could outsmart her.

Her files had been copied, her clients all contacted;
She’d consulted a lawyer ‘bout things she had contracted.
He said that her covenants were quite overbroad;
Of this she was certain, they’d all be deemed flawed.

She proceeded to upload the secrets she’d learned;
On to flash drives, and emails and discs she had burned.
With not one regret, she reamed out her boss;
Quite sure she’d not erred, it would soon be his loss.

With eyes all upon her, out the door she receded;
Two colleagues joined with her, at least that's what she tweeted.
The office was stunned, and management surprised;
No one had foreseen that they’d soon be downsized.

“Let’s call up the lawyers. What options have we?
We’ll file a lawsuit, and then she will see!
Without our permission, our computers she hacked!
This must run afoul of the Computer Fraud & Abuse Act.”

“We must stop her now, her acts are illicit.
Without an injunction, our clients she’ll solicit.
And don’t forget the others who joined her, you see;
Together they formed a civil conspiracy.”

“Hold your horses," say the lawyers, "don’t get carried away.
Let’s pull out their contracts and see what they say.
But where are they kept? We’ve got piles and piles.
For sure they’ll be found in personnel files.”

“Let’s draft the complaint, and seek an injunction.
The defendants, you see, acted without compunction.”
The Court set a hearing, the plaintiff went first.
“Your Honor, it’s horrible, obscene and the worst!!”

“She’s taken our staff, our trade secrets, purloined;
She must be shut down, she must be enjoined!
In her contract she promised, she swore, she agreed.
The protections we seek are all guaranteed.”

“She may not solicit. It’s in simple prose.
She may not take secrets, or use or disclose.
But even without the help of contract;
Her conduct defies the trade secrets act.”

The lawyer sat down, feeling smart, feeling pleased;
The defense will be begging, they’ll get down on their knees.
So the court turned to the left where defense counsel sat;
And asked, “My dear sir, what do you say to that?”

“Your Honor, you see, they’ve got it all wrong.
Just hear me out, this won't take too long.
The data at issue are far from trade secrets.
You’ll find it in public, in brochures and on leaflets.”

“The contract is void, it lacks consideration.
And the covenants purport to cover the nation.
My clients, they acted at all times with great reason.
In contrast, the plaintiffs use contracts adhesion.”

Defense counsel sat, while the court thought about it;
Parsing through the arguments each party had spouted.
And finally the court was ready to rule;
To give its decision at this time of Yule.

“First let me address the non-compete clause;
Please wait ‘til I’m finished; please hold your applause.
The non-compete is too onerous, it’s unreasonable;
But I find that the covenants are quite severable.”

“Defendants have breached the clause nondisclosure;
Confidential information – indecent exposure.
And let’s not forget the non-solicitation;
That covenant is of reasonable duration.”

“So I’m going to issue a restraining order;
Please take this down, my dear court reporter;
A bond shall be posted at ten thousand dollars;

I say this to both parties and their legal scholars:

Explore resolution. Think how not to fight.
Merry Christmas to all, and to all a good night.”

Michael R. Greco is a partner in the Employee Defection & Trade Secrets Practice Group at Fisher & Phillips LLP.  To receive notice of future blog posts either follow Michael R. Greco on Twitter or on LinkedIn or subscribe to this blog's RSS feed

In actions against former employees, it is sometimes difficult for the former employer to determine precisely who did what.  Sometimes, one employee has a non-solicitation agreement, but the other does not.  Sometimes, one employee takes a trade secret, but the other employee uses it.  Asserting a cause of action for civil conspiracy can help overcome the efforts of former employees who seek to avoid liability by hiding the ball.

Although the elements of a civil conspiracy claim differ from state to state, generally speaking the following elements are required: (1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose; (2) an overt act done in pursuance of the common purpose; and (3) actual legal damage.  Notably, not every conspirator must commit an overt act in furtherance of the conspiracy, so long as at least one does. 

Employers should consider including a claim for civil conspiracy in cases where they suspect two or more parties colluded to deprive the employer of its legal rights.  For the lawyers out there asking how to plead such a claim, read on.  Non-lawyers, feel free to stop reading, or prepare yourselves for some old fashioned legalise.  Consider the following pleading example:

CIVIL CONSPIRACY
(Against Employee X and Employee Y)

1. The allegations of the paragraphs set forth above are incorporated by reference herein with the same force and effect as if set forth in full below.

2. Employees X and Y formed and operated a malicious combination with a common purpose and object to injure Employer by performing unlawful acts by violating Employer’s contractual and common law rights as described above.

3. The foregoing conduct of Employees X and Y was malicious, performed with intent to injure Employer, and was without justification or privilege.

4. One or more of the defendants in fact engaged in overt unlawful acts and conduct violative of Employer’s contractual, statutory and common law rights as described above, causing actual harm to Employer.

5. By virtue of the formation and operation of this conspiracy by defendants, and as a consequence of the above described wrongful acts and conduct and the harm and injury caused to Employer thereby, each defendant as a participant in this conspiracy is liable as a joint tortfeasor for each and every one of the above-described acts committed by each defendant/co-conspirator.

6. As a consequence of the foregoing, Employer has suffered and will continue to suffer irreparable harm and loss, and has sustained damages including but not limited to loss of capital and revenue, lost productivity, expenses incurred, and loss of intangible assets, in an amount to be determined at trial, which damages are ongoing and continue unabated at the time of the filing of this Complaint.

For more on civil conspiracy claims, see our prior post "Employees ‘Jumping Ship’: 'What Can We Do When We Don’t Have a Contract?'"

You are the Assistant General Counsel for Employment with a national company and just learned that the Branch Manager and the entire sales team from your Kansas City branch office have jumped ship and joined your largest competitor.  The Branch Manager attended all of your strategic planning meetings in late 2009, which led to the roll-out of your company’s 2010 marketing plan.  The sales reps control four of the company’s ten biggest accounts, and already you have heard that they are calling your customers.  Your Regional Vice President’s first reaction:  "let’s go after them."  But HR reminds you that all these employees were from the company that you acquired a few years back – the one that didn’t have any of its employees sign non-competes.  So now you are asked, “what can we do when we don’t have a contract?” 

Well … you are not necessarily out of luck.  Here are some of the key claims to consider:

Misappropriation of trade secrets.  For sales employees, the key question is whether your customer list can qualify as a trade secret.  It may qualify if it is a “retail” list of individuals.  Their names may be in the phone book, but of course the phone book doesn't have any cross reference that identifies names might be your customers.  But if your customer base is “institutional” -- well-known companies that obviously would need your product, such as if you sell windshield glass auto manufacturers – your list is easy to figure out and probably isn’t secret enough to qualify.  Compare, for example, Merrill Lynch v. Zimmerman, 1996 WL 707107 (D. Kan. 1996) (retail stockbrokerage customer list is a trade secret) with Reed, Roberts Assocs. v. Strauman, 353 N.E.2d 590 (N.Y. 1976) (customer list not a trade secret; plaintiff’s consulting business advised companies on unemployment compensation and workers compensation issues).  Even if your customer list is not a secret by itself, additional data about customers, such as sales history, preferences, and the like, may qualify, if you can prove it meets the common law or statutory standards.  See, e.g., Zoecon Corp. v. American Stockman Tag Co., 713 F.2d 1174 (5^th Cir. 1983) (in this case, trade secret customer information included “type and color” of items purchased, “date of purchase,” “amount purchased,” as well as names and addresses of otherwise obvious purchasers of livestock ear tags).

The Branch Manager has knowledge of marketing and business information.  You may be able to argue that the information he learned during your strategic planning qualifies as a trade secret.  See, e.g., PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7^th Cir. 1995).  The question is whether it has been kept secret, or is it now obvious because you rolled out the plan?

What kind of relief can you get on a trade secrets claim?  Listed from easiest to obtain, to hardest, you may be able to get:  (1) non-disclosure – an order prohibiting the employees from disclosing information; (2) return of information – requiring them to return it; (3) non-use -- an order prohibiting the competitive use of the information; (4) non-solicit – prohibiting them from soliciting trade secret customers; and (5) non-compete – prohibiting them from working for your competitor.  The non-compete order relies on a theory of "inevitable disclosure" of the trade secrets.  Such relief is hard to get, and in some states is completely unavailable.  Where available, it usually requires evidence that the employee cannot be trusted, and that lesser relief is inadequate. 

Breach of duty of loyalty:  This focuses on pre-resignation conduct.  Before they resigned, did they:  (a) solicit customers; (b) recruit employees; or (c) divert business opportunities?  Soliciting customers and putting a business opportunity in the “back pocket” to pursue at their new place are both out of bounds.  Some discussions with employees may be okay, but in certain jurisdictions managers may not solicit underlings to follow them to their new company.  This sometimes boils down to a question of whether communication about the new jobs constituted "solicitation" or something less. 

Unfair competition / raiding:  Unfair competition or “raiding” tends to be an “I know it when I see it” type of claim.  This vagueness is both an asset and impediment.  The claim is elastic enough to use it in unusual situations, but its vagueness also makes it difficult to assess its chances of success.  In most instances, you'll have to prove “malice”:  an intent by the hiring firm to harm your business, rather than just an intent to help their own business by adding talent. 

Computer Fraud & Abuse Act, 18 U.S.C. § 1030:  Under the CFAA, you must prove (a) the employees either fraudulently or "intentionally" accessed your computers; (b) they did so without authorization or exceeding the scope of their authorized access; and (c) that they caused damage.  Did they go into your computer and take information, such as customer lists or business data?  If so, you may have a claim, although the decisions are far from unanimous in applying the CFAA to departing employee cases (including differing interpretations of what constitutes "damage").  Advantages of a CFAA claim:  (a) no need to prove the information was secret; and (b) no need to prove “malice.”  See, e.g., Shurgard Storage Centers, Inc. v. Safeguard Self-Storage, Inc., 119 F.Supp.2d 1121 (W.D. Wash. 2000).  But see Condux Int'l Inc. v. Hangum, 2008 US Dist. LEXIS 100949 (D. Minn 2008).  There also are special provisions in the Act that apply in a medical or financial business context.  For further discussion, see Heather Steele's blog entry: "Establishing the 'Without Authorization' Element under the Computer Fraud & Abuse Act".  

Civil conspiracy:  This is an option for multiple employee departures.  Generally, co-conspirators may be held liable for all violations of each conspirator, but there must be an underlying and independelty actionable improper act by one of the conspirators.  This works well with tort claims such as trade secrets or duty of loyalty, and may apply with statutory claims such as the CFAA.  In certain states, it may even work where some employees have contracts and others don’t – you may be able to bind them all to the contracts if they all are conspiring to violate.  See, e.g., Catercorp, Inc. v. Catering Concepts, Inc., 431 S.E.2d 277, 282 (Va. 1993).  Other states don't recognize claims for conspiracy to breach a contract.     

So, there may be some things you can do, even without a contract.  To enhance your position, consider taking these steps now:

• Get contracts:  sign employees up if you acquire a company that did not use them.  Consider whether you should roll out contracts if your company is not using them yet. 
• Protect your information:  to help establish trade secret status you can use non-disclosure agreements; build computer system firewalls; remind employees of confidentiality (in manuals, log-in screens, memos, bulletin board postings); and limit access to files, lead lists, and other sensitive data. 
• Monitor computer activity:  make sure you can determine -- quickly -- if someone accessed or removed information via computer prior to their departure.