by Meridith Levinson

How to Avoid Getting Sued by a Former Employer

Nov 13, 20088 mins

If you are recruited to work for a business that competes with your current employer, you could find yourself slapped with a big fat lawsuit over intellectual property theft, even if you did nothing wrong. Here's how to prevent that nightmare.

When the economy goes south, companies get desperate for business. Many resort to layoffs to boost their bottom lines. Some companies, like Fannie Mae, go so far as to cook their books. Yet others opt to steal their competitor’s intellectual property to gain a competitive advantage, says Michael Kump, a partner who specializes in intellectual property, antitrust and trade practices law at Kinsella Weitzman Iser Kump & Aldisert.


Where Are the Legal and Intellectual Property Bodies Buried in Open Source Adoption

How Text Messaging and Facebook Can Get You Into Legal Trouble

How to Comply with E-Discovery Rules Before You’re Hit with a Lawsuit

How to Stay Out of Jail

“The lifeblood of most businesses is information: customer information, product information. That’s why intellectual property is so highly valued,” says Kump. “As economic conditions tighten and people start looking for ways to cut corners and gain an advantage, some will cross the line and do so in an illegal manner.”

Specifically, says the attorney, companies may try to recruit valued employees from successful competitors in order to obtain insider information.

Such underhanded business practices—both the recruiting to obtain trade secrets and the knee-jerk litigation—pose a threat to IT workers, whose specialized knowledge and skills remain in demand even during this economic downturn. IT professionals need to be careful about taking jobs with competitors because their former employers could try to sue them for “misappropriating trade secrets,” even if they did nothing of the sort, says Kump. He expects such litigation to increase as the economic downturn continues.

This is not to say that IT professionals should avoid taking jobs with competitors (unless, of course, they’ve signed a non-compete agreement with their existing employer). They just need to be aware that the potential exists, and they must take measures to protect themselves.

Kump spoke with about the rise in intellectual property litigation and ways employees can avoid it.

CIO: Why do you expect an increase in intellectual property-related litigation?

Michael Kump: The lifeblood of most businesses is information: customer information, product information. That’s why intellectual property is so highly valued. Whether you’re a dry cleaning business with a customer list or a biotech company in Silicon Valley, the information you have is the lifeblood of what you do.

As economic conditions tighten and people start looking for ways to cut corners and gain an advantage, some will cross the line and do so in an illegal manner. One of the classic shortcuts is to steal competitors’ intellectual property. It can be quicker to target key employees at a successful competitor and try to get those employees to come over to your side than to invest in process and grow your business the right way.

There’s almost an unstated understanding that those employees you hire from competitors will bring intellectual property with them. That will lead to an increase in litigation. The type of claim I would expect to see is unfair competition, intentional interference and misappropriation of trade secrets.

So the company that lost the employees could sue the company that hired them?

The company that lost the employee could go after the employee who left. You may not know whether the employee acted by themselves or if they worked in concert with their new employer.

The way I handle these kinds of cases, I know what the employee has done, so I go after them and take discovery and find out what the scope is. You usually find that the new employer has played a role. Then both parties can be sued for the claims I mentioned earlier. You will almost certainly have a claim for breach of some kind of contract with the former employee. In cases like this, the plaintiff has to move quickly to protect its IP. One of the strongest weapons you have is equitable relief, which is typically an injunction that prevents the new employer and departed employee from misusing your trade secret information.

How can an employee protect himself or herself from such lawsuits?

A number of ways. There are steps they can take before they leave a job. That is, when they’re ready to leave, to announce their resignation and make a full disclosure of what they’re taking and not taking. I advise people to make a list of everything they’re taking from their office, such as family pictures and diplomas, and make it clear that you’re not taking any [company] information with you. Employers will typically ask this of you.

I would also offer to show bags and boxes and anything you take out of the building. Give your employer an inventory and make sure your employer signs off on it. Make sure your employer has taken all necessary steps to shut off your access to all company information and systems. Access to passwords, if you have a BlackBerry with customer information on it, all of that should be rendered inoperable.

Another thing an employee should do if they think there’s a possibility they could get sued—even if they haven’t done anything wrong—is to have their new employer indemnify them. Have an understanding with your new employer in writing that if for any reason you’re sued and you’ve done nothing wrong, that your new employer will cover your legal expenses.

Will a new employer really go that far? I would think that if there’s any risk that a potential hire would get sued by a former employer, that the new employer wouldn’t want to touch the candidate with a 10-foot pole?

It depends on the industry. It is a fact of life that some industries are incredibly competitive and that some employees are very valuable because of their contacts with customers and suppliers. In these industries, there’s an understanding that if you hire someone from a competitor who is a really valuable commodity, there might be litigation. But if you don’t hire those good people, you’re not going to grow your business. It may just be a cost of doing business.

In some ways, the more valuable the employee is, the more valuable they are to both the former and the current employer, which increases the likelihood of litigation.

What can the new employer do to protect itself?

They should put in writing a set of guidelines as to what the new employee can and cannot do with respect to information from the old employer. If the employee violates any of those guidelines, it could result in termination or the withdrawal of any indemnification promise.

For example, the employer could say, “We are hiring you and want to make sure you are not bringing with you confidential information, that you have not copied or downloaded anything, that you have not kept copies at home, that you have not contacted any of your former customers until we do so in coordinated manner, and if for any reason we find out you have done any of the above, you could be disciplined up to immediate termination.”

What about tacit knowledge, the information in employees’ heads? Could an employee get sued over that?

The law treats tacit knowledge just like it was knowledge on a piece of paper. There are clear, established guidelines as to what is acceptable and unacceptable behavior on the employee’s part in what is called the Uniform Trade Secrets Act that courts in California have adopted, and which I think has been adopted in 40 states. Even with those guidelines, it’s hard for employees to follow those rules, particularly if they’re in sales because that’s how they make their money.

What you can do is send out an announcement about your new job that has all your contact information, but it can’t be a solicitation. Just a tombstone announcement: ‘So-and-so has gone to work at X and here’s the phone number.’ Then you sit back and wait for the phone to ring. If customers call you, you are free to talk to them and you will be protected under the law.

If employees can e-mail past clients to tell them they’ve taken a new job, does that mean they can take those clients’ e-mail addresses and phone numbers with them when they leave an employer?

No court in California, no published opinion has answered that question.

If information is taken solely for the purpose of sending out an announcement and you can prove that, that may be acceptable to the courts. What the courts have said very clearly is that employees have a right to announce a new affiliation because they have a right to be in business and to move between businesses. Courts don’t want to restrict employee mobility. As a consequence, I’m in uncharted waters here, but I think the courts would be prepared to give a certain amount of leeway to employees so long as they were not using customer information for any other purpose.