You’re Going Where? Protecting Key Information from Departing Employees

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By Michael P. Elkon

It is a quiet Friday afternoon for you at Wernham Hogg Paper Company.

As you gaze out the window and contemplate your plans for the weekend, you are suddenly jolted back into reality when your company’s best salesperson, Peter Gibbons, enters the office to tell you that he is resigning his employment, effective immediately. Your jaw drops to the floor when he tells you that he is moving to Dunder Mifflin Paper Company, Wernham Hogg’s biggest competitor.

Peter gave you no inkling that he was dissatisfied in any way. His numbers have been consistently great because he understands Wernham Hogg’s products, he builds great relationships with customers and he is very good at sticking to the company’s short-and long-term business plans.

Now, he is going to take his knowledge of Wernham Hogg’s operations, along with his considerable sway with its biggest customers, to a competitor so that he can use that information against your employer.

What should you be doing now to prepare yourself for this possibility down the road? And what do you do when immediately confronted with the resignation of a key employee?

Here are some best practices for when an employee defection crisis hits:

1. Have agreements in place

We all like to think that we are going to work in the same place and that our co-workers will do the same. However, change is constant in the modern American workplace, so we unfortunately have to realize that people will come and go, even from the best workplaces.

The best way for an employer to protect itself against the Peter Gibbons scenario described above is to have restrictive covenant agreements in place with key employees. Such agreements could deter Peter from leaving in the first place. If he chooses to depart, then the agreements would prevent him from,

  • Competing in certain territories or on behalf of certain competitors;
  • Soliciting the customers with whom he developed relationships;
  • Taking co-workers with him to Dunder Mifflin; and,
  • Using or disclosing confidential information.

It is important to note, however, that state laws vary (sometimes dramatically) regarding the enforceability of such agreements. In fact, neighboring states sometimes take diametrically opposed views of restrictive covenants.

Thus, it is important to work with legal counsel to determine what you can and cannot do in your agreements with your key personnel. For companies with nationwide operations, you will be able to do a lot more in some states as opposed to others.

2. Think through key information, take steps to protect it

Regardless of whether you are going to rely on agreements or state trade secret laws, you need to show that information is truly non-public in order to convince a court to stop a departing employee from using or disclosing the information.

If employees are permitted to walk out the door with that information, then such a showing will be very difficult. Likewise, if the information is provided to clients or vendors without confidentiality agreements in place, then the information will lose its confidential character.

Thus, it is important to ask yourself two questions. First, what information would be most useful to our competitors if an employee left with it? Second, if asked by a judge, how many measures could we list to show that we take reasonable means to ensure that the information remains private?

3. Make it clear: employees can’t use computers on behalf of competitors

This would seem to be obvious, but employers are learning the importance of putting employees on notice as to what they are not authorized to do on the company computer system. The federal Computer Fraud and Abuse Act, as well as state law equivalents, provide a powerful tool against former employees who take materials off of a computer system without authorization and/or delete files to cover their tracks and to impede the work of their replacements.

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The key question here revolves around authorization. For example, if Gibbons employs file-wiping software on his company laptop and then claims that he did to so get rid of his banking and investment passwords, then you want to be in a position to point to a policy that forbids the use of file-wiping software under any circumstances.

4. Pay for Peter’s cell phone

In the grand scheme of things, it is penny wise and pound foolish to have a key employee pay for his or her own cell phone plan. If the company maintains the account, then it incurs three major advantages.

First, it owns the number and can terminate the account when the employee leaves. Thus, key contacts will not be able to find Peter easily. This is especially important if your agreement says that Peter cannot solicit customers, but leaves open the possibility that he can accept business that seeks him out.

Second, it will have access to the account and will be able to tell whom Peter has been contacting in the months leading up to his resignation. Third, it will keep Peter from walking out the door with a de facto customer list in the form of his cell phone contacts.

5. Preserve the hard drive

Computers are expensive. Hard drives are not. The moment that Peter resigns and says that he is leaving and going to a competitor, pull the hard drive out of his computer and keep it in a drawer.

Peter’s departure might be pleasant and he may never do anything that warrants further attention. In the event that this is not the case, then electronic evidence will be vital. Even the smartest employees will underestimate what a good computer forensics expert can find on a work computer.

However, you want to be in a position to show that the hard drive was not altered in any way before it was analyzed. The mere act of turning on a computer, let alone using it, can alter the properties. Pull the drive and lock it away.

6. Examine evidence that is available to you

It can be a frustrating experience to see a key employee leave and to be at a loss in terms of finding out what he or she is doing. However, there should be all sorts of evidence as to what the employee was doing before departure.

The aforementioned hard drive and cell phone records are a good starting point, but think about looking at building access records, copy machine records, and the like. The sent folder in an e-mail account can yield a cornucopia of incriminating information because employees often make the mistake of thinking that their names on their e-mail addresses mean that they own the accounts. Use that information, then wait for intelligence from the outside to come to you.

Dealing with departing employees is a three-stage process. There is the planning stage beforehand, then there is the preserving and probing after the resignation. Handle all three stages well and you can leave Peter Gibbons taking out his frustrations on a printer in an open field instead of taking your company’s customers.

Michael Elkon is Of Counsel in the Atlanta office of the law firm Fisher & Phillips. He represents management in all areas of employment law in state and federal courts, as well as before state and federal agencies. Michael specializes in matters concerning employee defection and recruitment, including litigating injunction and damages actions relating to covenants not to compete, non-solicitation and non-disclosure provisions, unfair competition, employee raiding, trade secrets, the duty of loyalty, the Computer Fraud & Abuse Act, and state computer protection statutes. Contact him at melkon @laborlawyers.com.

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