Ms. Pohlid

Social Media & Relationship Marketing

Employee Abuse of Social Media in Compromising Employer Business Proprietary Information

By Kathleen Pohlid, Founder and Managing Member, Pohlid, PLLC

Trade secrets - employee and customer lists, financial and marketing information, research and development data - this is prized information to any business. Keeping this information secret gives a business the competitive edge. Compromising that secrecy, especially to a competitor, can be very costly. Employee access to technology and use of social media presents challenges to businesses seeking to protect trade secrets. Overly broad restrictions on employee use of social media may be deemed illegal. Conversely, a lack of effective measures to address the problem leaves a business vulnerable. This article examines measures employers can take to protect business proprietary information.

Social media presents many opportunities for businesses to promote their services, to engage with potential and existing customers, and to involve employees in the business success. However, there is a potential for abuse and the possibility that employees can use social media to compromise an employer's trade secrets or business proprietary information. It is important for employers to be aware of these risks and the measures that can be taken to protect their business trade secrets.

Imagine if an employee (current or former) discloses via social media (such as an Internet blog, chat room, Facebook, LinkedIN, Twitter, or other communication network) the identities of clients the business desires to keep confidential. Or, perhaps the employee seeks to use social media to express complaints about their workplace and in doing so publicly discloses information about employee names and salaries that the employer considers confidential. Employers who desire to protect their trade secrets should be prepared to address the challenges that social media poses to their business and workplace.

What are Trade Secrets?

The first start in addressing protection of trade secrets is for the business to determine what its trade secrets are. Trade secrets or business proprietary information may comprise a variety of types of information and data, including customer lists, computer software programs/data, research and development information, pricing, suppliers, marketing and manufacturing plans, financial information, employee lists and other information which businesses seek to protect from disclosure in order to provide an advantage to their business. Trade secrets are determined according to various state laws and derive their benefit from the information being kept secret. This is distinguished from patents, which are publicly disclosed and enforced by federal law

Significance of Trade Secret Protection

Trade secret laws provide important protections to businesses. Businesses can seek damages and attorney fees against those who misappropriate or obtain trade secrets through improper means. Additionally, the business owning the trade secret may obtain injunctive relief against the violator, including disgorgement of profits, return of the trade secret information and preventing continuing use and possession of the trade secrets.

However, obtaining the trade secret information from former employees or efforts to establish that they possess such information may be fraught with difficulties and expense. Such efforts can be met with claims by employees of intrusion into their privacy. In AllianceBernstein, L.P. v. Atha, (N.Y. App. Div. Nov. 15, 2012), a former employee succeeded in obtaining a reversal of a court order requiring him to turn over his iPhone to his former employer's legal counsel. The iPhone allegedly contained confidential information of the former employer including its client contact information. The former employee asserted that turning over his iPhone would violate his privacy and involve disclosure of his confidential information including attorney client privileged communications. The court of appeals agreed, reversed the lower court's order, and held that turning over the iPhone "is tantamount to ordering production of his computer." Instead, the court of appeals ordered that the iPhone and a list of its contents be delivered to the court for its review to determine if it contained relevant client information of the former employer.

Requirements for Trade Secret Protection

The ability of businesses to enforce their trade secrets through legal recourse depends upon whether the information does in fact constitute a trade secret. Merely labeling or calling it a "trade secret" does not suffice. The information must satisfy the legal criteria for "trade secret." The Uniform Trade Secrets Act, amended in 1985, is a model code for uniformity of trade secret law and adoption by states. The U.T.S.A. is currently pending proposed for adoption in Massachusetts and has been adopted by every other state except New York, North Carolina, and Texas.

Under the U.T.S.A., a "trade secret" is defined as "information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

U.T.S.A. § 1.4. Therefore, a business which seeks to enforce its trade secret information must ensure that the information which it seeks to protect has independent economic value; is not generally known to others who can obtain benefit from its disclosure; and that efforts are made to keep the information secret.

An employer may claim that information is a trade secret, but if the information is generally known and no particular efforts are made to safeguard its secrecy the court will not afford trade secret protection. For example, in Management and Engineering Technologies International, Inc. v. Information Systems Support, Inc., (9th Cir. July 23, 2012), the U. S. Court of Appeals for the Ninth Circuit held METI's employee roster did not qualify as a trade secret under Arizona law because the information was generally known and no efforts were made to safeguard it. Also, METI's ranking by Carnegie Mellon's industry-wide "process improvement" model program did not qualify as a trade secret since the ranking was publicly accessible via Internet search. However, the court upheld the trial court's finding that METI's "profit margin, as well as its general and administrative expense rates, constituted trade secrets" based upon evidence that the information would have been valuable to a competitor and METI carefully guarded this confidential financial information by 1) keeping printed versions of its financial information in a vault at its corporate offices, 2) password protecting its electronic documents so that the files were accessible only to those who had signed a non-disclosure agreement, and 3) stamping a "confidential, nondisclosure" notice on every page of every government contract proposal.

Confidentiality Policies and Agreements

Businesses may use confidentiality agreements as a measure to protect against the disclosure by current and former employees of trade secret information. Confidentiality agreements are considered as a form of contract. Therefore, in order to be upheld, there must be consideration, or something offered to the employee, in exchange for their promise to maintain the confidentiality. In cases where the agreement is signed at the beginning of employment, the employment itself may constitute consideration for such promise. The agreement should also specify the consequences for breach. Additionally, the terms of the agreement including the duration for which the agreement is to be in effect must be reasonable. The agreement should specify the employer's trade secret and business information deemed to be confidential. This must exclude information that is publicly accessible, as well as information previously required or known by the employee prior to their employment.

Do Not Run Afoul of the National Labor Relations Act

In many cases employers may have agreements and policies that generally prohibit the disclosure of all confidential information, not realizing or intending for such agreements to violate labor laws. However, all employers, including those with or without employees covered under a collective bargaining agreement, must be careful to ensure that their agreements and policies do not violate the National Labor Relations Act. Under Section 7 of the NLRA, employees have a right to engage in "concerted activities" or the right to communicate with other workers and to seek to improve their conditions of employment. Section 8(a) of the NLRA prohibits employers from having workplace rules that could reasonably be construed by employees to chill the exercise of their Section 7 rights.

The National Labor Relations Board, which enforces the NLRA, may consider a workplace rule to be illegal even if it does not explicitly prohibit employees from engaging in concerted activities. The Board contends that such rules will be deemed illegal if either: 1) employees would reasonably construe the language to prohibit Section 7 activity; 2) the rule was promulgated in response to such activity; or 3) the rule has been applied to restrict employees from engaging in such activities.

Recently the Acting General Counsel (AGC) for the National Labor Relations Board has issued a series of memorandums discussing the issue of social media and company policies regarding confidentiality agreements and efforts to restrict employee communications concerning their employment. The AGC found the following provisions, among others, in employee handbooks to be unlawful because they could be construed to chill or discourage employees from discussing grievances and seeking a change in their working conditions:

  • Don't release confidential guest, team member or company information…
  • You should never share confidential information with another team member unless they have a need to know the information to do their job. …. Watch what you say. Don't have conversations regarding confidential information in the Breakroom or in any other open area. …. A violation of (Employer) policies regarding confidential information will result in corrective action, up to and including termination.
  • You must also be sure that your [social media] posts are completely accurate and not misleading and that they do not reveal non-public information on any public site.
  • Offensive, demeaning, abusive or inappropriate remarks are as out of place online as they are offline, even if they are unintentional. … Think carefully about "friending" co-workers.
  • Adopt a friendly tone when engaging online. Don't pick fights.

The Board contends that employees have the right to use social media to discuss amongst themselves their pay, benefits, and performance evaluations. Efforts by an employer to classify such information as "confidential" or "trade secret" may therefore, be deemed a violation of Section 8 because it may tend to chill or prevent employees from discussing these issues. Additionally, the AGC finds that provisions which seek to prevent employees from "picking fights" or making comments that are offensive or inflammatory about their work may tend to "prohibit robust but protected discussions about working conditions or unionism."

Businesses should review their existing policies and rules to ensure that they do not implicate potential violations of Section 7 of the NLRA. Although the AGC addressed several social media work rules, which he deemed to violate the NLRA, his May 30, 2012 memorandum http://nlrb.gov/news/acting-general-counsel-releases-report-employer-social-media-policies also sets forth examples of social media guidelines and provisions which he determined do not violate the NLRA. Those guidelines include a statement informing employees that they are solely responsible for their online postings and that conduct which adversely affects their performance may result in disciplinary action including termination.

Non-Solicitation Agreements

Businesses make considerable investment in developing their customers and clientele, as well as in the hiring, training and developing their workforce. Non-solicitation agreements can be an effective measure to protect those businesses against current and former employees from soliciting the business's clients and current employees. While many jurisdictions consider non-competition agreements to be against public policy as both a restraint on trade and a limitation preventing individuals from engaging in their profession, non-solicitation agreements are often construed as a valid measure to prevent former employees from interfering with the business's existing contractual relationships.

For example, under California's Business and Professional Code §16600, non-competition agreements are invalid except under three limited circumstances. However, California courts have upheld non-solicitation agreements providing that the agreement does not restrain the employee's ability to work in their profession. See Loral Corp. v. Moyes, 174 Cal. App.3d 268, 278-79 (Cal. Ct. App. 1985).

While a non-solicitation agreement can be useful to prevent former employees from soliciting the former employer's clients, it will not preclude those clients from seeking or pursuing contact with the prior employee or from being Facebook "friends" with that prior employee. Furthermore, the former employee's use of Facebook to post announcements of their new job does not constitute solicitation of the former employer's clients even if they are Facebook "friends," according to a recent Massachusetts court decision in Individia, LLC v. DiFonzo, (Mass. Super. Ct. Oct. 22, 2012).

In Individia, a hair salon (Individia) alleged that its former employee and stylist (DiFonzo) breached a non-solicitation agreement after the employee joined another salon located 1.6 miles away. After DiFonzo joined their salon, the new salon employer (David Paul Stevens) posted a notice to DiFonzo's Facebook account informing as to her change in salon affiliation. Following this notice of change in salons to DiFonzo's Facebook page, a client of Individia followed with another post stating "see you tomorrow" and cancelled her appointment with Individia. The court reasoned that these actions did not violate the non-solicitation terms because there was no attempt by the former employee to contact customers of her prior employer.

Despite Individia's argument that "Facebook is a significant channel of communication between [the business] and its clients," the court declined to use the non-solicitation agreement as a means to prohibit or restrict the Facebook "friend" status between the prior employee and the salon's customers.

[O]ne can be Facebook "friends" with others without soliciting those friends to change hair salons, and Individia has presented no evidence of any communications, through Facebook or otherwise, in which Ms. DiFonzo has suggested to these Facebook friends that they should take their business to her chair at David Paul Stevens. Social Media as Trade Secrets

Does a business have an ownership interest in the social media accounts developed by their employees to promote the business? Also, are the passwords and means of access to such social media accounts trade secrets of the business? These are issues currently pending litigation. One of these cases is PhoneDog v. Kravitz, currently pending before a federal court in the Northern District of California. While employed as an editor for PhoneDog, Kravitz developed and maintained a Twitter account using PhoneDog's name. The account amassed thousands of followers. After Kravitz left his employment, he kept the Twitter account and its followers, using it under a different name to promote his new business. PhoneDog sued claiming misappropriation of trade secret information.

Measures to Protect Trade Secret Information

Social media creates many opportunities for businesses to expand their marketing, develop their workplace and promote their business. However, it also increases the potential for compromise of trade secret and confidential business information. Here are some measures to address those concerns:

Social media creates many opportunities for businesses to expand their marketing, develop their workplace and promote their business. However, it also increases the potential for compromise of trade secret and confidential business information. Here are some measures to address those concerns:

Social media creates many opportunities for businesses to expand their marketing, develop their workplace and promote their business. However, it also increases the potential for compromise of trade secret and confidential business information. Here are some measures to address those concerns:

  1. Identify the information that the business determines is trade secret information. Ensure that this information is labeled and marked as such and that employees are given written notice of the information as being confidential trade secret information.
  2. Implement measures to maintain the secrecy of trade secret information. This includes policies and procedures to limit access and reproduction or copying of such information.
  3. Ensure that employees know and agree that the information they obtain during their employment - including client lists - belongs to their employer. Establish measures to ensure that this information is collected and accessible by the employer and is not kept exclusively by the employee.
  4. Document confidentiality policies and obtain signed acknowledgements from employees. Ensure that these policies do not violate the National Labor Relations Act and that the employees understand their obligations with respect to confidentiality of business information.
  5. In cases where employees have access to trade secret information, obtain signed confidentiality agreements and non-solicitation agreements and ensure that the agreements are reasonable and that the "trade secret" information is specified and qualifies for "trade secret" protection.
  6. Develop a written social media policy. The policy should be reviewed to ensure that it provides useful guidelines and direction for employees in using social media without violating the prohibitions under the National Labor Relations Act.
  7. Establish in writing the business's ownership of social media accounts that are created and used by the employee to promote the business. Ensure that the business retains access and passwords to all social media accounts for which it claims an ownership interest.
  8. Establish procedures for ensuring that trade secret information and access to it is collected and returned upon reassignment of employees or termination of their employment. This also includes ensuring employees return their computers and other personal devices and that employees understand their obligations with respect to confidentiality and non-solicitation agreements.
  9. Develop procedures for follow-up on accounts and duties upon termination of an employee to ensure that a complete turnover is made to another employee of information, computer network devices, and tasks and projects. This includes changing password access and following up with customers to ensure that client relationships are preserved.

These measures can help employers protect against compromise of their trade secret information and ensure that employers maintain vigilance to protect their business proprietary information.

Kathleen Pohlid is the founder and managing member of the law firm of Pohlid, PLLC in the Nashville, Tennessee area. She advises business clients in matters including employment, occupational safety and health, Americans with Disabilities Act (accommodation & discrimination) and regulatory compliance. Her goal is to enable clients to comply with the myriad of state and federal laws to succeed in their business, mindful of the challenges facing businesses and the importance of cost effectiveness. She has advised and represented businesses in a variety of industries including restaurants, hotels, and other entities in the tourism and hospitality industries. She has over 20 years of combined federal government and private sector experience in employment law and litigation. She holds an AV® rating from Martindale-Hubbell (highest for professional competency and ethics), a B.S. degree from the U.S. Naval Academy and a J.D. from Samford University. Ms. Pohlid can be contacted at 615-369-0810 or kpohlid@pohlid.com Please visit http://www.pohlid.com for more information. Extended Bio...

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