Face it. No matter what industry you are in and no matter how big your company, there will come a day when one of your most valuable employees doesn’t work there anymore. When that happens, it’s natural to feel disappointed or even let down. If that employee goes to work for a competitor, it’s even natural to feel betrayed and angry. But unless you’ve done your due diligence to protect your valuable trade secret business information, there’s nothing you can do to stop it.
A recent case from Massachusetts makes this clear.
The Facts of the Case
A gymnastics training academy, appropriately named Head Over Heels Gymnastics, offered training and recreation activities to gymnasts of all skill levels. In 2006, Head Over Heels hired Harriet Ware as an at-will employee to train the higher-level gymnasts. Upon her hiring, Ware acknowledged that she would not attempt to contact Head Over Heels’ students through social media.
Hare worked at Head Over Heels until 2012. In the spring of that year, while still employed with Head Over Heels, Hare began putting together a business plan for her own academy. While she denied contacting any of Head Over Heels’ students during this time, Head Over Heels terminated her employment in June, 2012 for violating the company’s social media contact rule. After her termination, Ware opened her own academy, named South Shore Gymnastics. About 30 customers left Head Over Heels to begin training with Ware at South Shore.
Head Over Heels was upset. Naturally. One might even say it flipped out. After all, through its many years in the business it had compiled a list of all the people who trained there. This list contained their names, addresses, phone numbers, e-mail addresses, and even information about their family members. For a brand new gymnastics academy, this list could vault it right to the top. Head Over Heels believed Ware stole this list for that very reason, so it sued her. Ware denied the allegations.
For two reasons, Head Over Heels would have to clear a very high bar if it wanted to win the lawsuit. First, Ware did not sign any type of covenant not to compete. So long as they are reasonable in their time and geographical restrictions, these covenants can be a great way to ensure that former employees cannot use valuable business information. In deciding whether to enforce such covenants, courts also use a balancing test, weighing the respective interests of the employer and former employee. Employees who begin setting up competing businesses while still “on the clock” and who download corporate information tend to fare poorly in such tests. But there was no such covenant here.
Second, while former employees always remain under an obligation not to use their former employers’ trade secret information, the court found that Head Over Heels had no such information. In deciding whether the customer list was a trade secret, the court looked at how Head Over Heels treated the list in its day-to-day operations. Head Over Heels made the information available to all of its employees. Head Over Heels even shared the information with its gymnasts and their families. At no time did Head Over Heels ever inform anyone that the information was confidential. The court therefore called Head Over Heels’ trade secret claim “unrealistic.”
Ultimately, the judges hearing Head Over Heels’ case gave it a zero and dismissed the lawsuit.
The Lessons Learned
Unfortunately, the dismissal is a result that frequently occurs for employers like Head Over Heels. Too few companies create a “culture of confidentiality” when it comes to protecting their valuable business information. If a company does not treat certain information as confidential, why then should a court.
Therefore, companies must go “Head Over Heels” to protect their information, and they should have policies in place that include some, or even all, of the following:
- Confidentiality and nondisclosure agreements, which stress at the beginning of an employment relationship that the company takes confidentiality very seriously;
- Covenants not to compete;
- Non-solicitation agreements, which prevent former employees from going after your customers and clients;
- Regular training programs to remind employees of the need for confidentiality;
- Computer security measures, which protect against unauthorized access to valuable information;
- Security measures for the office and other business premises, to keep unauthorized persons out; and
- Exit interviews, during which the departing employees are reminded of their confidentiality obligations.
Unless you have this kind of routine down, your claims against your former employee will most surely take a tumble.
Josh Durham, formerly with Poyner Spruill, was the original author of this article.